Carl opened his insurance agency in 1986, and over the years, he has developed a loyal client base. His annual revenues are close to $500,000, which affords him a comfortable living and supports his five-person staff. But, after nearly three decades of owning his own business, Carl is looking forward to retirement and starting a new chapter in his life. He plans to sell the agency and move with his wife to a nice condo near the beach in south Florida.
As luck would have it, Carl is able to locate a prospective buyer through a mutual contact, and after several weeks of discussions, they settle on a fair price for the sale of his agency. Carl pays for his attorney to draw up the necessary paperwork for the business transfer and is ready to close the deal. Meanwhile, the buyer, a modestly successful agent in his late 30s, talks to a lender about financing for the acquisition. The lender is willing to offer the funding, provided that the seller will cover 20 percent of the note. So, Carl visits with his banker and completes a stack of paperwork to apply for a loan. Several weeks go by with no word from the bank. Finally, Carl learns that the bank cannot close the loan because of the lack of hard assets to use as collateral.
A Common Problem
Carl’s situation is all too common for insurance agency owners who are looking to sell their business. The average agency owner is 60 years old and looking to retire in the next 10 years. Most buyers, on the other hand, are in their 30s and 40s, hoping to build a business to support their family until retirement. These younger buyers generally do not have sufficient assets to securitize the purchase, and the seller will have to help finance the business transfer. But, the majority of lenders are reluctant to finance a business with few or no tangible assets, such as equipment or inventory. Consequently, deals often fall apart after weeks or months of negotiations, leaving sellers demoralized and burdened with resuming their search for a qualified buyer from scratch.
The Benefit of a Business Intermediary
A business intermediary with expertise in the insurance arena can help resolve this issue by arranging perpetuation funding for the business transfer. For example, Springtree Group in many cases can arrange financing that is based on the cash flow of the business with a 10-year amortization and mid-single digit APR with little or no pre-payment penalty. By leveraging close relationships developed over several years with a trusted network of banks, venture capitalists, and specialty lenders, Springtree Group can help buyers and sellers get past the common objections offered by most financial institution and secure the funding they need for the business perpetuation.
The loan cycle generally takes at least 45 days; however, in many cases, Springtree Group will work on “broken” deals that fell through because the buyer or seller was unable to arrange financing for the agency transfer through other sources. Because balance sheets, tax returns, and other financial documents have already been prepared, the timing may be shortened to 30 days or less.
If you are thinking of buying or selling an independent insurance agency, contact Springtree Group to learn more about business perpetuation funding and see what options are available to you. Call (972) 395-8811 or contact us online, and let us help you achieve your plans for a successful business transfer.