Granted, well-run, highly efficient insurance agencies are profitable. While they take in money consistently, some agencies may have expansion plans and often seek funding for these purposes. There are a lot of agencies that look to banks for funding and loans, and are surprised to find that it is harder than they expected.
"Banks often fail to understand the insurance business. When they see insurance agencies looking for more money, they just don't understand it," said Rene Lacape, Marketing Manager for Equote Life Insurance. "There are quite a few lenders out there who do realize that this business is profitable and worth the risk.
There are some new lenders out there that have started to understand this dynamic and the way that it works. Some of these lenders have actually been put together by independent agencies that understand the needs of the agencies themselves. InsurBanc, for example, located in Farmington, Connecticut, is one of the banks that understand the needs of these agencies.
"Because it was started by people who understand the needs of the business, it's much easier for agencies to get the money that they need," added Rene Lacape. The banks need to understand why these agencies want the money and use the money. If agencies do not have enough money to cover growth costs, they begin to dip into funds that can lead to bankruptcy. Obviously, these agencies do not want to dip into these funds. The loan gives them the opportunity to take the agency to the next level and not having to depend entirely on internal funding.
For obvious reasons, good agencies are very careful with money. Insurance agencies revolve around taking in money, and paying it out. Lending is a way for agency owners to ensure that they have the money they need and can invest it in ways that will be beneficial to both the bank and the agency itself.
"Before agencies get into borrowing money from the banks that will offer lending support, they need to realize the negatives that exist from the whole situation," warned Rene Lacape. "It's not that this is a dangerous and risky move, but the negatives do need to be understood, just to make sure no one gets caught up."
If a company is looking at borrowing money from a bank, they need to make sure that the loan is a "win" "win" for all parties involved. Borrowing money can be expensive for businesses. The interest rates can often be higher than one might expect, and can catch some agency owners off guard. As long as they understand exactly what they are getting into and understand fully how the monthly loan payment may affect the business, everything should work in favor of the borrower.
"If you are going to secure a loan for your business, make sure that you can pay it off. There is nothing worse than trying to better your position, only to find yourself dipping into funds that can lead to bankruptcy," said Rene Lacape. "In the end, it's all about the planning."
Jonathan Carlson is a veteran freelance writer covering the life insurance industry.
