How to get an insurance agent business loan

An insurance business is attractive for a number of reasons, one of which is the relatively low cost of entry. However, it is a competitive industry with over 415,466 insurance agents and brokerage firms in the US IBIS World.

To stand out, insurance agents and agency owners may need to invest heavily in advertising and marketing, and you may need to hire staff to handle customer inquiries.

You may need funds to purchase another insurance agency’s ledger. You may need a working capital loan to cover ongoing expenses like payroll, rent, or advertising. Or you need a loan to purchase commercial property for your office.

Whatever your goals for your small business loan, it’s helpful to understand your options so you can choose the right one for your insurance business.

What types of loans are available to insurance agencies?

Insurance brokers and insurance agencies may be able to take advantage of a variety of small business loan options.

lines of credit: Access to a business line of credit allows you to borrow an amount of your choosing, up to your available line of credit. Once you have paid it back, you can borrow it again. This is a great option for short-term needs, including working capital.

Term Loan: When you need to borrow a certain amount of money and want to pay it back over a period of time with predictable repayment rates, a term loan is ideal.

SBA loan: This includes loans guaranteed by the US Small Business Administration and originated by approved lenders such as banks. There are several types of SBA loans, including 7(a), 504 loans, and export loans.

credit cards. Small business credit cards are great for purchases, but they also give you access to a line of credit. A card with a low interest rate, including 0% APR credit card offers, minimizes interest costs.

Commercial real estate loans. If you want to buy your own building for office space, or perhaps rent part of the building and lease the rest, a commercial real estate loan is the most likely choice.

How can I increase my chances of getting a business loan for my insurance agency?

Small business lenders want to make sure you can repay the loan they give you. To do this, they will typically consider the following factors:

  • Revenues. Many lenders use commercial bank statements to assess the company’s income. You can also use this information to analyze the company’s cash flow. Traditional lenders such as banks or credit unions may also require corporate tax returns. Insurance agencies may be able to obtain funding based in part on future cash flows.
  • credit history. Business lenders can check the owner’s personal credit, although it’s often a soft credit check that doesn’t affect creditworthiness. Some lenders also look at business credit scores or business credit reports.
  • time in business. How long has the shop been in operation? Startups have a harder time getting funding as many lenders prefer to work with companies that are at least 1-2 years old.

Companies with strong credentials are likely to qualify for the lowest rates and terms, but you may still have options even if all of those criteria aren’t strong.

In terms of the application process, it will vary greatly depending on where you get business funding from. Online lenders often have quick online applications and can make a decision within a business day or two. The cost can be higher than borrowing from traditional financial institutions.

Bank loans often have more detailed applications and can take several weeks to be approved. However, interest rates and repayment terms for classic bank loans are often good. A business plan and tax returns may be required.

Can I use a business loan to pay for leads for my insurance agency?

After payroll, marketing is typically the largest expense item for insurance agencies. Some agents buy leads from potentially interested customers to generate business. These costs can add up, and as an agent, you may want to use funding to pay for leads.

Marketing is a working capital expense, so any type of working capital loan can be used to pay for leads. These include a line of credit, a business cash advance, or even business credit cards.

Be careful when borrowing money to pay for leads. Some lists are of better quality than others, and you want to make sure you don’t end up with large debts and little or no income to pay them back.

What Are Alternative Financing Methods For Insurance Agents Who Cannot Obtain Business Credit?

If you don’t qualify for a business loan and need a relatively small amount of financing for short-term needs, consider business credit cards. Two or three cards get you access to $50,000 or more, depending on your qualifications.

Most small business credit cards have minimum income requirements, but that money doesn’t have to come specifically from the business. That means you can qualify even if you have a brand new business. And most check personal credit, not business credit.

Other financing options may include personal loans or personal savings, friends and family, or retirement accounts.

Are Insurance Agencies Eligible for SBA Loans?

Yes, insurance agencies may be eligible for SBA loans if they otherwise qualify. SBA guidelines prohibit SBA loans to insurance companies, but that doesn’t mean agents can’t get SBA-guaranteed loans.

The US Small Business Administration does not make loans; rather, it guarantees them. (There is one exception – the SBA makes SBA catastrophe loans directly.) There are several types of SBA loans, although the 7(a) program is the most popular. You must apply to an SBA-approved lender.

While these loans usually offer good interest rates and terms, you will need good credit and a personal guarantee is often required. You should expect the process to take at least a month and often several months to get approved.

What credit rating is required for an insurance agent to receive an SBA loan?

Most SBA loan programs have no minimum credit requirement; Instead, the SBA requires “acceptable creditworthiness,” and it is up to the lender to determine the minimum required creditworthiness. A credit score of 680-700 or higher is required for most lenders.

Keep in mind that the SBA requires a personal credit check for all business owners with at least 20% ownership. In some cases, a commercial credit check may be required.

How Much Collateral Does the Financial Services Industry Need for an SBA Business Loan?

The SBA will take collateral if it’s available, but generally you can’t be turned down for an SBA loan just because you don’t have collateral. It’s important to understand that SBA loans often require small business owners to sign a personal guarantee, and sometimes you must pledge personal equity (up to certain limits) if you have it and there is insufficient collateral from the business.

Conclusion: Loans for insurance companies

When you need financing for your insurance business, there are a number of options available to you. Be sure to compare loan options to find the right solution for your business needs. Nav can help you identify funding opportunities based on your data.

This article was originally written on October 14, 2022.

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