The Best Financing for Buying an Insurance Agency

This article addresses:

  1. How Do I Pick a Financing Option?
  2. What Will I Need to Qualify?
  3. 5 Financing Options for Buying an Insurance Agency

If you’re dreaming of owning your own independent insurance agency but are overwhelmed at the prospect of agency acquisition, this guide will help you understand the financing your business needs in order to enter into the insurance industry with your very own insurance company.

No matter which financing option you ultimately decide to go with, as an insurance agency owner, it’s important that you understand all of the financing options available to you. The options here will help you find the right fit so you can get the financing you want and need.

How Do I Pick a Financing Option?

There are many different types of loan providers out there but some may have more expertise for you as an agency business, versus some others who might have more expertise in something else, say commercial real estate, for example. Do your research when it comes to lenders so that you understand your options and what the different providers can offer. Then you can choose the right financing option to help you launch your insurance agency.

When you’re looking at loans, some considerations to keep in mind include:

  • Your current credit standing. Some financing options will require you to meet certain stringent credit requirements, while others are not as strict. Depending on your credit score and credit history, you may not qualify for some financing options.
  • How much money you need. Financing options can offer you varying amounts of money at different interest rates. It’s crucial that you have an idea of both how much money you’ll need initially and how quickly you can pay it off before you select a financing option.
  • How quickly you need financing. Another factor to consider is how long you’re willing to wait before receiving financing for your insurance agency. Some options can approve you within a day, while others can take weeks or even more than a month before you’re approved. Keep in mind that shorter wait periods often come with higher interest rates. Weigh the pros and cons of your particular situation before making a decision.
  • How frequently you’ll need money. If you already know how much you’ll need, a one-time loan that you know you’ll use up is a good opinion. However, if you’re unsure, or anticipate the possibility of taking out less initially and then taking out more periodically, a standard loan may not be best. Consider options like lines of credit or business credit cards.

How much you need, how frequently you need it, how soon you can pay it off, and what you qualify for will all determine what insurance agency financing options are best for you.

What Will I Need to Qualify?

All financing options will include some sort of approval process, and just like each loan provider has a different approval time, so too they’ll have different requirements to even begin the approval process. We’ll cover the things you’ll need in order to apply in just a second, but before you begin your applications, it’s a good idea to research the minimum requirements for each financing option you’re considering so that you don’t waste time applying for loans you aren’t qualified for.

For any business financing option, from working capital loans to small business loans and more, you will need the following: 

  • Personal identification
  • 2-3 months of business bank account statements
  • Outstanding debts
  • Business licensure
  • Outstanding invoices

In addition to these basic materials, if you are applying specifically for a small business loan or a loan from a traditional bank, you’ll also need:

  • Loan history
  • Personal and business tax returns
  • Profit and Loss statement
  • Balance sheet
  • Cash flow statements

It’s always advisable to research the requirements of any loan applications you’re considering and err on the side of bringing too much information and multiple pieces of identification with you when you apply. It’s frustrating and unnecessary to have your loan delayed because you forgot one piece of paperwork!

5 Financing Options for Buying an Insurance Agency

Regardless of your situation, there are several different financing options that you can consider to fund your new insurance agency. These five options will work for most business owners and give you varying levels of flexibility.

1. Small Business Administration (SBA) Loan

Small Business Administration (SBA) loans can be a great option for buying an insurance agency. Because SBA loans are administered by financial institutions and backed by the United States government’s Small Business Administration, they are a reliable source of funding. However, they do tend to have a more lengthy application process. Typically, they require a lot of paperwork and usually include a longer underwriting period to get you approved. One of the benefits that can make up for this long wait is the low-interest rates they offer. They also offer the longest repayment timeline available, typically 5 to 25 years.

You can get a list of approved SBA lenders from the Small Business Administration, and it’s always good to check with several before making your choice. That way, you’ll get the loan terms and the loan amount you need for your insurance agency with the least amount of hassle.

2.  Invoice Financing

Because many insurance agents work on trade credit, cash flow can sometimes be a concern. While offering that level of flexibility is a great business practice in many fields, it can make it hard to come up with the money you need to buy an insurance business.

To solve this issue without taking out a standard business loan, you should consider invoice financing. With this type of financing, a lender will front 85% of your invoice amount so you can make use of that money even when your clients’ payments are net-90. Then, when your customer pays their invoice, the lender will return the remaining 15% minus any fees they charge.

While this option allows you to avoid taking out insurance agency loans, it does mean that your revenue will take a hit. However, it’s an option to consider for business owners who work with invoices that are net 30 or 90.

Another positive to this type of financing is that you can get approved for this type of business loan very quickly. In some cases, it doesn’t take more than a day. If you’re in a steady financial situation but have a slower cash flow, consider invoice financing to fund buying your own insurance agency.

3. Alternative lenders

Alternative lenders like Biz2Credit are excellent options for small business owners like insurance agents. These types of lenders regularly help out small businesses so they can expand (for example, here’s a real example of an IT consulting firm that successfully used a Biz2Credit loan).  Typically, alternative lenders are eager to lend to insurance agency owners and can be a great source of funding if your insurance agency needs fast money or even if it doesn’t qualify for a bank or credit union loan.

Alternative lenders typically offer shorter loan approval cycles than SBA loans. They also often have less paperwork and less rigorous credit requirements. However, they will have higher interest rates, typically around 10% or higher. Loan amounts also range from $2,500 to $250,000 and are given on a three to 18-month repayment term. If you’re in need of working capital quickly, this faster way to get a loan might be worth the higher interest rates. After all, when it comes to making a business deal, time is money.

4. A revolving line of credit

A line of credit is another financing option for small business owners, and they work kind of like credit cards. With a line of credit, cash is available when you need it. However, unlike a loan that you take out all at once, you don’t need to withdraw the money in a line of credit if you have cash on hand.

Unlike with a standard loan, if you use a revolving line of credit, you only pay interest on the amount that you use each month. Most revolving lines of credit are usually in the $10,000 to $1M range and have interest rates from 7 to 25 percent. Borrowers can be approved for a line of credit in as little as one business day, making this a convenient option for entrepreneurs who want to be able to use credit frequently without having to go through the loan application process repeatedly.

One caveat of lines of credit is that they do require excellent credit scores. Both your business and personal credit history need to be in tip-top shape to qualify. If you are approved for a line of credit, it can last multiple years as long as you remain current on your payments. However, banks may add “call options” to your line of credit. This gives them the right to “call” your loan at any time, which means you must repay it in full and stop drawing on that credit line.

5. Business credit cards

Business credit cards are another great option if your business needs access to cash quickly. If you don’t need as much cash as a line of credit can give you, or you don’t meet the requirements for a line of credit, a business credit card may be a better lending option. If you shop around, you might be able to find offers for 0% APR for up to 15 months, or offers of 0% APR on balance transfers. Depending on the size of your business and your credit history, the credit limit can be from $2,000 to $100,000 or more sometimes.

An additional perk that comes with business credit cards is that you can earn points while spending. If you pick the right credit card and read up on their terms, you may be able to earn a good quantity of points if you’re putting your business expenses on this card. Make sure to do your research to find the best card for you. If you’re unsure of where to start, websites like NerdWallet can be excellent resources for comparing the perks of different cards before making your final choice.

While you may not be able to buy an insurance agency with a credit card, once you do, it will be important to be able to finance purchases, and a corporate card is a smart tool to have.

Wrapping Up

When it comes down to it, there is no wrong way to choose the best loan for your insurance agency. Ultimately, it comes down to your individual needs and qualifications. Spend time getting to know your options and deciding what factors are most important to you, whether that’s a quick loan or a low-interest rate. No matter what you decide, with this guide, you’re already on the right track to picking the right financing option for you. Good luck!

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