In the highly competitive and evolving insurance landscape, independent agency owners face a unique set of challenges and myriad capital needs to sustain their growth. As we head into 2025, there is a greater sense of urgency for agencies to invest in technology and talent and make strategic mergers & acquisitions (M&A).

To navigate these challenges effectively, agency owners must consider innovative financing solutions. Bank lending can serve as a powerful tool for various purposes. From perpetuating the agency through strategic acquisitions to investing in cutting-edge technology and talent, bank financing can provide the necessary support for sustainable growth.

To embark on this journey, agency owners should begin by establishing a relationship with a bank that understands the unique needs of the independent agency channel. Because the agency's largest asset is an intangible one, local banks often lack the expertise to develop a lending approach that aligns with the way independent agencies operate and are valued.

Agencies should also understand the current and forecasted economic trends that may impact their loan. In the fourth quarter of 2024, hard market conditions appear to be stabilizing in most lines of business. Interest rates, which were propelled by high inflation and the resulting Federal Reserve increases in the discount rate, appear to have leveled off and are trending downward.

Another important dynamic is the slated sunset of the Tax Cut and Jobs Act of 2017 (TCJA) on Dec. 31, 2025, unless Congress renews it. The impending end of the TCJA could spur more M&A activity. Agency owners may prefer to sell in the coming year with the certainty of the current tax rules versus the unknown future income and capital gains taxes for 2026 and beyond.

This intersection of lower interest rates and the possible sunset of the TCJA means that agencies that want to benefit from short-term opportunities should get their finances in order. Due to the time involved in loan financing preparation, agents should not delay until the second half of 2025 to have those arrangements ready.

Harnessing Loans for Growth

Here are four areas in which bank lending can be a powerful financial tool for independent insurance agencies: 

1) Agency perpetuation and expansion. One of the primary concerns for independent insurance agency owners is the perpetuation of their business. The average age of principals with 20% or more ownership is 55 years old, with 22% of those 66 or older, according to the 2024 Agency Universe Study. As seasoned owners consider their eventual transition into retirement, the question of how to ensure the agency's longevity becomes critical.

To develop a succession plan and retain key staff, bank financing can play an essential role. With adequate financing, the owners can avoid taking back a sizable note to finance the partial or total sale of the agency. A stock purchase loan can be used to finance a partial sale to existing key staff. The process also assists the agency owners in diversifying their balance sheet in a tax-efficient manner.

Agency owners can also use bank loans to fund acquisitions that expand their market presence and client base. Lower costs of capital can ease the financial burden associated with these transactions, making it easier to grow through strategic purchases. For example, when agencies combine, they often gain access to better commission rates and profit-sharing opportunities, enhancing overall revenue potential. This can be particularly appealing for agencies looking to grow without sacrificing their core values and culture.

2) Technology investment. In today's digital age, technology is no longer a luxury. It's a necessity for growth and efficiency. Many successful agencies have begun integrating advanced technologies, particularly artificial intelligence (AI), into their operations. These tools can streamline processes, enhance customer service and provide valuable data insights, leading to increased revenue.

Consider an agency that has identified a need for a new customer relationship management (CRM) system or that wants to implement AI-driven chatbots for customer interactions. With bank financing, they can acquire these tools, pay them off over time, and immediately start reaping the benefits in terms of improved service and increased productivity—which, in turn, drive agency value.

3) Talent retention and acquisition. An agency's success is heavily reliant on its people. Attracting and retaining top talent is essential for maintaining a competitive edge. However, hiring skilled professionals often requires significant financial resources.

Securing a loan or line of credit can provide the necessary funds to invest in recruitment efforts, competitive salaries and ongoing training for staff. When agency owners view bank lending as an opportunity to strengthen their team, they position themselves for long-term success. By building a skilled workforce, agencies can better serve their clients, adapt to market changes and drive innovation.

4) Commercial real estate opportunities. As agencies grow, the need for adequate office space becomes paramount. Many agency owners may consider renting office space. However, purchasing commercial real estate can be a strategic investment. Owning an office not only provides a stable location for operations but the building can also serve as an asset that appreciates over time.

Bank lending plays a crucial role in enabling agency owners to acquire commercial properties. With favorable financing options available, agency owners can purchase or renovate office space tailored to their specific needs. Owning commercial real estate can lead to tax advantages, increased equity and the potential for generating rental income if the space is shared with other tenants.

With 2025 on the horizon, it may be time for agencies to take another look at their financing options. Bank lending may be an important part of the agency's growth strategy for the next few years.

Scott Freiday is senior vice president and division director of InsurBanc, a division of Connecticut Community Bank, N.A. Started in 2001 as a vision of the Big “I," InsurBanc finances acquisitions and perpetuations, including ESOPs. InsurBanc also helps agencies become more efficient by providing cash-management solutions.