Business Financing for Insurance Companies

By: Robbi Gunter

There are many ways in which insurance professionals and insurance companies - both new and existing - can acquire business financing without using personal credit.

One method is called commission-based lending. Commission-based lending provides business loans to insurance professionals based on the value of their renewal commissions. Business loans of this nature can be used for a variety of things like office expansion, acquisitions, debt consolidation, and succession planning.

Another method is to leverage the value of future commissions as collateral for a loan. This way, there is no need to sell your book of business, or put up personal items as collateral against the loan. Some lenders will also allow you to consolidate personal debt previously acquired for the business.

An agency acquisition allows an agent to acquire a seller's block of business as collateral for a loan. By going this route, the new buyer/owner can minimize the use of personal funds and maximize any working capital.

Regardless of which method of funding, agency owners need to put together a strong perpetuation plan. This plan should allow a seller to achieve goals of reaping a solid return on the years they invested in the business. The plan should also demonstrate how the new agent plans to achieve his or her business goals, and enable an already profitable agency to grow under new ownership. The startup price of the agency should be inline with the industry and should be reasonable for the buyer and seller if it is an acquisition. The plan should outline a few very important details: demonstrate how the agency will be financed; demonstrate how taxes will be minimized for the seller; details of funding of the buy-sell agreement; and, how control will be passed on to the successors.

For an insurance agency or agent to guarantee that their personal assets will not be considered when seeking business financing in the form of a commercial loan, they must be incorporated with the state and registered with Dun & Bradstreet for a DUNS number.

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