Funding Your Agency’s Growth: Equity or Debt?
There is little argument that if you can double your agency’s premium book, the inherent renewal economics will more than double income.
Growth is a priority for your agency.
You’ve defined your growth strategy and determined how much debt you can responsibly take on. Now you need to find the right lender. As an agency owner, you may discover that it’s challenging to get financing. Traditional lenders require fixed assets to back their loans. But specialty lenders like AgileCap consider your agency’s book of business to be collateral, and offer insurance agency commission-based loans.
“Not all banks will lend to insurance agencies because of their lack of fixed assets,” explains Jim Jones, president of Quivira Capital. “Lenders who do work with agencies typically have strict business and personal underwriting and loan size requirements. This makes getting growth capital more complicated. Lenders usually require agency principals to offer personal guarantees. Additionally, they may require personal assets and real estate to be pledged for collateral. And that’s a risk you should weigh carefully.”
It’s true that insurance agencies lack tangible assets like real estate, furnishings, inventory and equipment. But specialty lenders who work exclusively with insurance agencies realize that your book of business, though intangible, has significant value.
Your Book of Business Is Your Biggest Asset
You own a profitable agency. Your client list and the number of policies you have in force are growing. Just as your book of business represents an obvious value to you as an agency owner, it represents a value that can be collateralized by a specialty lender.
“We know your book of business is your biggest asset and that expanding your client base is critical to your success and profitability,” explains AgileCap lending advisor Kyle Castle. “It’s important that agency owners broaden their offerings and cast a wider net to gain more referrals. To expand your offerings and become more competitive, you need growth capital. Working with a lender who understands how to collateralize your commissions will make borrowing much easier.”
What Makes Your Book Valuable
Stated simply, the collateral value of your book depends on two critical factors: your long-term relationship with clients, and the lines you sell.
Ongoing client relationships
An old proverb says, “a bird in the hand is worth two in the bush.” An insurance agency can’t grow if it’s losing clients. That’s why client retention rate is a key factor to any specialty lender reviewing your book as an asset. We’re looking for consistency and continuity in your client base. We want you to be able to focus most of your energy on growing your book of business.
We also look at the breadth and diversity of your client list. The loss of a client or category of clients can be managed if an agency’s client list is broad and diverse. At AgileCap, we can offer the best rates and terms to agencies with a wide range of clients.
Your portfolio of products
When determining the collateral value of your book, we carefully review the range of insurance products that make up your business. A diverse product portfolio enhances your book’s value more than a narrow offering of just one specialty or niche.
Finding the Right Loan and the Right Lender
You’ve determined that borrowing for growth will put your agency in a stronger financial position (read our blog on Good vs Bad debt). Now you’ll need to consider the many financing solutions available to you. Specialty lenders fill an important role for agency owners. We’re not tied to the loan requirements of banks and SBA lenders. We understand the inner workings of the insurance industry. This means we’re able to value and collateralize in ways that traditional lenders can’t.
“Our acquisition of another insurance agency in our area involved a complex combination of our two books of business,” recounts Rebecca Barens, owner of Willow Insurance Group. “We didn’t expect it to be so hard to find a knowledgeable lender who could use our book of business as collateral and turn a loan around quickly and efficiently. Our M&A broker introduced us to AgileCap and they were able to fund our loan quickly, using our newly combined book as collateral. AgileCap is exceptional. Within a year, we used them to finance another acquisition. They have been very adaptable and responsive to our agency’s specific needs.”
Contact AgileCap Today
Our Lending Advisors will think creatively so that we can design a financing solution that meets your agency’s lending needs and timing. We can customize your loan using multiple draws/paydowns, interest only periods, interest rate steps, and rolling underwriting.
If you’re ready to talk about financing your growth plans, schedule a complimentary consultation with one of our Lending Advisors today, using the form below or the Schedule A Consult button at the top of the page.
