Agency Loans Securitzed Against Renewal Income

August 28, 2007

Insurance agencies have several choices when it comes to capital needs for expansion, perpetuation and acquisition. Traditional banks may lend anywhere from 40% to 80% of gross revenue which is securitized off of hard assets such as property, equipment, receivables and personal signature. An established banking relationship can be critical in order to receive the upper end approaching 80% loan to value. Many banks do not understand the value of renewal income which has recently opened the door to several new funding sources.

Post WWll baby boomers are now considering retirement who own insurance agencies or vested interest in their respective books of business. The expected retirees are expected to double and perhaps triple within the next three to five years. This will place more agencies for sale on the open market.

Insurance agencies on average sell for 1.5 to 2.5 times earnings. For example, a 3,000,000 agency in written premium may have total annual earnings of 400,000 – including contingencies and fees. Depending on several circumstances, this agency may be worth anywhere between 600,000 and 1,000,000 which is 1.5 to 2.5 times earnings.

The larger agencies, in most cases, would be able to qualify for a bank loan to purchase the smaller agencies. The problem arises when a smaller agency or one of equal value is qualifying to purchase another. Bank lines would not be enough to offer 1.5 to 2.5 times earnings.  How can the smaller agency buy another of equal or greater value?

The answer lies in our access to the funding sources that will lend up to 2.5 times earnings. Our sources can securitize the loan primarily off of renewal income and can, in many cases, amortize up to 10 years, depending on the books of business the agency is comprised of. There are additional factors that help qualify the loan, but the renewal income is what drives the amount the funding source will lend.

The younger and smaller agent now has a way to compress their 10 year business plan into 20 days, the average time it takes to qualify and fund agency loans.

For questions and more information, please call Bill Friend owner of PFA – Premium Finance Associates at 866.374.3630 or e-mail

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