One of the most exciting aspects of owning an independent insurance agency is growing the business. Building a solid team and expanding operations are gratifying experiences that make the long hours and effort needed to establish a strong client base worthwhile. But, growing an agency is not without its challenges, foremost of which often is finding the necessary capital for expansion.
Agencies need capital for all sorts of growth initiatives, from marketing campaigns to technology upgrades, hiring additional staff, or expanding office space. Industry data shows that these investments also pay off. For example, the growth percentage related to loans used for marketing and leads is 34%, while the growth associated with a technology loan is nearly 16%, and working capital generates 24% agency growth.* In many cases, agency owners also use loans for multiple purposes. In fact, one industry report notes shows that more than half of insurance agencies apply the funding toward three or more objectives related to agency growth when provided access to business capital.**
So, where does the capital come from? Often, agency owners find the easiest and fastest solution to fund agency growth is to open a personal credit card for business-related expenses. Although convenient, this path is also costly, as credit card interest rates are often between 12.9% and 32.9% — an astronomical (and unnecessary) price to pay to grow your agency. What’s more, if you experience a financial crisis and are unable to make the required payments, the card issuer can come after your tangible assets, which could torpedo your business.
Tailored Lending Solutions
Fortunately, alternative lending options exist for independent insurance agencies. Banks are reticent to provide loans in the insurance space, but financing for agency growth is available through nontraditional commercial and niche lenders. Most traditional banks are uncomfortable with the risks associated with the insurance sector, because agencies have few tangible assets. A lender may therefore ask the agency owner to put up personal assets as security, or provide a loan with a large number of complex covenants that make the package virtually untenable.
Springtree Group has long-standing relationships with numerous specialty lenders that operate in the insurance space. These funding sources implement actuarial models to analyze commission streams and use factors and like the agency’s cash flows from renewal commissions to collateralize a loan, rather than tangible assets. STG generally can negotiate a 10-year term package as low as 6% APR, with no prepayment penalties. Because loans are fully amortized, agency owners know the specific time frame for repayment, rather than having credit card payments possibly draw out over 15 or 20 years because interest rates are so high, they can only afford to pay the minimum due.
STG works with lenders and agencies across the United States and can arrange loan packages from selected preeminent special purpose lenders for agency growth. The process begins with a Loan Intake Form to determine eligibility, and loans generally can be funded within 45 days. Click here to learn more about available agency funding options, send us a message through our contact page, or call 972-395-8811 to discuss your business goals. Let Springtree Group arrange the business capital that you need, so your independent agency can truly flourish!
*Source: Growth Percentage Based on Loan Purpose infographic, Oak Street Funding