Refinancing Your Existing Debt

Refinancing Your Existing Debt
By: Kelly Drouillard, Live Oak Bank

The goal of any independent insurance agency is to grow and build long-term wealth. To get to a place where an agency can fund growth initiatives and make money, owners often obtain capital via specialty loans, use of liquid investments, seller finance, or funding from friends, family, and other supporters. This financing may be debt on less than ideal terms, including interest rate, loan term or both.

If you are an agency owner, with an expensive or steep repayment plan on your business debt, you may be feeling like you’re never going to generate the kind of cash flow to meet the needs of your agency, extinguish debt and experience the growth and achievement you dreamed of when starting your company.

The backbone of an agency is the cash flow.  It may have been prudent and necessary to take out loans, seek investments, or otherwise bring outside money into the company to get off the ground; you don’t want to let repaying those debts prevent you from actually taking off. When looking at the obligations you need to pay back, consider how much extra money you will have after making your monthly payments.

Can you afford to hire the producers you need? Are you meeting the demands of your customers? Are you ready for an acquisition? Or are the payments holding your agency back from really being what it could be? If so, you may need to consider restructuring debt to reduce your monthly payments.

Here are a few ways you can refinance your debt, significantly decrease your current monthly payments, and begin seeing your agency grow.

  1. Live Oak Bank’s SBA 7(a) Loan Program

With the SBA 7(a) loan program, you can restructure your debt into a more manageable repayment plan. While not all debts are eligible for this program, if you meet the requirements of the policy, it is an easy way to reduce pressure from your lenders and start seeing more money going into your business.  Typical insurance agency loan terms are 10 years with interest rates from 5.5% to 6.25%.   There are no prepayment penalties for loans with terms less than 15 years.

To be eligible for the SBA 7(a) loan program, you will need to meet the following qualifications:

  • Money secured from loans, borrowing, or investments must have been used for eligible business purposes.
  • The debt must be current.
  • The monthly loan payment for the proposed plan must give at least 10% cash flow savings or the existing note must include a balloon payment.

If you meet the requirements of the SBA 7(a) loan program, you can create a plan that is much more manageable for you and your agency. With a lower loan payment, you can focus on growing your business, put the money into things like agency development, and see your company reach the levels of success enabled by improved cash flow.

  1. Refinance to avoid “Balloon Payments”

When you take out a small business loan for your insurance agency, it is not uncommon for a loan to have what is called a “balloon payment.” A balloon payment occurs when the terms of the loan state that one large payment will be made at the end of the loan’s term. While this can give you years with a smaller payment, it also means you will be faced with a significant payment once that time is up.   A typical structure would be a loan with a 10 year amortization / five year balloon.   Thus, your monthly payments are based on a 10 year loan; however, the remaining balance is due all at once at the end of Year Five.  Balloon payments create a looming financial obligation.

If you do not properly plan for a balloon payment, you will be left to drain the extra cash from your business, reducing any cushion you may have created. You may also face high interest rates, meaning you’ll pay much more for the loan than the initial amount of money you received.

If you are trapped in a loan that ends in a balloon payment, you will probably want to consider refinancing. Refinancing your debt allows you to spread that balloon payment out over more time, preventing you from paying one large sum. With a refinanced repayment plan, you make small payments on your loan while ensuring that the cash flow to your business is not disrupted.

  1. Refinance for Longer Loans

For most agency owners, the typical loan acquisition may have seller financing with a term of five years. While a shorter loan term can be paid off more quickly, it also means you will be making higher payments on the loan each month. For a growing business, this can take away cash needed for operational growth and marketing.   A refinance solution under the SBA 7(a) program may be a 10 year loan.   Plus, there is the bonus of paying off the seller note and finally cutting ties with the seller.

SBA 7(a) loans (under 15 year terms) do not have prepayment penalties.   This gives you the cash flow flexibility to pay off your note early if you desire.

Before taking out a loan, be sure that you understand the details of the repayment and if it is a realistic situation for you and your agency. If you find that you are unable to meet the needs of your loan, don’t hesitate to restructure.

Restructuring your debt opens up doors to allow that money to be used elsewhere. With the money you will save each month by restructuring your debt, you can hire new producers or other staff to take your agency to the next level.  You could also buy equipment to be more efficient in the workplace or relocate to a new area with better customer access.

Thinking about your cash flow is the most important aspect of running a business. When it comes to your success, it is mostly determined by how smoothly you run your business and if you make enough money to keep moving forward. Don’t allow the loans, investments, or financial support that got you off the ground be the reason your company didn’t reach your desired levels of success.

For a refinancing proposal, gather tax returns for the past three years (agency and personal), the details of your current agency debt, and give us a call.  We can quickly analyze your situation to determine if a refinance make sense.

Kelly Drouillard is the General Manager of the Insurance lending division at Live Oak Bank. Reach her at 913.980.7773 or kelly.drouillard@liveoakbank.com

Marketing At Its Core…

Marketing At Its Core…
By: Katie Wilmoth, Director, Marketing and Communications

This past summer, my husband and I took our kids to the beach – our kids (at the time) were 6 years old, 4 years old, and 9 months old, so we had our hands full! I find that at their current ages, they’re like a mini case study in the ways of the world. I never cease to marvel at how perceptive and astute they are for their ages.

At home, we don’t keep cable or satellite and instead, stream or download things we’d like to watch. So our kids have no concept of what television was like in the old days, and therefore, they aren’t familiar with commercials.

Throughout the course of the week, our oldest daughter would run up to one of us and say something about one of the commercials, or “previews” as she called them. IN fact, our kids were more interested in the commercials than in the shows they watched. As someone who’s made a career in marketing, I marveled at just what an impact direct marketing had on my kids in that short amount of time. I even caught them singing “Nationwide is on your side!” repeatedly as they played in the waves one day – “Mom, did you know Nationwide is on our side?” my six year old asked me – proving that, whether or not they knew exactly what the product did or was, the message the marketers had intended for them to remember had indeed been successful.

One night, my daughter said “Hey Dad, we need to get some of this lotion because it will make our skin super soft and shiny.” And I listened as my husband said “Okay listen Lila…these are called commercials, and the people who make them are trying to sell you their product by making it sound like the greatest thing in the world. So they’re lying to you to make it sound better than it is…that’s what your mommy does for a living…”

I looked up at him shocked and amused that he would say such a thing to our daughter, and he was looking back at me laughing. My reply to him was “You’re a LAWYER! Why don’t you tell her what YOU do?!”

The story is funny, but it got me thinking about the definition of marketing at its core. Sure, there are plenty of infomercials that use over-exaggeration and half-truths to peddle cheap wares (though I’d say that’s closer to the definition of sales, not marketing) – but at its heart, that’s NOT what marketing is. Marketing is about highlighting what sets your product or service apart from the competition. And if you’re doing it RIGHT, it’s also about highlighting the things that you do well and at which your product or service excels. You pick out your best assets and tell people about them. Think of it as socially acceptable bragging!

If you would like to read more Marketing tips, check out Issue IV of the Smart Choice Magazine!

Top 5 Sales Tips For Insurance Advisors

Top 5 Sales Tips For Insurance Advisors
By: Ashley Wingate, Vice President, Personal Lines

Selling in the insurance industry is not the same as sales in many other industries. Unlike most commodities being sold and advertised, insurance isn’t a choice in most cases, it’s a necessity. Many customers don’t view insurance as something they want to spend money on, but rather something they HAVE to spend money on. So, you’re really trying to counsel your customer into meeting their own coverage needs, even when they don’t want to spend the money. YOU have to be able to flip the conversation into a positive one so they feel like they’re walking away with something tangible, and not just spending their money on a “have to.” After many years working in this industry, here are my top 5 sales tips for insurance advisors:

  1. Listen to your clients and their needs. It’s tempting to just sit down and begin explaining all the benefits of your insurance policies and plans that your agency offers. My suggestion is let the prospect lead the discussion and they will tell you everything you need to know to close the sale. Instead of pitching your product, ask the person you are speaking with about their life and their family or their concerns for the future. They will tell you everything you need to know and then you become an insurance consultant and not just another salesperson.
  1. Don’t just be an order taker. Too many agents fall into this trap. If you follow the first tip and listen to your client and their needs, then you can develop a consultative approach for your client and offer them Insurance solutions for their needs. Also, don’t be afraid to ask them for their business.
  1. Make sure your clients know what they are buying from you. Stop to go over the carrier you have placed them with and highlight the benefits and features that their policy offers them. Most people don’t understand insurance and this is the time to help them understand what they have just bought from your agency. It’s a time for you to shine and a time for you to educate the customer on why they’re better off with proper coverage.
  1. Ask for referrals. Referrals are an awesome way to grow your business and these customers are much easier to close. Think about a referral program for your agency and reward the customers that send you new customers. Independent agents should rely heavily on referrals, because they have the ability to really shop for their clients and customize coverage. You have the chance to foster a more personal relationship with your clients, and therefore a better chance at gaining referrals.
  2. Network, network, network.  Take advantage of the opportunity to attend trade shows, work with real estate agents, work with the local PTA, and network with other insurance professionals in your field. These are all great places to make connections and learn from industry leaders and stay up to date on what’s going on in the insurance industry.

Starting Your Own Independent Insurance Agency? Study Up on These 3 Key Success Factors.

Starting Your Own Independent Insurance Agency? Study Up on These 3 Key Success Factors.
By: Michael Miller, Smart Choice® State Director

Starting your own independent insurance agency is both exciting and overwhelming. In my 37 years in the business, three factors stand out as being essential for the success of any independent agency. Agents must be experts in all of the products they offer, have plans to market their agencies, and have systems in place to generate leads.

Success Factor #1: Expert-Level Insurance Product Knowledge

I always mentor new agents to sell on the value of the policies they quote, not cost. But to do so, they must have a solid understanding of every single product they offer, including differences between carriers. You should strive to become a resource for your clients as well as a risk expert. Your clients rely on you to identify and understand the products that will help them mitigate risk.

This is why it often pays to start writing just a few policies—P&C, for example. Once you have these products under your belt, it’s time to extend your offerings to umbrella policies, recreational policies, and even the commercial and health/life markets. Take the time to learn about each product in your new market.

Success Factor #2: Independent Agency Marketing Plan

Before you open your doors to clients, you need to have a plan in place for reaching out to your target market. A comprehensive marketing plan identifies your growth goals and the strategies you’ll use to achieve them.

Marketing plans should include what separates you and your agency from your local competition and how you’ll promote these differentiators to your clients and prospects. Take the time to outline the specific things you’ll do to market your agency. Will you hold homeowners insurance seminars for first-time home buyers? Send out postcards to every residence in your target area? Create a website where prospects can request a quote? There are all sorts of ways to market your agency; you need to pick a few ideas that you’ll follow through with.

Success Factor #3: Lead Generation Strategy

Your marketing plan should outline a strategy for how you’ll generate leads for your independent agency. Leads can come from outbound marketing efforts such as newspaper ads, radio and TV commercials, and email blasts. But often, agents focus on inbound marketing strategies, such as asking for referrals from existing clients, blogging, and social media marketing.

There are many factors that contribute to the success of an independent agency. But lead generation, a comprehensive marketing plan, and expert product knowledge contribute the most to your future success. That’s why Smart Choice® offers unlimited training these key success factors. Contact Smart Choice® today!

Understanding Contingency and Bonus Requirements with Your Insurance Carriers

Understanding Contingency and Bonus Requirements With Your Insurance Carriers
By: Michael Miller, Smart Choice® State Director

As an insurance agent, your business lives or dies on the amount of new and renewing policies you sign with your carriers. Years ago, how you got paid was fairly straightforward: you got paid a percentage of the premiums you signed. But carriers have changed the way they compensate their agents.

Today, agents earn a complex combination of commissions, contingencies, and bonuses, each calculated a little differently. Understanding the math can be a full-time job, not to mention figuring out how to maximize your earnings.

Contingency Commissions Reward Performance

You’ll always make a little money on each premium you sign, even if you only sign a few dozen a year. But carriers offer sizeable contingency commissions for agents who set and meet goals for production, retention, and profitability. These rewards are contingent on you meeting these goals.

What’s tricky about contingency commissions is that you never know how much more you’ll end up making as you sign on new clients. The contingency is earned after you meet your goals for the year. When you’re writing a policy in January, you won’t know whether you’ll actually meet your contingency requirements at the end of December.

Bonuses Honor Excellence

Insurance carriers often award agents who go above and beyond with bonus income. Sometimes, carriers run special sales contests for agents to compete in. Other times, they’ll allow a loyal agent to charge them interest on any new business the agent brings in for them.

Getting the Most out of Your Appointments

Contingency and bonus income were initially offered only to the largest agencies, which had the staff and book of business large enough to hit production targets. But that’s changed in the last 25 years. Today, small agencies can compete for this extra income if they’re able to meet the requirements.

Joining an agency group can be a way to increase your chances of earning contingency and bonus income. Agency aggregation pools together the resources of multiple small agencies so they can compete with the larger players. That’s why many independent agents choose to join Smart Choice®. To discover why a partnership  is the smart choice, connect with Smart Choice® today.

 Source: Property Casualty 360

Cloud-Based Insurance Applications Put Agents on Cloud Nine

Cloud-Based Insurance Applications Put Agents on Cloud Nine
By: Michael Miller, Smart Choice® State Director

Gone are the days when insurance agents had to invest in expensive hardware and software to quote, issue, and place policies. Updating software was tiresome and time-consuming. And when a computer went down, your production ground to a halt.

Cloud-Based Tools Are Cost-Effective & Efficient

Fortunately, those days are now behind us. Today, the best quoting and policy placement tools are all online. Instead of buying software, you buy monthly subscriptions to cloud-based applications. A single subscription can allow all of your agency’s producers to access the application. This saves you money in software and hardware in the long run.

It also makes your agency more efficient. You can access cloud-based tools anywhere and anytime as long as you have an internet connection. Log in from your desktop, laptop, tablet, or smart phone, whether you’re in a meeting with a client or enjoying some time at the cabin.

My Favorite Cloud-Based Insurance Agency Applications

There are many online tools out there for insurance agencies, from comparative raters to agency management systems. One of my favorite raters is Applied Rater, formerly SEMCAT. Applied Rater lets agents compare quotes from more than 500 insurance carriers. It can integrate with your agency management system and your website so you don’t waste time duplicating data.

My top two choices for agency management systems are EZLynx® QQ Catalyst®. Both of these cloud-based agency management systems allow you to access all of your agency data from a single dashboard. Manage your prospects and clients and keep tabs on how your producers and CSRs are doing.

When you become a member of Smart Choice®, you receive significant discounts on my favorite agency applications. Quote, issue, and place policies from anywhere with no additional investment in hardware. To discover why a partnership is the smart choice, connect with Smart Choice® today!

3 Tips for When It’s Time to Move On: Selling Your Insurance Agency

3 Tips For When It’s Time To Move On: Selling Your Insurance Agency
By: Michael Miller, Smart Choice® State Director

You’ve spent your career helping families and businesses mitigate risk and protect their assets and loved ones. You have a full book of business, wonderful staff, and a great office. But not it’s time to move on. What will happen to the insurance agency you’ve worked so hard to build?

Here are three tips that help take the mystery out of selling your insurance agency.

1. Get an Insurance Agency Valuation

You’ve been busy growing your agency and working hard to make it profitable. But do you know what your agency is worth? Determining your agency’s value is the first step in selling it. Take into account the contributions of your producers and other staff, your agency’s location, the quality of the markets you offer, and the diversity of your book. Are your eggs thrown in the baskets of a few big clients, or is your risk spread out across many different accounts?

2. Have a Plan for Selling Your Agency

Planning the sale of your agency starts early, as many as three years before you hope to close the deal. You need to hire the right team to help you through the process, starting with a good business attorney. The first step is to complete the valuation. This gives you time to remedy any issues that arise from it. Then comes the research into potential buyers, negotiations, and closing the deal. All these steps take time. Don’t wait until you’re ready to call it quits to start the process.

3. Know Your Sale Options

Agency owners may choose to sell their agencies to an internal buyer, such as a producer, or an external one. When you sell your agency internally, your buyer may choose to take out a loan to buy the agency outright. This is called a leveraged buyout. Or, you may work out a deal where the buyer pays you incrementally until he or she fully owns the agency. This is called an owner-financed transaction.

Some external sales are roll ups. This happens when another agency absorbs yours into its existing structure. Other times, a buyer purchases your agency outright and moves right in without changing staff or location. On the other end of the spectrum, a book buy occurs when a buyer purchases just your list of customers, not your staff or your physical agency.

Selling your agency can be complicated, so it helps to have a great team on your side. Smart Choice® agency partners have the freedom to sell or transfer their agencies as they see fit, including to family members or agency employees or producers. We’ll even help you sell your agency for free, saving you in business broker fees. Contact us today to discover why a partnership with Smart Choice® is the smart choice

Sources:

Agency Equity

Insurance Journal

Property Casualty 360

The Key to Marketing Your Insurance Agency? Develop a Process, Follow Through, Be Accountable, & Get Help if You Need It

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The Key to Marketing Your Insurance Agency? Develop a Process, Follow Through, Be Accountable, & Get Help if You Need It
By: Michael Miller, Smart Choice® State Director

As an independent agent, it’s easy to get so caught up in your business that you forget to work on your business. But, if we fail to continuously develop and close leads, eventually, our agencies will suffer.

That’s why I encourage insurance agents to create a formal, repeatable sales process for selling and cross-selling all lines of insurance. With proper follow up and support, such a process can keep leads and prospects coming in the door.

Develop a formal, repeatable sales process.

As the state director for Smart Choice® MN, WI & IA, I offer my agents training on a marketing system that develops formal, repeatable processes for each insurance line. We start with defining an agent’s sales goals and then create a process to meet those goals. Specific action items empower agents to generate leads and close more business.

Here are some action items that have proven effective for myself and the agents I work with:

  • sending direct mail letters
  • tapping the power of digital marketing tools, such as social media and email
  • making follow-up phone calls and call scripts
  • using fact-finder sheets to guide the conversation in initial client meetings
  • cross-line selling other insurance products
  • sending thank you cards
  • requoting old leads

Whatever action items you choose, write down your process and review your steps to make sure it’s repeatable.

Follow through with your sales process & be accountable for each step.

Even the most thoughtful and efficient process is ineffective if you don’t put it to use. Now that you have the steps in place to develop your agency’s prospects, you need to follow through. Block out time on your calendar to complete every action item. Ask a staff member to remind you to work through each step. Consider delegating tasks to staff members, too.

Get help if you need it.

Sometimes, relying on staff just isn’t enough to make your process successful. If this happens to you, consider calling in some outside help. A business coach or mentor can be a helpful partner in the sale process. So can a formal marketing system.

3 Questions To Ask Your Prospects To Eliminate Price Objections And Sell More Insurance Policies

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3 QUESTIONS TO ASK YOUR PROSPECTS TO ELIMINATE PRICE OBJECTIONS AND SELL MORE INSURANCE POLICIES
BY: MICHAEL MILLER, SMART CHOICE® STATE DIRECTOR

In my recent article, “The Art of the Close,” I discussed how I coach insurance agents to close on value versus cost. I don’t leave my close until the end of my meeting with a prospect. The entire meeting is the close. I use a comprehensive client profile to help prospects identify and understand the risks they face. The profile gives me the chance to sell on value, not cost, as well as the opportunity to cross sell my products.

As we complete the profile together, I’m able to ask my prospects specific questions about how they plan to pay for unexpected events. This almost always eliminates the price objection because prospects’ own answers to my questions provide the reason to buy on value.

Here are three questions I ask to help my clients see the value of comprehensive insurance coverage.

  1. If you hit and seriously injure an uninsured motorist, how would you prefer to pay for his or her medical bills?

Most people don’t realize they’re personally on the hook for medical expenses over and beyond what their policy covers. Explaining this and then asking what they’re comfortable paying for out of pocket makes it easy to sell adequate liability, under-insured, and uninsured motorist coverage.

  1. If you died tomorrow, how much money would your wife/husband need to pay for your funeral arrangements and cover monthly expenses?

This is a great question to get auto and home prospects to consider purchasing life insurance. Prospects are already thinking about what they need to cover injury and their physical property. This question can lead to a conversation on how life insurance protects and provides for their families.

  1. What is your plan for protecting your assets in the event of a lawsuit against you?

Most prospects don’t have an answer for this question, which makes it an effective way to cross sell umbrella policies.

 

The Art of the Close: Ask Questions to Get Insurance Clients to Buy on Value, Not Cost

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The Art of the Close: Ask Questions to Get Insurance Clients to Buy on Value, Not Cost
By: Michael Miller, Smart Choice® State Director

Most of the time, “all people are created equal” is true. But unfortunately, not everyone enjoys a natural talent for sales. Some agents struggle to make $35,000 to $50,000 per year, while others make earning $1 million a year look easy.

When I asked the top agents in my region what made them such successful salespeople, they shared with me that a professional sales presentation is their top priority. “Ad libbing is for amateurs,” they say. They rehearse every presentation for every client.

For an artful close, ask the right questions

Focus on making your presentation the most valuable and comprehensive it can possibly be for your clients. You’re not just selling insurance, you’re consulting with your clients on the amount of risk they’re willing to accept. Your job before and during the presentation is to determine your client’s current coverages and current needs based on their risk tolerance.

How you determine what your clients need sets you apart from the typical insurance agent. I encourage agents to use a presentation template that prompts them to ask questions about what’s important to their clients. How much risk are they willing to accept with their auto and homeowners insurance coverages? Life? Health? Business? If you design an effective presentation template, by the end of your meeting, you’ll have:

  • set high expectations for the level of customer service your agency offers.
  • determined appropriate coverage for auto and homeowners or renters insurance.
  • assessed your client’s interest in life, health, and retirement products.
  • discovered if your client requires business insurance.

An example of closing on value vs. cost

Asking questions about acceptable risk and offering solutions tailored to your client’s answers eliminate the price objection almost every time because you’re selling on value, not cost. Their own answers to your questions make them aware that they need much more than basic liability.

If your sales presentation had not uncovered their needs, all you’ve done is compete with their current agent on cost. An effective presentation identifies risk tolerance and offers solutions. It allows you to compete on value. It earns you the right to ask them to pay a little more each month for insurance because it explains where the extra cost is coming from: a more comprehensive insurance program.