Agency Acquisition Financing

saieddie

Guru
100+ Post Club
I'm looking at purchasing an independent agency. I've gone through the SBA counseling for their input. They're suggesting I try a local branch of a national bank for financing. Other than individual investors, does anyone else have an idea where to find financing for an independent agency purchase? This agent is ready to retire and isn't open to personally financing the purchase.

Don't say Brooke. I'm not interested in becoming a franchisee, and they're already in Chapter 11.
 
This agent is ready to retire and isn't open to personally financing the purchase.

Of course he isn't. He wants all his money right now, right?

The reality of the situation is this; insurance agencies are notoriously hard to finance...not a lot of hard assets...and no guarantee that the revenue stream will continue.

Even if you got a bank loan, they'll want you to secure it with adequate hard collateral (home equity, etc.)

Coupled with the current difficulties in the credit markets, and all the others, the current owner will HAVE to finance some (probably large) portion of the purchase price...if he wants to sell, that is.
 
I'm glad it's not brooke. I should think the lending institutions are slightly nervous- right about now...
 
So far the regular banks are willing to look at the loan w/20% down. Its not a huge amount, less than $250K purchase price. I just thought there might be a bank or organization that specializes in insurance agencies. The SBA advisor said its hard to explain to typical lenders that theres few assets in an agency and that all the value is in the renewals.
 
Last book purchase I made was partially financed by one of my carriers. You could look into what options are available in that direction first. We were given a 40K bonus when we agreed to roll a % of the book and then special increased commish for two years on that rollover premium. My situation was purchasing from an heir, so paid in full was the only option.

I'm suprised that he would be willing to risk the tax consequences of being paid in full versus financing it for you ? Personally, I'd much rather get 8% on my 250K and keep some type of controlling interest until the debt has been satisfied. Does the seller care about the tax implications ?
 
I didn't even think of the tax implications. If she started off as a scratch agency, is the whole price a capital gain? Is the increase in premium over the last 5 years a short term capital gain? hmmm, good question.

I'll bring that up next time I go over there.

I don't want to roll any of her book. The main reason I'm buying her agency is because of the main carrier. Its a very competitive preferred company. I don't have a problem rolling the nonstandard, but its a small percentage of the book.
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... and, about the renewals... they can go away real fast. just FYI.

I'm not worried about renewals too much. The main carrier company as a whole had over a 90% retention ratio for 2007.
 
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You are in a very good position if she hasn't thought of that. My advice, don't rush that conversation, do your homework, get with a tax advisor and present her with a written proposal that will show the disadvantages to paid in full versus buying on time and let her choose what option she would like.

I have a fellow agent who just showed a selling agent the benefits of carrying the note on a $2 million agency purchase. He took the sale right out from under the owners son who walked away when he thought he couldn't get financing on 2 mil. Sweet deal even at 8%.
 
If your paying a $250,000 for the block what are the annual commissions?

I am always curious on agency sales. Is is 2x annual commissions or can it get as high as 5x?
 

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