Loans for Insurance Agents
Like other types of business professionals, insurance agents may require small business financing for acquisitions, improvements in the agency’s facilities, or to address short-term cash flow issues. Fortunately, there are numerous lenders that are willing and able to provide small business loans to insurance agents.
Now is a good time to apply for small business loans. According to the most recent Biz2Credit Small Business Lending Index, big banks (institutions with more than $10 billion in assets) are approving more than 25 percent of the loan applications they receive. This figure represents a post-recession high, according to the index, which tracks loan approval percentages of big banks, community and regional banks, institutional lenders, credit unions, and non-bank alternative lenders.
There are several reasons for this. First of all, technological advances and analytics have lowered the risk factors of making small business loans. This is especially true for big banks that typically have the money to invest in financial technology (FinTech). Typically, small business term loans from banks provide funding at the most attractive rates and terms.
The Federal Reserve has slowly but steadily increased interest rates during the past few years. While this might seem as something less than positive for borrowers because their cost of capital goes up, higher rates make it more lucrative for banks to say yes to requests for funding. Thus, they have more incentive to grant applications for loans for insurance agents.
Some insurance agents may look to secure SBA Loans made through the Small Business Administration. While the agency is not a direct lender, it works with lending partners – often small banks – that are willing to lend to companies in search of capital. SBA funding is particularly beneficial to companies that may have pedestrian credit histories. The government backing of up to 75 percent of the value of the loan provides incentive to lenders who want to minimize their exposure to risk. The downside of SBA loans is that that they tend to take longer to process, in part, because of the paperwork that is required.
If an insurance agency owner is looking to acquire an existing business, open a new franchise location, or buy out a partner, a business acquisition loan is an appropriate form of funding. The amount of money and the cost of borrowing (interest rate) will depend on a number of factors including your personal credit history and the financial performance of the company you are looking to purchase.
Documents required for a business acquisition loans include the balance sheet and tax returns of the target company. This is an essential part of any business loan evaluation and informs the lender what total value of assets and liabilities will be transferred at the time of sale. This document is the most important piece of the loan due-diligence process and will quickly tell the lender a wealth of information, such as whether the purchase price is appropriate or not.
As with any small business loan, lenders will require two or three years’ worth of state and federal tax returns to verify the historical revenue flows of the company. The tax returns are used to validate figures provided on the balance sheet and income statements.
An insurance agency that is not looking to acquire another business and is looking to have capital available in case of a credit crunch, often will look into securing a business line of credit. With this funding option, a lender makes a lump sum of money available for the business owner to draw upon. In many cases, the fee for setting up the line of credit is waived during the first year, and interest is only paid on the amount of capital that is used, rather than the total amount of available credit. This is a big advantage of having a line of credit rather than a traditional term loan.
Companies that have less than stellar creditworthiness may not qualify for term loans, SBA loans or lines of credit. In such cases, borrowers may approach non-bank alternative lenders, which make capital available to companies deemed risky because of their past credit history. However, the cost associated with this type of funding is quite high – usually 20 percent interest or more, which has to be paid back over a short period of time.
Alternative lenders often provide the opportunity to obtain capital quickly for growth opportunities or periods of slow cash flow. While traditional lenders may take several weeks or months to close a deal, alternative lenders can make cash available in a matter of days.