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Insurance Broking Business Loan

Do you need finance to buy an insurance broking book of clients or a commercial property loan to buy your own business premises?

With insurance premiums rising and a growing preference from individuals and businesses to use inurance brokers and underwriters, the industry has grown rapidly over the past few years. With an insurance broking business loan you can plant your own flag.

How much can you borrow to buy a portfolio and how do you qualify?

How much can I borrow?

  • Client book: Borrow up to 60% of the portfolio value (based on the bank’s own revenue multiplier).
  • Freehold property: Borrow up to 70% of the property value.
  • Principal and interest (P&I): 10 years.
  • Interest only: 3 years.
  • Cash flow finance available with residential property as security.
  • Security: Lend against commission income and premium funding.
  • Business loan refinance for existing facilities.
  • You’ll need to be in a strong financial position.
  • At least 3 years management experience is required.
  • Evidence of Australian Financial Services licence (AFSL).
  • Business plan may need to be provided.

Do you just need finance to buy business premises?

You can borrow at a higher Loan to Value Ratio (LVR) if you use a residential property as security!

Discover if you qualify for an insurance broker business loan by calling one of our mortgage specialists on 1300 889 743 or filling our easy online enquiry form today.

What are the banks looking for in a customer?

Nothing is really black and white when it comes to what types of businesses a bank will lend to.

Operating on a professional services model, the key to getting approved for insurance broking business loan is providing strong evidence to the bank as to how you plan to run a successful venture.

Based on that, the first they’ll want to know is whether you have the skills to manage a brokerage and will generally require you to have at least 5 years industry experience plus 3 years managing an insurance brokerage or underwriting business.

In many cases, the bank will also require an accountant-approved business plan that highlights capital expenditure requirements and revenue forecasts for the new venture.

Will they accept the insurance brokerage?

If you’re buying a book of clients to expand your own business, a number of commercial lenders have certain performance benchmarks that they’ll require the portfolio to meet before even considering finance.

When buying a client portfolio for an insurance brokerage or an underwriting business, the following financial requirements may apply:

  • Minimum Gross Written Premium (GWP): $1 million.
  • Low Gross Written Premium (GWP) concentration: GWP should spread across multiple insurance companies.
  • Minimum annual revenue: $600,000.
  • Interest cover: More than 2.0x the level of debt or 1.5x where the debt is secured by residential or commercial property.
  • Earnings before interest and tax (EBIT) over gross income: More than 20% of total revenue.
  • Client concentration: No one client is to generate more than 20% of total revenue.
  • No one insurer is to exceed 30% of the underwriting agency’s GWP.
  • The business must offer a minimum of 3 types of insurance products such as life insurance and public liability.
  • You may need to provide a copy of all binder agreements.

How can we help?

We’re business finance experts with particular expertise in financing the purchase of client portfolios whether it’s in the industries of insurance, financial planning or accounting.

We have a strong relationships with a number of major banks and lenders and our mortgage brokers are credit experts so we know how to build a strong case so you have better chance of getting approved for an insurance brokerage business loan the first time around.

We can also negotiate competitive business loan interest rates on your behalf and help you to borrow up to your maximum LVR by highlighting the strengths of your situation.

Call us on 1300 889 743 or complete our free assessment form to discuss your plans to purchase an insurance brokerage with a commercial mortgage broker.

We can even help you to qualify business finance solutions that can help you to manage and grow your business well into the future.

What should I look for in a brokerage?

Whether you’re searching online and you’ve got your ear planted to the ground looking for opportunities, it’s essential to firstly take note of what type of brokerage will best suit your skills and experience.

Who are the brokerage’s clients?

Insurance broker services can range from public liability, business interruption, products liability, professional indemnity, workers’ compensation and everything in between!

Consider whether the portfolio you’re looking to buy best matches your skills and experience otherwise you could be in a situation where you can’t service the book.

In short, you will have wasted your money.

Look at the financials and ask questions

As a general rule, banks like to see the last 3 years business financials when consider commercial finance and you should do the same.

Ask for ATO tax portals as well as profit and loss statements. If they don’t have these financials, it may sometimes be in your best interest to stay away from the sale.

Of course, it may be that there accounts have simply been mismanaged.

If the business is in the red, again, you may want to walk away but you also have to consider where there is an opportunity to turn things around.

Consider the following:

  • Is the vendor retiring and hasn’t had much time for the business?
  • Is key management the problem?
  • Are there issues with staff?
  • What’s the reputation of the business and can you turn it around?
  • Is there litigation with current clients and does it look like it will be resolved?

Asking why the vendor is selling is crucial when buying an insurance broking business.

Software and systems

Having the right business accounting and client management software and systems in place can make or break an insurance brokerage operating in today’s market.

If you’re considering buying from a vendor who has been the industry for a long time, they may not have been willing to implement certain software and systems to run a more efficient brokerage and, above all, generate more revenue.

If the vendor has a good reputation but doesn’t have systems in place, you may want to think about paying premium for the goodwill just for the opportunity to grow the business.

Transition phase and the Heads of Agreement

In order for a brokerage to have any meaningful value, key management and staff should come part and parcel with the deal.

There should be certain assurances set out in the Heads of Agreement that key staff stay on board for a certain period following the sale.

Having the current owner remain on in a consultory manner for 6-12 months can help:

  • To provide assurances to staff and clients alike that it’s business as usual.
  • In introducing yourself to staff and notify clients and third party partners of the incoming change.

Protecting your investment

The other thing to consider is implementing a client retention and restraint-of-trade clause as part of the heads of agreement.

This is usually a guarantee of gross fees for at least 12 month (although, ideally you’d want to negotiate for 2 years) with retention money held over for the period, that is, you would withhold around 10-15% of the purchase price.

This retention clause may be higher depending on whether the insurance brokerage has a number of large clients that represent a concentration risk for the client book.

Speak to professionals

So you’ve got management experience under your belt and you want to spread your wings and make a name for yourself in the insurance broking space?

Before even speaking to a bank or your mortgage broker about getting finance, it’s important that you find a practice that has strong fundamentals, has room to grow and best suits your skills and experience.

Failing to plan and do your homework is a plan for failure but luckily there is help available if you’re willing to pay for it.

Hiring a business broker and an accountant to analyse the financials of the client portfolio that you want to buy will cost you up front but the costs of buying the wrong business will cost you a lot more in the long run.

The business broker, in particular, can help you to ensure that the book of clients matches your business desires and they can help you to negotiate with the vendor on a fair price.

A solicitor is another professional that you should consider having on your team because they will carefully comb through the Heads of Agreement to ensure that the business and any assets (freehold property) that come with it have good title and are free of caveats.

They also check to see if there is any ongoing litigation with current and former clients. When you take over the business, you may inherit these issues as the new legal owner so you’ll want certain guarantees and assurances from the vendor before signing the dotted line.

By having a team of experts you can save yourself a lot of time, money and, most of all, heartache.

Insurance broking industry snapshot

The insurance broking industry has seen considerable growth over the past five years due to consumer recognition of higher professional standards as set out by the National Insurance Brokers Association (NIBA).

As it stands, more than half of all insurance policies sold in Australian are written through insurance brokers and underwriters. Coupled with rising premiums, there’s plenty of opportunity in this space.

It’s finding strong books of clients for sale that will be the real challenge for anyone entering the industry.

Continuing the trend over the past few years, the majority of broker clients are from the commercial market and involve such products as public liability, business interruption, products liability, professional indemnity and workers’ compensation.

Do you need an insurance broking business loan?

Call us on 1300 889 743 or fill in our online assessment form to speak with an insurance broking business loan specialist!

  • Oliver

    I applied for an insurance broking business loan by taking the help of my bank’s manager but I don’t really like the terms on the business loan agreement that they wrote up. Can we negotiate the terms on the loan agreement or should I just try with another lender?

  • Hey Oliver,

    When it comes to business loan agreements, actually, everything is negotiable. You can haggle the interest rates, fees and even annual review requirements. Before you proceed with another lender, you can try negotiating these terms. Or better, you can give us a call on 1300 889 743 and discuss your situation with one of our business loan specialists so we can help with the negotiations and the entire loan process.