How Does a Bank Determine if They Will Finance an Insurance Agency Purchase?

When considering a loan request, many variables are considered - especially when financing something specialized as an insurance agency. Most banks do not feel comfortable financing a "book of business." Our research has found an agency's book of business to be a reliable and predictable source of cash flow. Before meeting with a lender, it is helpful to know what a financial institution with this specialized financing expertise will look for when considering your request. 

Here is what the financial institution may ask:

Success
How successful have you been in the industry? Has the agency you wish to acquire been successful? Be prepared to provide at least three years of financial history for your agency and the agency you are acquiring as well as your personal financial information. This information could include your balance sheets, income statements, cash flow statements, shareholders' equity statements, and tax returns.

Years in Business
Is this a new agency with a relatively new customer base, or have they been in business for many years with long-established customers? How many years have you served in the industry, and in what capacity? Are there other partners? If so, how long have they been in the industry, and what are their strengths? All this information can help determine how successful the acquisition will be.

Competition
How many competitors do they have in the local market? Why did this agency succeed compared to its competition? Is the agency you wish to acquire one of your current competitors, or is this a new market for you? 

Purchase Price
What are you paying for the business, and what percent of the purchase price do you want to finance?

Loans
How large of a loan are you seeking? Do you have other existing loans? If so, how are they secured? 

Equity
How much cash equity do you have to put into this acquisition? 

Locations
How many locations does the agency have, and how large are the corresponding market sizes? Is there growth potential? Do they have a physical location, or is it a home office?

Employees
How many people are employed at the agency? Do they work from home or at a physical office location? Are they under contract? If not, what will prevent them from leaving the business once you acquire it?

Carriers
What carriers do you use? What carriers does the agency you are looking to buy use?

Book of Business
What is the breakdown of the agency's book of business between business and personal lines? What percent of the market do they currently enjoy? Is there a business valuation available on the book of business of your agency and the agency you are looking to buy?

Premiums
Do they collect premiums directly from customers, or do the customers send to a carrier?

Profit-Sharing
What are the profit-sharing arrangements with the carrier?

It may seem daunting, but considering these questions before meeting with a financial institution will help make the process smoother - and hopefully more successful - for both you and the lender.