There are many benefits to SBA loans, and lots of insurance agencies are finding that this is a particularly good time to apply for them. Unfortunately there are some downsides to an SBA loan that borrowers can encounter. One downside we’re hearing about lately is the length of time that SBA loans can take to be funded.
Traditional bank and SBA-backed loans are often the lowest-cost financing options available for small businesses. Banks offer an ideal solution for successful, established agency owners with solid credit and strategic growth plans. But there are some situations where you may need an alternative to a bank loan. As an agency owner, it’s important for you to understand the financing options available to you.
“Agencies are always in one of two states, growth or decline,” explains Nick Petrocelli, Chief Operating Officer of the Agent Support Network of America (ASNOA), an organization supporting independent insurance agents. “Hiring and training, marketing efforts, and business growth all require investments of time, effort and capital. Capital injections are catalysts that allow for change and accelerate agency success.”
If you’re motivated and ready to grow, asking yourself a few questions will help you decide where to turn for financing. How much time do you have to apply for a loan? How long have you been in business? Are you starting a brand new agency? Have you experienced ownership changes? How profitable are you? Do you have any blemishes on your credit? Are you willing to put up personal assets for collateral?
Banks and specialty lenders have different requirements, standards and timelines (see our overview of the Lending Landscape). Banks offer the best rates… period. Specialty lenders can be an excellent alternative, though, since they’re highly responsive to customer needs, understanding of credit issues, and they do not put your personal assets at risk. In seeking out the right financing solution for your agency, you want to know your options so you can find a lender that understands and can best support your agency's business goals and objectives.
Traditional bank loans and SBA-guaranteed loans are available at low interest rates to borrowers with the right qualifications. These lenders typically collateralize loans based on hard assets. Turnaround from initial application to delivery of funds is approximately 3 months or longer, depending on the quality of data presented and other factors.
In 2021, SBA loans are particularly attractive as the Economic Aid Act has enhanced loan terms, removing SBA fees and making principal and interest payments on the loans for a number of months (within limits and subject to change).
Banks and SBA lenders can be great options if you've been in business two years or longer, have adequate commission revenue, strong personal and business credit ratings, and are not in a rush to receive your funds.
Rather than lending money directly to small business owners, the Federal SBA partners with existing lenders, setting guidelines for the SBA loans they're able to make to their clients. This arrangement reduces risk for lenders and expedites their access to capital, making it easier for small businesses, like agencies, to get these loans.
Not all SBA lenders are the same, though. Some may understand insurance lending, and others may not. Some may add conditions and requirements that can make obtaining a loan difficult, particularly if your credit history has any bumps in it.
Additionally, SBA lenders often require that you collateralize personal assets as a condition of your loan, which will mean putting a physical asset like your home on the line. If you have a mortgage on your home and a home equity line of credit (HELOC), then your SBA loan will be the third entity using the your home as collateral. This obviously places your home at risk, in the event that you're unable to repay your loan. But a more pertinent consequence can be the fact that - should you wish to - you cannot refinance your home's mortgage until your HELOC and SBA loans have been repaid in full. This limitation is seen as a "no-go" for some loan seekers.
Specialty Lenders, an Alternative to a Bank Loan
For agencies that don’t fit traditional lenders’ profiles, have pressing deadlines, or don't want to put personal assets at risk, a specialty lender can be a great option. At AgileCap, we specialize entirely in the insurance industry, so we completely understand the day-to-day challenges agency owners face. Our loans are designed for insurance agencies, using commissions rather than hard assets as collateral.
We're also able to more understanding of life’s credit hiccups. Even if you’ve experienced a bankruptcy or foreclosure, or have past credit issues, we can consider your application. We specialize in partial buyouts and regularly handle complicated changes in ownership. If you can justify circumstances and provide credible explanations, often we can work with you. Specialty lenders are more understanding of business changes, and our policies are a bit more pliable.
Over your agency’s life, you’ll likely need multiple capital infusions to fund growth, and growth initiatives can happen in quick succession. Unlike traditional lenders, we offer rolling underwriting where new principal can be added onto an existing loan with no reapplication.
We have a wide range of rates. While our rates may be higher, you’ll access funds faster. We typically turn funding around within 5 business days of receiving all documentation. Our costs and terms are transparent and we charge one service fee, one time. There are no annual service charges, credit monitoring fees or prepayment penalties. Our goal is to create ongoing, long-term relationships with our clients by making the process uncomplicated.
The Value of Having a Lending Alternative
Traditional loans are not always forgiving, fast and flexible enough to meet real world business demands. And credit cards and cash advances — while fast and forgiving of credit blemishes — are wildly expensive.
When traditional lending doesn’t work for you and your business, alternative specialty lenders can deliver customized financing solutions to meet your very specific needs and timelines. At Agilecap, we’ll design the custom lending package that’s best for your unique situation. We happily offer rolling underwriting. We’ll ease you into payments while your cash flow grows by scheduling interest-only, interest-plus-principal, then fully amortized payments. We can consolidate high-rate debt from other sources, reducing and simplifying your payments. We even allow one annual principal paydown so you can recast your loan, resetting – and reducing — your monthly payments.
Iffi Wahla, president of Provence Financial & Insurance Services, describes his successful partnership with us by saying, “A growing agency like Provence doesn’t always fit in the exact box many lenders desire. The flexibility AgileCap delivers has allowed our agency to grow painlessly. In just over two years, we’ve added four new offices and 25 new employees. We tried working with traditional lenders, but partnering with AgileCap has given us the capital we needed to move quickly and grow exponentially. We look forward to a long, fruitful future with AgileCap.”
If you’re in need of financing or refinancing, schedule a complimentary consultation with one of our lending advisors by filling out the form below or the "Schedule a Consult" button at the top of the page.