Every insurance agency needs access to capital for an agency purchase, expansion or to refinance existing debt. Local banks may not understand agencies’ value, operations or needs. Fortunately, agencies can turn to several specialized lenders.
Capital Resources has been in the agency lending space since 2005, but its leadership has roots in the industry going back thirty years. Their loans typically range from $20,000 to $5,000,000, though some exceed that range. They offer a 15-year amortization period, longer than the industry average.
Unlike local banks, Capital Resources accepts books of business as collateral, not personal assets, and they can offer larger loans with faster turnaround time. Because of their insurance industry expertise, they can work with customers individually and offer customized loans to meet their needs.
Capital Resources has helped a producer buy his first agency, then made additional loans so he could buy others. They have helped agency owners refinance loans that had unfavorable terms or high interest rates, and they have gotten agencies the working capital they needed to grow.
ReadyCap Lending has focused on lending to the insurance industry for more than ten years. They offer Small Business Administration loans nationwide up to $5 million through the 7(a) Program for businesses with under $7.5 million in revenue. Terms range from 10 to 25 years.
ReadyCap is an SBA “preferred lender,” allowing it to close loans faster than other SBA lenders. They recently loaned a young agent with little cash on hand funds to purchase an agency worth $1.3 million. They considered him a good risk and put the loan together in five days. His income has since quadrupled.
They understand that an agency’s value is its book of business and will lend against up to 100% of its value. They promise honest appraisals of the outlook for the loan request at the outset, unlike some lenders who may be enthusiastic before underwriting gets involved.
Springtree Group has been active in lending for going on twenty years. Their lending business complements their affiliates’ businesses of assisting with agency mergers and acquisitions. They work with more than thirty lenders to offer a broad mix of loan products to agencies, rather than focusing on specific loan types. Their target loan is $5 million or less.
“We understand the mechanics of the insurance world better than our competition,” says CEO Sam Patterson. Often, he says, an agency’s current lender does not understand the insurance space. Springtree Group offers alternatives that do not restrict agencies in the way they capture revenue or require hard collateral.
United Midwest Savings Bank focuses on lending to only six industries, including insurance. Agencies’ recurring revenues and generally good credit profiles make them attractive borrowers for United Midwest. Their SBA loans range from $10,000 to $5 million; and $1 million loans are their “sweet spot,” according to Senior Vice President Chad Fondreist. They have been lending in the insurance space for 10 years.
Insurance agencies come to United Midwest after getting the runaround from local banks who don’t believe agencies have collateral. United Midwest gives fast responses to loan requests without dragging out a negative answer. Fondriest says that a typical borrower is a producer working for an agency who borrows to buy it. Later, he returns for additional loans as the agency expands.
Quivira Capital, founded in 2008, provides financial and operational consulting services to agencies, wholesalers, managing general agents. They work with a variety of lenders, including banks, Preferred Small Business Administration (SBA) lenders, and specialty lenders. Loans range from less than $100,000 to more than $1 million, with the ideal transaction falling between $250,000 and $1.5 million.
Quivira’s insurance professionals have a collective 110 years’ industry experience. Because of their insurance knowledge and strong relationships with lenders, they can match the client with the right loan product for its needs. They also assist with loan application completion and term sheet analysis and, when a purchase is being considered, due diligence, business strategic planning, and other business issues.
The insurance team at Live Oak Bank in North Carolina is headed by a 30-year insurance industry veteran who is both a CPCU and a CPA. That understanding of the business and reasonable loan terms give them an advantage over local lenders.
Live Oak is comfortable making loans backed by an agency’s intellectual capital and client goodwill. Their focus is 10-year loans ranging from $75,000 to $7.5 million. They can be creative in marginal credit situations, but agencies with prior bankruptcies are not a good fit.
Live Oak loans have helped jumpstart agencies. One borrower bought a division of an agency, paid off the loan, and sold the agency for many multiples of his purchase price. Another took over a lethargic agency and wrote more new business in the first six months than the agency had written in the previous two years.
All of these lenders understand the insurance agency business. Agency owners who need capital should start their search with one of them.