How to Get a Business Loan for Insurance Agents

An insurance business is attractive for a number of reasons, and one of them is the relatively low start-up cost. However, it is a competitive industry with more than 415,466 insurance agents and brokers in the United States, according to IBISWorld.

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.

Perhaps you need funds to acquire the business volume of another insurance agency. You may need a working capital loan to cover day-to-day expenses such as payroll, rent or advertising. Or you might need a loan to purchase commercial real estate for your office.

Whatever your goals for your small business loan, it helps 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 can take advantage of various types of small business loan options.

Lines of credit: Having access to a business line of credit allows you to borrow an amount that you choose up to your available line of credit. Once you have repaid it, you can borrow again. It’s a great option for short-term needs, including working capital.

term loan: If you need to borrow a certain amount of money and want to repay it over a specific period of time with predictable repayments, a term loan is ideal.

SBA Loans: These include loans guaranteed by the US Small Business Administration and made by approved lenders such as banks. There are several types of SBA loans, including 7(a), 504, and export loans.

Credit card. Small business credit cards are great for making 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, will minimize interest charges.

Commercial real estate loans. If you want to buy your own office building, or perhaps rent out part of the building and rent out the rest, a commercial real estate loan will be 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 look at the following factors:

  • Revenues. Many lenders will use business bank account statements to assess business income. They may also use this information to help analyze the company’s cash flow. Traditional lenders such as banks or credit unions may also require business tax returns. Insurance agencies may be able to obtain funding based in part on future cash flows.
  • Credit history. Commercial lenders can check the owner’s personal credit scores, although this is often a soft credit check that does not affect credit scores. Some lenders will also look at business credit scores or business credit reports.
  • Time spent in business. How long has the company been operational? Startups have a harder time getting funding because many lenders prefer to work with companies that are at least 1-2 years old.

Highly qualified companies are likely to qualify for the lowest rates and terms, but you may still have options even if not all of these criteria are strong.

As for the application process, it will vary greatly depending on where you are obtaining business funding. Online lenders often have fast online applications and can make a decision in one or two business days. Costs may be higher than loans from traditional financial institutions.

Bank loans often have more detailed applications and approval can take several weeks. However, the interest rates and repayment terms of traditional bank loans are often good. A business plan and tax returns may be required.

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

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

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

Be careful when borrowing money to pay leads. Some listings are higher quality than others, and you want to make sure you don’t end up with a lot of debt and little or no income to pay it off.

What are alternative financing methods for insurance sales agents who cannot obtain commercial loans?

If you can’t qualify for a business loan and need relatively small financing for your short-term needs, consider business credit cards. With two or three cards, you can have 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 from the particular business. This means you can qualify even if you have a brand new business. And most check personal credit scores, not business credit.

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

Are insurance agencies eligible for SBA loans?

Yes, insurance agencies may be eligible for SBA loans if they are otherwise eligible. SBA guidelines prohibit SBA loans to insurance companies, but that doesn’t mean agents aren’t able to get SBA-backed loans.

The US Small Business Administration does not provide loans; rather, it guarantees them. (There is one exception – the SBA issues SBA disaster loans directly.) There are several types of SBA loans, although the most popular is the 7(a) program. You will need to apply with an SBA approved lender.

Although these loans generally offer good rates and terms, you will need to have 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 score is needed for an insurance agent to get an SBA loan?

Most SBA loan programs do not have a minimum credit score requirement; instead, the SBA requires “acceptable credit” and it is up to the lender to determine the minimum credit score they will need. For most lenders, a credit score of 680 to 700 or higher will be required.

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

For the financial services industry, how much collateral is needed 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’ll have to pledge the equity in your home (up to certain limits) if you have it and there is not enough guarantee from the company.

The Basics: Insurance Business Loans

If you need financing for your insurance business, you have several options. Be sure to compare loan options to find the one that best suits your business needs. Nav can help you identify financing options based on your data.

This article was originally written on October 14, 2022.

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About Carlos V. Mitchell

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