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.
If you want funding quickly, be sure to prepare your financials before you apply.
A wise woodsman who may have been Abraham Lincoln once said, “Give me five minutes to chop down a tree, and I’ll spend the first three sharpening my axe.” This enlightened soul understood that rigorous preparation is key to success, no matter your profession.
Relative to insurance agency lending, preparation translates to a thorough examination of your financial house. Organizing your documents should start long before you apply for your business loan. What better time than now, the season of spring cleaning, to get your house in order?
“As a lender, I can’t overstate the importance of organizing your agency files,” notes Kelly Drouillard, general manager of insurance lending at Live Oak Bank, the largest SBA loan provider to the insurance industry. “We’ve seen borrowers who are ready to acquire a book or sell their agency who have been stopped dead by disorganized vital information.” Drouillard suggests agency owners scan every document they sign or receive electronic copies of them. “It’s easier to locate digital files. By creating logical computer file structures, you’ll always be able to locate the carrier contracts, legal records, financials, HR files, and planning documents you’ll need.”
In order to get the lowest rates and best terms, lenders from banks to specialty finance firms require a comprehensive list of documents to complete their underwriting process. Having these ready, accessible and up-to-date eliminates delays and shortens turnaround time. So what real steps can you take now to make the application process faster, simpler and more successful?
The Right Tools Make the Job Easier
The single biggest key to achieving an efficient and seamless lending experience is to have easy access to the documents your lender will require for underwriting. Case in point: Tyler Kerlee, owner of Path Insurance Solutions in Redmond, Washington. Tyler contacted AgileCap looking for fast turnaround on a loan to fund agency growth. Once we talked through his needs, we gave him a preliminary term sheet and asked him to provide standard underwriting documents. Within 24 hours of signing his term sheet, Tyler delivered his full and complete package of underwriting documents. “I had the funds we needed in five business days,” remarked Tyler. “We’re pretty meticulous about our record keeping here. We were thrilled that our organization meant we could get our loan so quickly.”
How can your experience be more like Tyler’s? Have the necessary personal, business, and acquisition documentation at your fingertips (see a checklist here). And be prepared to provide additional reports, statements and agreements if requested. The best way to organize all these documents? Electronically.
“Make sure your computer system and the information on it are up to date,” advises Daniel Dias, CEO of the Small Business Lending Source, one of the country’s largest online credit marketplaces that helps finance business operations. “Once a year, review your digital business files. Confirm that you have at least two years of P&L statements, balance sheets, and business and personal tax returns.”
You can go digital with legal documents too. Lenders will want to see your business licenses, registrations, certificates, articles of incorporation, leases, carrier contracts, registrations and other critical agreements. You might want to also consider creating a list of all your business debts. This document should include the name of the creditor, the original loan amount, balance currently due, monthly payment and interest rate. Be prepared to also provide a personal net worth statement that includes assets, liabilities, accounts, and debts.
If your loan is for an acquisition, lenders will ask to review these same documents from the agency you plan to buy. Their financial, legal and business houses must also be in order. The quality of the data they provide communicates a great deal about how their business is run.
Polish Your Business and Personal Affairs
At AgileCap, we run the proverbial white glove over all your financial data. Given our experience as lenders, here are a few suggestions that will help make you look spotless.
- Make sure you have electronic copies of your contracts with all carriers, affiliations and networks. The contract should clearly identify the parties involved and explain who has the right to commissions and if commissions are assignable.
- Track your production for each of your carriers. Make sure you understand your new business production and your retention rates. (We know that renewal commissions come easier than new sales.)
- Use your business accounts ONLY for business expenses. Personal expenses paid using business accounts, overdraft fees or excessive bank fees, and frequent or large cash withdrawals all set off red flags for lenders. Your lender will request at least three months of bank statements for operating and trust accounts.
- If you use a trust account for agency billed clients, make sure it’s funded properly and used only to pay to pay carriers. Avoid questionable transactions.
- Be prepared to prove that you carry current and appropriate E&O, business liability and key partner life insurance.
Preparation Pays Off (PPO)
We pride ourselves on being fast and flexible. We’re ready and able to deliver customized financial solutions that meet your very specific needs and timelines. Where the process can slow down is after we deliver our preliminary term sheet and request key underwriting documents. If you’re not prepared like Tyler, assembling these documents can take weeks or even months.
We can all take the moral of Aesop’s legendary fable, The Ant and the Grasshopper, to heart: “it is best to prepare for the days of necessity.” This spring – or anytime really — look inward, clean house and get prepared for the opportunities you see coming… and those you don’t.
If you’re ready to talk about financing your growth plans, schedule a complimentary consultation with one of our lending advisors using the form below.