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Since insurance agencies rely on commission, the types of financing they can qualify are a little different than, say, a beauty salon. You don’t have any future sales or invoices to borrow against, and you also might not have much equipment or other collateral valuable enough to back a large business loan the traditional way.
We break down your options and offer tips on how to find the right financing for your agency.
As the owner of an insurance agency, you can typically qualify for general business financing options like term loans and lines of credit, though some lenders might consider you high risk. You also can apply for financing designed specifically for insurance agencies, which tailor the underwriting process to the nature of the industry. Here’s how some of your options work.
The best type of financing for your business depends on what it needs. Need help covering overhead costs while you wait for commission to come in? A line of credit might work best for you. Having a hard time qualifying for a traditional bank loan? You might want to look into insurance book of business financing or a CSBFP loan — both are open to higher-risk borrowers.
Once you’ve narrowed down your loan type, look for a lender that can cover your costs and offers repayments that work for your business’s cash flow. The easiest way to compare the cost of loans is to look at a lender’s APR, which is an expression of interest rates and fees.
You’ll also want to consider the term length, or how long your business has to pay it back. Longer terms can give you lower monthly repayments but up the cost of your loan. Shorter terms mean higher monthly repayments but a lower overall cost. To get the best of both worlds, consider going for the shortest term that your agency can comfortably afford.
Though they’re not nearly as risky as businesses in the trucking or cannabis industries, insurance agencies can sometimes make it to a lender’s list of high-risk businesses. If you’re not working with an industry-specific lender, consider reaching out before you apply to make sure you qualify.
Companies working in the financial industry are often considered high-risk. This means that some loan providers will outright reject loan applications from businesses operating in high-risk industries – while others will review applications and approve loans on a case-by-case basis. Before applying for a loan, consider contacting a lender to confirm that they work with insurance companies.
Ammon owns a life insurance company that has grown substantially in the last couple of years. He needs help handling clients both online and over the phone, so he decides to add a live chat function to the company’s website and get an automated call centre to field messages and queries for him and his staff.
After doing a little research, Ammon finds a highly-rated live chat software package and decides to purchase licenses for 2 agents to use the software on his company’s website – this will cost $150.00/month billed yearly at $1,800.00. It’ll cost another $115/month to support the automated phone system his company needs – this will also be billed yearly at $1,380.00.
Along with the cost of hiring 2 customer service agents and the expense of setting up the office space and equipment they’ll need to work, Ammon estimates his plans will cost a total of $10,000.00. He applies for a business loan from an online lender and is approved, thanks to his solid business and personal credit scores and the strength of his company’s financial position.
|Cost of adding customer support services to Ammon’s business||$10,000.00|
|Loan type||Business loan (term loan)|
|Interest rate (APR)||7.99%|
|Loan term||2 years|
|Total loan cost||$10,853.52|
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
Most business loans require some type of documentation, though it varies from lender to lender. These are some of the documents your insurance agency might need when applying for a loan:
Since insurance agencies have a commission-based business model, traditional business loans aren’t always designed to meet your needs. Some even consider insurance a high-risk industry and won’t work with your agency at all. To avoid this, consider looking into financing specifically for the insurance business. CSBFP loans might also be a good option if you’ve been rejected for a loan more than once — and you don’t need funds right away.
If you’re applying to a general business loan provider, make sure to ask if your industry is eligible. Many lenders don’t list restricted industries on their sites. Even if they do, the list might not be up to date.
Getting funds for your insurance agency can be slightly different than financing for other industries. While you might be able to qualify for general term loans and other types of funds, you could have more luck with industry-specific lenders or the CSBFP. You might want to check out our business loans guide to learn more about your agency’s financing options and find lenders to start comparing.
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