Acquisition Loans
for Insurance Agencies and MGAs

Agency acquisition financing refers to the methods used to secure funds to purchase an existing agency or insurance business. This typically involves a combination of debt and equity to fund the transaction.

Agencies might consider an acquisition for various reasons, including:

• Growth and Expansion: To quickly expand their client base and service offerings.   
  
• Acqui-hire: Acquire an agency’s talent to aid talent shortage  
  
• Market Entry: To gain a foothold in a new geographic market.
  
• Succession Planning: To provide a smooth transition for retiring agents and build a succession plan.
  
• Increasing Profitability: To acquire a profitable agency and boost revenue. 
  
• Synergies: To achieve operational efficiencies and cross-selling opportunities.

Insurance businesses might seek external acquisition financing for various reasons, including:

• Maintain Cash Flow: Using external financing allows the acquiring agency to conserve existing cash reserves for other operational needs, investments, etc.
• Faster Growth: External financing enables your agency to seize growth opportunities without waiting to accumulate the necessary funds internally.
• Potential Tax Advantages: Depending on the structure of the financing and the acquisition, there may be certain tax advantages associated with using external debt.

Several options are typically available for financing an agency acquisition:

• Small Business Administration (SBA) Loans: The SBA offers various loan programs (like the 7(a) loan). These loans are backed by the government to mitigate risk for the lender. Because of this, the pool of qualified borrowers for an SBA-guaranteed loan is wider. However, the SBA administration has its own set of guidelines that require personal lines.    
• Conventional Loans: Conventional commercial loans are available from various lenders who undertake all the risks for the loan repayment. 
  
  • Flexibility: Offers potentially more flexible terms and greater loan amounts, depending on the lender and borrower’s creditworthiness.
  • Strength and Stability: Provided by established financial institutions (banks, credit unions), which generally have a strong and stable foundation.

Loan terms vary:

• SBA 7(a) loans: Can have repayment terms of up to 10 years for working capital.
  
• Conventional loans: Typically have shorter terms, such as 5-10 years. At Oak Street Funding, we have terms up to 10 years.

Lenders typically assess several factors:

• Buyer's Financial Health: Credit score, personal financial statements, assets, and liabilities.    
  
• Buyer's Experience: Relevant experience in the accounting industry or business management.    
  
• Target Practice's Financial Performance: Profitability, cash flow, revenue trends, client retention, and financial stability.
  
• Business Plan: A detailed plan for the acquired practice's operations, integration, and growth.
  
• Collateral: Oak Street Funding lends based on your agency’s future cash flow, not your personal assets. Pro-forma financials of the practice after the acquisition can help bolster confidence in the ability of the new practice to pay back the loan.
  
• Management Team: The experience and qualifications of the buyer and any key staff who will be part of the organization after the acquisition.
  
• Market Conditions: The economic environment and the specific market in which the insurance business operates.

Interest rates depend on various factors, including the type of loan, the lender, the borrower's creditworthiness, and current market conditions.

• SBA loans: Often have interest rates tied to the prime rate plus a spread.    
• Conventional loans: Interest rates will vary based on the assessment of risk and market rates. Oak Street Funding rates are based on the U.S. Treasury plus a spread.

The timeline can vary significantly based on the complexity of the deal, the type of financing, and the responsiveness of all parties involved. It can take anywhere from a few weeks to several months for larger loans. It’s important to be prepared and have your house in order before undertaking an acquisition strategy to expedite the process.

• Define your goals and ideal firm profile.
• Assemble a team of advisors: Attorney and potentially an expert consultant or broker specializing in RIA firm sales.    
• Identify potential insurance agencies for sale: Our insurance agency marketplace is a great way to find buyers and sellers.
• Conduct thorough due diligence on the target firm.
• Obtain a professional agency valuation.
• Negotiate and structure the purchase agreement.    
• Engage with lenders and submit loan applications.    
• Complete the lender's due diligence process.
• Finalize the loan documents and close the acquisition.