Acquisition Loans with SBA vs Traditional Financing
Thinking about buying another insurance agency or expanding your own? The right loan can make or break your growth plan. Two common financing options are Small Business Administration (SBA) loans and traditional bank loans. But before signing on the dotted line, it's important to understand how each aligns with your agency's strategy. Consider the following before you choose a financing option:
SBA Loans: Government-backed Loans
An SBA loan is a government-supported financing option designed to help small businesses access capital. The advantages include lower down payments compared to traditional loans, longer repayment terms, and easier qualifications.
However, SBA loans often require extensive paperwork, strict eligibility criteria, and lengthy approval times. In addition, hard collateral might be required, such as agency or personal assets like real estate, equipment, inventory, or accounts receivable.
If you or your agency partners are hesitant to pledge personal assets or lack sufficient business collateral, qualifying for an SBA loan may be challenging.
Traditional Loans: Book of Business-based Lending
Traditional loans issued directly by financial institutions may offer more flexibility - especially for insurance agencies. Advantages of a traditional loan usually include faster approval times and lower fees, but the key is to work with a financial institution that will recognize the agency's book of business as an asset. Unfortunately, historically not all community banks will consider the book of business as collateral and will require an SBA guarantee.
Security Financial Bank (SFB), a Wisconsin-based community bank, recognizes the value of your book of business and is comfortable lending against it. This approach allows for acquisition financing based on the value of your current book and the agency you're purchasing. This method can streamline the lending process and reduce the need for extensive documentation or personal asset guarantees.
Making The Best Choice for Your Agency
As acquisition becomes a priority, it's essential to consult with trusted professionals, including a banker experienced in insurance agency lending as well as an attorney, and an accountant.
Gather all relevant information and weigh your options carefully. The best decision is one that supports your long-term goals and aligns with your financial strategy.
Need Guidance?
SFB's Insurance Lending Team is here to help you through the acquisition process. Schedule an appointment online or call 888.254.0615 to speak with a member of our team and we can assist you with a free consultation.
