What Questions Are Save to Ask Your Banker?
Monday, March 22
by Kimberly Bunce
If you are a small agency, sometimes you may have the feeling that your bank is always the one with the leverage, the one that has loaned you the money and therefore has some control over you. This doesn't have to be the case.
For one, your banker is expected to make loans and often derives compensation for making them. If you are fortunate, you have several banks that want your business. The banker-client relationship should be more of a 50/50 partnership where you expect certain things from each other.
Bankers want to make sure their loan is safe, your company is strong, and you will stay loyal to them. They should and will likely ask a lot of questions, and request all kinds of financial information to help them sleep at night.
If I were an agency owner, there are a few things I would want to know from my bank.
- First of all, do they understand my industry? Let's face it, the insurance business is very unique and not all banks are comfortable lending to agencies. Find out how much they know and whether they have dealt with other agencies.
- What does your attorney, your accountant, or your other agency contacts know about your bank's reputation?
- Will your bank share information about you? If you have a good relationship with your banker, they will tell you how the bank perceives your agency; what are seen as your company's strengths and weaknesses, and maybe the bank's risk rating assigned to your loan relationship. (A risk rating is a number, usually from 1-10, that rates from the bank's perspective the riskiness of your agency.) Your banker should be able to go over your financial statements with you and tell you what they like and also what they don't like.
- What does their loan approval process look like? Will they respond timely? How long does it take to turn a loan request around?
The relationship you have with your banker, accountant and attorney can make or break you in the long run. Make sure you choose advisors that understand you and your agency.
Kimberly Bunce, a relationship manager at SFB, brings a fresh perspective to the team. During her tenure at the bank, she has been involved with a complicated, ever-changing partner buyout that morphed into a partner buydown over a five-year period. Kimberly's experience as a CPA and her attention to detail helped the transaction run smoothly. Kimberly has since been involved in additional projects for the same owners as well as acting as a key advisor for other professionals.
Positive Pay Could Protect Your Agency from Fraud
Friday, March 19
by Deirdre Tumm, SFB Treasury Management Officer
More and more often insurance agencies are utilizing the banking service of Positive Pay as a means of fraud protection. Positive Pay services allow banking clients to upload a Positive Pay file (a listing of checks written from the client's account), which is used to compare against the checks presented to the financial institution for payment.
When a check is attempting to clear the client's account but is not referenced within that client's Positive Pay file, the check is considered an exception. To manage that exception, the client is notified and asked to review whether the check should be cleared. Positive Pay is often considered a cost-effective theft prevention offering. Some financial institutions even offer this service for ACH debits as well.
Most Positive Pay service offerings consist of a monthly service fee (averaging between $30 - $70) and an exception item fee (averaging $1-3/exception item). With business banking clients having a reduced timeline to dispute invalid account debits, the concept of theft protection services is gaining traction. Does your agency utilize Positive Pay? What forms of theft protection services is your agency utilizing today? Now might be a good time to meet with your banker to discuss.
Deirdre Tumm is a treasury management officer for Security Financial Bank, a Wisconsin financial institution that specializes in lending to insurance agencies. Deirdre uses her cash management expertise to seamlessly guide SFB's insurance agency clients with their depository needs and specialized business services. Some of those services include remote deposit capture, Positive Pay and ACH services.
Meet Our Insurance Lending Team
Thursday, March 18
At Security Financial Bank (SFB), we are serious about our commitment to the insurance industry. That's why we assembled a team dedicated to understanding the nuances of the insurance industry in order to best serve the banking needs of our insurance agency clients. Collectively, the team has well over 100 years of banking experience including many years of expertise in the insurance field.
Meet SFB's Insurance Lending Team:
Paul Rudersdorf is the President and CEO of SFB. Paul has more than 35 years banking experience. With both a CPA and an MBA, Paul enjoys advising insurance agents through the acquisition process. As a lifelong learner, Paul inspires the SFB team to continually be educated and informed on insurance-related issues, which will help us understand the industry and in turn, our clients.
As a leader on SFB's Insurance Lending Team, Curt Van Auken has been in banking for more than 45 years and has personal experience with an agency acquisition. He served five years as president of a Minnesota-based bank and its insurance agency. The agency was successfully sold. Using the knowledge he gained through this experience combined with his industry knowledge, over the years Curt has helped numerous insurance agents with their banking needs, including acquisitions, buyouts and refinancing projects.
Our newest member, Kimberly Bunce brings a fresh perspective to the team. During her tenure with SFB, she has been involved with a complicated, ever-changing partner buyout that morphed into a partner buydown over a five-year period. Kimberly's experience as a CPA and her attention to detail helped the transaction run smoothly. Kimberly has since been involved in additional projects for the same owners as well as acting as a key advisor for other professionals.
Deirdre Tumm has 20 years of banking experience. Deirdre's specialty is in cash management. She has used her expertise to help seamlessly guide our insurance agency clients with their depository needs and specialized business services. Some of those services include remote deposit capture, positive pay and ACH services. She brings value to our insurance agency clients as she implements products and services that provide direct benefits to their agencies.
A host of SFB employees, including our primary insurance analyst, Cole Crabb, backs the team. We've learned that insurance agencies are unique and not just like any average operating company. SFB utilizes Cole's precise knowledge in order to underwrite agencies properly. He holds a bachelor's degree in accounting and has five years in the industry including underwriting several complicated insurance agency deals.
What all of our team members enjoy the most is helping our insurance agency clients fulfill their dreams. If you have questions or concerns about an upcoming project, feel free to contact Curt, Kimberly or Deirdre at 888-254-0615. Whether it is to verify you are on the right track with your current financial institution or if you just want to explore another option, as an IIAW supporter we are more than happy to provide you free advice.
This article originally appeared in the Wisconsin Independent Agent March 2021 Magazine.
Remote Deposit Services Becoming the Standard for Many Agencies
Thursday, March 18
by Deirdre Tumm, SFB Treasury Management Officer
Just as technology is ever changing in the insurance industry, the same is true in the banking world. Today, insurance agencies can pay bills online, generate ACH files to pay their employees, and deposit checks while miles away from their nearest banking location. Remote deposit services are becoming a standard for many insurance agencies.
Whether an agency is taking pictures of a check via a mobile device or scanning a stack of checks through a physical remote scanner, remote deposit services is a convenient means to allow your money to work for you sooner.
Financial institutions may offer remote deposit scanners for sale or for lease. The sales price of a purchased scanner range significantly. The average scanner lease is between $30-$80/month.
Mobile remote deposit services are convenient for agencies depositing a low volume of checks in a given day. Remote Deposit Scanners allow up to 100 checks to be deposited with any one scan. Funds scanned by the imposed financial institution cut-off time are considered deposited "same day".
Does your agency utilize mobile remote deposit or remote deposit services? For more information on how these services can help your agency, contact us today.
Deirdre Tumm has 20 years of banking experience. Deirdre's specialty is in cash management. She has used her expertise to help seamlessly guide SFB's insurance agency clients with their depository needs and specialized business services. Some of those services include remote deposit capture, positive pay and ACH services. She brings value to our insurance agency clients as she implements products and services that provide direct benefits to their agencies.
Should I Refinance My Existing Bank Loans?
Monday, November 9
With current interest rates, now might be the ideal time to consider whether to refinance agency debt or consolidate debt. Consider this situation:
Your agency currently owes the bank about $180,000 on a loan you took out three years ago to buy out a former partner. Your monthly payment is $4,300. You can't quite remember what your original interest rate was, and you recall borrowing about $300,000 originally. You haven't pulled out your loan paperwork since you closed the loan three years ago, because you have been busy growing your agency. Your gross commissions have grown from $600,000 per year to about $700,000, and it's time to consider making a few changes. First, you would like to remodel part of your office, which will cost you about $50,000. There is also a $30,000 balance on a note payable to another former partner from five years ago. You make monthly payments on this note at about $1,000 per month.
Should you take out a new loan for $50,000 for the remodeling and leave the other two loans alone?
Can you afford the payments on the new, $50,000 loan and the two existing loans?
What if you hit a few rough months where cash is tight?
How much can you borrow? Should you borrow?
Things to Consider
These are all great questions you would likely ask yourself. If you are lucky, you have a strong relationship with your banker who can help guide you in coming up with the right answers. Your banker will run different scenarios for you that include the possibility of consolidating your three loans into one at current interest rates.
For example, if you were to consolidate all three loans into one $260,000 note at 4.25% to be paid in full over five years, your monthly payment would be about $4,800, which is less than what you are paying on your two existing loans. This may be a good deal for you.
Additionally, the total agency debt of $260,000 is well below the $700,000 annual gross commissions, so based upon several factors about your customer mix that your banker will discuss with you, there is likely sufficient collateral to make this loan.
Finally, have you considered a small line of credit to guide you through any rough spots that might arise? Most companies have an emergency line of credit to give them peace of mind for any unforeseen circumstances.
My advice to you is to find a banker you can talk to who understands your industry. Someone you can trust. The relationship is invaluable as you grow your agency.
Paul Rudersdorf is CEO/president of Security Financial Bank, a Wisconsin financial institution that specializes in the insurance agency industry. For more information, visit https://www.sfbank.com/insurance-agencies.phtml
Why It is Critical for Your Bank to Understand the Insurance Industry
Friday, August 28
by Paul Rudersdorf
Not every bank is equipped to finance the purchase of an insurance agency simply because they don't understand the nuances of the industry. At Security Financial Bank (SFB), we're different. When we say we get it - we really do. We understand that excellent management leads to business stability and customer retention. We see your book of business as a predictable earnings stream.
But, it wasn't always like that. Initially, our lenders and credit analysts were uninformed about what comprised the financial viability of an insurance agency. So, we decided to get educated.
First, we needed to have a basic understanding of the industry. A CPA firm with industry expertise met with our lending and credit teams over several sessions to educate us on how agencies are valued and how to analyze and dissect an agency's "book of business." This was an invaluable exercise.
Subsequently, we had the opportunity to educate our Board of Directors so all areas of the bank had a strong understanding of what makes an insurance agency prosper. And eventually, we even created a separate section in our loan policy to address this significant niche.
Over the years, we have learned that for a bank to partner in lending with an insurance agency, it requires much more than turning on a switch to enter this lending arena. There is work to do and knowledge to acquire. At SFB, our commitment began with education and has taken years to refine by doing transactions that make sense.
If you would like to learn more about how we can use our industry expertise to help you with your next project, please contact us. We look forward to partnering with you.
Paul Rudersdorf serves as president and CEO of Security Financial Bank, a community financial institution that specializes in lending to insurance agencies.
What Does a Bank Look for When Determining If they Will Finance an Agency Purchase?
Tuesday, August 18
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 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 used?
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.