As an independent agent or agency owner, you have unique financial needs. Unfortunately, few banks truly unde
rstand those needs. Worse yet, it has become the norm for banks to also sell insurance, meaning they actually compete against you.
How can independent agents or agency owners find the right bank for their agency? Choosing an agency-focused
bank is one of the most important things you can do to help your agency grow and succeed.
1. Does the bank understand your unique cash flow?
All banks offer business deposit products, such as checking and savings accounts. However, independent
agencies are not like many other businesses. Independent agen
cies have unique cash management needs by virtue of mon
thly fluctuations in premium payment volume. A bank that reco
gnizes that difference will offer a range of specialized deposit products to help agents facilitate cash management and maximize value.
For example, when it comes to better ways to make the most of your daily operating funds, find out if your ban
k offers an account specifically designed to give you a preferred interest rate on your premium trust deposits. Also, depending on the amount of excess cash your agency has available, perhaps a sweep account tha
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t automatically transfers excess cash into an investment account is appropriate. Another helpful cash man
agement tool is a custom-term certificate of deposit-where you determine the maturity date that best matches your
cash flow cycles. Your bank might offer online banking, money market ac-counts and overdraft protection to business customers. However, it is important to read
the fine print and ask your banker about the product features, interest rates and monthly fees to make sure those accounts meet your financial needs.
2. When you need a loan will you be able to get one?
What sets a good bank apart from a great one is its understanding of how independent insurance agencies work. This
understanding is especially important should you need a sizeable loan for agency acquisition, perpetuation or prod
ucer development. While all lenders factor a business’s collateral into their loan decisions, not all lenders define “collateral” the same way. Traditional banks typi
cally require tangi
ble assets to collateralize a business loan. The problem is, agencies don’t have much to show in tangible assets. I
n the absence of inventory or equipment, agents may be required to pledge their homes or other personal assets.
The solution is to look for a lender that understands it is your total book of business that reflects your agency’s size and strength. They will be more likel
y to define “collateral” more broadly by taking into account your agency’s history, the relative stability of its cash flow, the strength of your client relationships and
the ongoing potential of your book of business. This can make all the difference when an agency principal needs capital to expand, buy out a competitor or keep the business in the family.