Are your Agency Finances in Good Shape?

As you spend your days focused on leading your agency and meeting customer needs, you may not invest much time into thinking about the fiscal health of your insurance agency. It may not occur to you (in the midst of everything else you’re juggling), you may not have the time or you may dread knowing the reality of your financial situation.

However, there are multiple reasons why it’s important to make this part of your overall management strategy and tactics. If there comes a time when you need to secure operating capital or funds for expansion, you’ll need to provide this information. In the meantime, having insight into the financial health of your agency provides the following benefits:

• It’s easier to file and organize documents and reports on an ongoing basis instead of rushing around to find them when they’re urgently needed for a loan or valuation.
• When capital is needed, your lender’s perception of your professionalism can partially hinge on how well you and your team manage the finances of your agency.
• Having your financial house in order can expedite the loan application and approval process, which reduces your stress when seeking funding.
• Knowing your ongoing financial status enables you to make short-term hiring, purchasing and planning decisions with confidence.

Agency Details and Documents

Start by double-checking that all of your insurance licenses are up to date. Also, if your agency is incorporated, confirm that your agency is in good standing with the state. If not, update your filings to ensure the agency is properly authorized to operate in your state; you can request this information on your state’s Secretary of State website.

This is also a good time to collect organizational documents including Articles of Incorporation (C and S Corps) or Organization (LLC), Operating Agreement (LLC) and/or Bylaws (C and S Corps).

Determine if your agency has any outstanding liens. If you are not certain that your agency is free of liens, you can perform a UCC search on your state’s website for any current UCC filings on you or your business. Owners are sometimes surprised to find liens on an agency that they didn’t know existed. Those liens can take time to research and be released, which can delay any new loan process.

After verifying the status of your licenses and potential liens, you’ll need to gather (or maintain for future reference) the documents listed below. These are required for underwriting loans with First Mid Bank & Trust Agency Finance:

• Last three years of federal tax returns (both business and personal).
• Executed contracts with all of your insurance carriers, including compensation schedules. If you do not have the contracts and/or compensation schedules, you can request these documents from the respective carriers. You will need a copy with all the signatures.
• Commission summaries or other management reports from your carriers or agency management system.
• Financial statements for the current year. (Learn more about Balance Sheet and Income Statements here.)

Individual Owner Information

In order to realize the above benefits — and access future capital — you’ll need to provide your lender with agency documentation and personal financial statements for agency owners. At First Mid Agency Finance, we’re committed to supporting your growth by providing you with recommendations that will deliver a smoother funding process.

Because your agency is built upon you and your co-owners (if applicable), you’ll each need to make sure your personal financial matters are in good shape. All of our loans require a personal guaranty from each owner who has greater than 20% ownership.

If there is more than one owner of your agency, it’s critical to maintain open communication internally so that all owners are aware of your potential need for capital. Growing your insurance agency is a collective effort.

First and foremost, check your credit report to ensure that accurate and to identify any actions you can take (or avoid) to improve your score. Here are a few examples:

• Incorrect or fraudulent entry on your credit report. This can take time to fix, so it’s best to handle it before you’re in a time-sensitive situation.
• Minor mistake that could be corrected. For example, a retail credit card may rescind a one-time payment blip if you reach out to them.
• Specific action that could increase your score. You might notice that you’re using a high percentage of your available credit, which is a sign you should pay down your card(s) if possible.
• Action(s) you should avoid that would decrease your score. Most credit reports show how many recent inquiries you’ve had. The goal is to keep this as close to zero as possible. Buying a new car or participating in a store’s “no payments for two years” promotion shows that you’re already seeking credit, indicating a reduced ability to afford more debt.

You can receive at least one free credit report every 12 months from the three different credit reporting bureaus (Experian offers free weekly reports through December 2023 and Equifax currently allows up to six reports per year through 2026). Find details about legitimate credit reporting sites and other tips here.

Each agency owner should also be prepared to complete a personal financial statement for any new loans (and often annually for revolving or renewing lines of credit). This helps us assess each owner’s financial profile which can have an impact on the agency’s financial health. You’ll need to provide:

• Income amount and sources.
• Annual/Monthly personal living expenses (rent, mortgage, other debt, other costs).
• Assets such as bank accounts, real estate property, retirement assets, your agency.
• Liabilities including your mortgage, credit cards, child support, other financial responsibilities.
• Life Insurance, tax liens, unpaid taxes.

Position Your Agency for Success

Keeping your financial house in order delivers both short-term and long-term benefits. When you’re considering additional capital needs for your agency, you’ll be able to move more quickly if you already have the details and documentation in place for us to review.

These resources allow us to take a preliminary look at your current financial status so we can work together to determine what funding might be available for your agency. Then, if you decide to take the next step of applying for a loan, you’ll already have the materials needed to complete the formal application process and expedite our team’s ability to underwrite your loan more efficiently.