How to Get a Business Loan for Insurance Agents

An insurance business is appealing for any number of reasons, and one of them is the relatively low cost of getting started. However, it’s a competitive industry with over 415,466 insurance agents and broker businesses in the US, 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 another insurance agency’s book of business. You may need a loan for working capital to cover day-to-day expenses such as payroll, rent or advertising. Or you may need a loan to acquire commercial real estate for your office. 

Whatever your goals are for your small business loan, it’s helpful 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 may be able to take advantage of a variety of types of small business loan options.

Lines of credit: Having access to a business line of credit allows you to borrow an amount you choose up to your available credit line. Once you pay it back, you can borrow again. This is a great option for short-term needs, including working capital. 

Term loan: If you need to borrow a certain amount of money and you want to pay it back over a specific amount of time with predictable repayment payments, a term loan is ideal. 

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

Credit cards. 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 costs. 

Commercial real estate loans. If you want to purchase your own building for office space, or perhaps rent part of the building and lease the rest, a commercial real estate loan will be the 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 that they will usually look at the following factors: 

  • Revenues. Many lenders will use business bank account statements to evaluate the income of the business. They may also use that information to help analyze the cash flow of the business. Traditional lenders such as banks or credit unions may require business tax returns as well. Insurance agencies may be able to get financing based in part on future cash flow. 
  • Credit history. Business lenders may check the owner’s personal credit scores, though it often will be a soft credit check that doesn’t impact credit scores. Some lenders will also look at business credit scores or business credit reports. 
  • Time in business. How long has the business been operational? Startups have a harder time getting financing as many lenders prefer to work with businesses at least 1-2 years old.  

Businesses with strong qualifications are likely to qualify for the lowest rates and terms, but you may still have options even if all these criteria are not strong. 

In terms of the application process, it will vary widely depending on where you get business funding. Online lenders often have quick online applications and can make a decision within one or two business days. Costs may be higher than that of loans from traditional financial institutions. 

Bank loans often have more detailed applications and it may take several weeks to get approved. However, interest rates and repayment terms on traditional bank loans are often good. A business plan and tax returns may be required. 

Can I Use A Business Loan To Pay For Leads For My Insurance Agency?

After payroll, marketing is typically the biggest expense for insurance agencies. Some agents will purchase leads of potentially interested customers as a way to generate business. These costs can add up, and as an agent you may want to use financing to pay for leads. 

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

Be careful when borrowing money to pay for leads. Some lists are better 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 back. 

What Are Alternative Financing Methods For Insurance Sales Agents Who Can’t Get Business Loans?

If you can’t qualify for a business loan and you need a relatively small amount of financing for short-term needs, consider business credit cards. With two or three cards you may get 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 business specifically.  That means you may qualify even if you have a brand new business. And most check personal credit scores, not business credit.

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

Are Insurance Agencies Eligible For SBA Loans?

Yes, insurance agencies may be eligible for SBA loans if they otherwise qualify. SBA guidelines prohibit SBA loans to insurance companies, but that does not mean agents are unable to get SBA guaranteed loans. 

The US Small Business Administration does not make loans; rather it guarantees them. (There is an exception— the SBA makes SBA Disaster Loans directly.) There are multiple types of SBA loans, though the most popular is the 7(a) program. You’ll need to apply with an SBA approved lender.

While these loans typically 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 don’t have a minimum credit score requirement; instead the SBA requires “acceptable credit” and it’s up to the lender to determine the minimum credit score it will require. For most lenders a credit score of 680—700 or more will be required. 

Keep in mind the SBA requires a personal credit check for all business owners with at least 20% ownership. A business 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 is important to understand that SBA loans often require small business owners to sign a personal guarantee, and sometimes you will have to pledge personal home equity (up to certain limits) if you have it and there isn’t enough collateral from the business. 

The Bottom Line: Insurance Business Loans

If you need financing for your insurance business, there are a number of options available. Be sure to compare loan options to find the right fit for 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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