Independent agency owners can leverage their agency's book of business to support a broad range of growth goals, not limited to mergers and acquisitions (M&A) and agency perpetuation.

With a specialized banking partner—one that understands the true value of independent agencies—agency owners can secure out-of-the-box financing solutions for additional growth needs, such as buying specific books of business, securing more real estate, hiring extra staff, upgrading technology and meeting more unique needs.

Here are three examples of customized financing solutions for some of the more unusual situations that independent agencies find themselves in:

1) An agency wanted to buy another agency's book of business—but only the part written with particular insurance carriers. Typically, when lenders underwrite financing for an acquisition, they require a complete financial picture of both the buyer and the seller, using tax returns, balance sheets, income statements and more. However, when an agency wants to buy part or all of another agency's book of business, such as a specific line of business or accounts written with certain carriers, specialized lenders take a different approach and focus their underwriting around that specific book of business.

In this instance—where an agency wanted to buy another agency's book written with certain carriers—the underwriting was straightforward. Both parties had relationships with the same insurance carriers, and as a result, the acquisition was deemed unlikely to pose any major business disruption or risk.

But for an out-of-the-box transaction like this to be successful, both the buyer and seller must have their financial houses in order, as the lender will rely on their internal reporting to underwrite the loan. It is also critically important that agencies fully utilize their agency management systems (AMS) and keep their reporting current because lenders will analyze this data.

2) A second-generation family agency wanted to split the business between two owners. Splitting an agency in two is often more complicated than it sounds. Once separated, both entities need an ownership and leadership structure, working capital, staff, AMS and other essential business systems, as well as a brick-and-mortar location. They may also require financing for any or all of those elements.

This particular agency wanted one owner to take the commercial lines and employee benefits part of the business and the other the personal lines. The lender had to determine whether there was sufficient cash flow coming out of each line of business to support each entity's growth goals and financing needs.

In the buildup to this unique financing need, both owners had to run their respective books of business almost as separate divisions. They had to maintain robust internal accounting and reporting to give loan underwriters the best possible picture of what their business units could look like and achieve as standalone businesses.

Financing is available if an agency owner is looking to divest a piece of their business, segment their agency lines for perpetuation, or even buy a line of business from a larger company. What lenders and underwriters are looking for in those scenarios is comprehensive internal reporting that supports those growth goals.

3) An agency needed bank financing for new space to house new hires. Independent agencies don't have to settle for standard commercial mortgages from conventional banks when they're looking to build up their real estate portfolio. A specialized lender can often provide the mortgage in addition to other financial products that can augment an agency's growth.

In this case, the independent agency seeking financing was experiencing rapid organic growth in its retail business and required more physical locations to support that growth.

They managed to secure an out-of-the-box financing solution that combined a commercial mortgage with a term loan, using the real estate and the agency's book of business as collateral. The agency owner then used that term loan to hire more staff and further enhance the agency's growth goals.

Of course, the agency owner could have secured a commercial mortgage from a conventional lender, but they may have struggled to negotiate the same blended product, which opened up additional capital to support the agency's growth.

Conventional banks often struggle to understand the value of independent agencies and how to use those mostly intangible assets to collateralize loans. Banks need to look to historical growth data, profitability, the book of business, retention rates and the agency's methods of operation.

Put Away the Cookie Cutter

With the right banking partner, independent agency owners can be creative about how they finance their growth goals. The first thing they must do is set aside any notions of cookie-cutter products.

Understanding what is possible is the first hurdle. Agency owners need to connect with an industry lender—one that can understand their business, speak their language and follow the market trends—to discuss their growth goals and unique financing needs. Often, all it takes is honest and open communication, collaboration and a problem-solving mindset to craft a financing solution together.

These out-of-the-box solutions may require extra work from the agency owner upfront to maximize their financial reporting and AMS to paint the best possible picture for underwriters. However, the return on investment and the ability to push through with an agency's growth goals should far outweigh any extra effort required to get these unique financing solutions in place. 

Scott Freiday is senior vice president and division director of InsurBanc, a division of Connecticut Community Bank, N.A.