It’s usually hard to apply business loan for insurance agencies. That’s regardless of you starting up a Specialty Insurance Company or some other type of enterprise. Lenders usually worry about an insurance agency’s position in paying back. They often can’t see the potential of such business to grow on a given timeframe.
But that doesn’t mean they completely don’t give chances for insurance agency startups. Lenders would still consider your proposition. Thing is, proving your business is worth for a deal totally depends on you. Hence, you must know the business loan options with best chances for insurance agencies, and learn how to present your business to a lender.
Tips in Getting Business Loan for your Insurance Agency Startup
For every five business startups, only one grows within five years. Not mentioning that an insurance agency is a risky proposition for lenders to consider. That’s why lenders usually shy away from approving business loan for an insurance agency startup.
But in some instances, they approve such loan if the borrower can show strong business potential. And that’s what you must use as a leverage through certain helpful steps:
1. Aim for an Insurance Agent License
Possessing a state license means you’ve passed through the standard of being an insurance agent. It shows lenders your knowledge and skills regarding the field of insurance. Of course, that’s a plus point in proving that you’re capable of starting and growing an insurance agency as well. So, be sure to get one first by passing the licensing exam.
2. Gain enough Experience
Holding a license is one thing, but having years of experience as an insurance agent is better. That shows you’re actually capable of using the skills and knowledge you have on actual job. It’s even better if you can provide documents from former employers, which proves your stellar performance in their companies. All help in proving you’re more than capable of running your own agency.
3. Consider a Renewal Book of Business
After proving your worth as a business starter, you need to provide security to the lenders. The best way is by giving a good collateral, and a book of business is something to think about. Such kind of valuable collateral would lead you to better loans.
Best Business Loan Options for Insurance Agency Startup
Now, you have some ideas about how to increase your chances of getting approved for a business loan. What you need to know are the best possible loan options for an insurance agency startup. This means knowing the loan options that would favor your business instead of harming it on the long run. Some of these also promises higher approval rates.
To choose one, consider the amount you need, how fast you need it, the interest rate you can pay and the length of payment period you can shoulder. That should guide you in weighing these options available:
1. Small Business Administration Loan
Small Business Administration (SBA) is the branch of the government which supports small enterprises. And yes, it offers great loan deals for small business startups through financial institutions.
Note, however, that its inconvenient and lengthy application process may take up to six weeks. But once approved, you can get bigger loan amount on lower interest rates of 6.75%. And its repayment period stretches from 5 to 25 years. That’s perfect for insurance agencies, which usually experience slow growth through its first few years and flourish later on.
2. Banks and Credit Unions
Traditional financial institutions also offer business loans. Some of them lend from $30,000 to $5 million, and interest rates range from 7% and above. Also note that some of these institutions don’t lend to insurance agencies because of naturally higher business risks.
You also need to pass strict qualifications when you find institutions that offer loans for insurance agencies. Thorough financial and tax documents are necessary to gauge your company’s financial status. You also need to have great personal and business credit scores, or they may require you to sign a personal guarantee agreement.
Personal guarantee is a form of security for lenders on the event your business cannot pay the loan anymore. This guarantees the lender that you’ll pay using other assets aside from your agency, such as your personal savings account or a real estate property. Hence, always proceed with caution when you plan to get business loan from such institution.
3. Alternative Lenders
This is one of the best option to grab if your agency doesn’t qualify for bank or credit union loan. These lenders have lesser strict qualifications, less document requirement and faster approval process. It’s even possible to get around $2,500 to $250,000 in one day.
Thing is, these lenders usually impose 10% interest rates or higher. Moreover, they often allow only around 3 to 18 months payment period. This factors make alternative lenders not a perfect choice for insurance agency startup. Unless, of course, you’re sure of paying such amount in a small amount of time.
4. Business Credit Cards and Lines of Credit
If you need quick loans, business credit cards are great for you. These credit cards allow you to get $2,000 to $100,000 or higher, depending on your business size and credit scores. Moreover, these services usually offer fascinating promos and deals, such as 0% APR for a period of time. Business Credit cards often offer reward points each time you loan an amount as well.
On the other hand, lines of credits are similar to credit cards. The only difference is, they don’t come with cards, and are more flexible in a certain way. That’s by letting you use a particular amount from the lump sum loan in your account.
Line of credit lenders usually lend from $10,000 to $1 million, with quick 1-day approval process. But they require 6 to 24 months of your business’ financial records to check credit scores. Once approved, you can withdraw partial cash from your lump sum loan each month, and you only need to pay it together with 7% to 25% interest.
Note, however, that bank loans and line of credits often go in conflict with other when you have both at once. For example, the bank lender may call your line of credit lender to freeze your account, on the basis of your existing bank loan. So, be sure to thoroughly read the line of credit contract before signing.
5. Personal Properties and Assets
It’s also possible to lend your own money to your insurance agency business. But you can’t simply transfer cash just that. You need to follow certain rules, and you must begin by designating it as a loan or equity.
This is to avoid any conflict with traditional bank if you have any existing debts. Also, this is quite problematic when thinking of IRS. The IRS will consider the payment of your business to you as taxable income. However, you can invest your business money as an equity to avoid such problem.
Get the Best Business Loan for your Insurance Agency Startup today!
These are the vital notes you must keep in getting a business loan for your insurance agency. Carefully select the right loan suitable for you to avoid any problems later on.
Jane Castro is a journalist and media enthusiast. She graduated from the University of Bacolod in the Philippines. She loves skating, scuba diving, and archery on her free time.