In 2018, the insurance industry saw annual net income growth of $60 billion, with only a slight decrease in profits during the first half of 2019. These recent years of insurance industry growth may stem from the types of insurance available in the U.S. Insurance provides people from all walks of life with financial security regarding their healthcare, homes, cars, and so much more. Companies also purchase insurance to prevent liability in cases of work-related employee injuries, lawsuits against directors and officers, and many other business concerns.
All that said, the insurance industry is one of many that hasn’t been spared the economic damages of the COVID-19 pandemic. The health insurance industry has been especially affected, with insurers in this sector quickly pushing past their medical loss ratio limits. The novel coronavirus has yet to loosen its grip on the U.S., and as the pandemic continues, insurance company owners may turn to low-cost small business funding to stay in the black.
If you own an established insurance company and want to expand your services, grow your staff, or amplify your marketing campaigns, here’s how you can obtain small business funding.
Financing Options for Established Insurance Companies During the COVID-19 Coronavirus Pandemic
Not long after the COVID-19 pandemic required a national shutdown in March 2020, Congress and the White House worked together to introduce the CARES Act. Included in this bill was a new Small Business Administration (SBA) 7(a) loan program: the Paycheck Protection Program (PPP).
The SBA introduced PPP loans so that small businesses such as insurance companies could access extra funding to weather the economic storm of a national shutdown.
To learn more about how small business owners, including insurance company owners, can use the money from their PPP loans, visit the SmartBiz Loans COVID-19 information center: Small Business Loans & Resources in Times of Coronavirus (COVID-19).
The program expires on May 31, 2021. No applications will be accepted after that date. Keep an eye on the SmartBiz Small Business Blog for updated information about an extension if approved by congress.
The challenges of obtaining insurance company financing
Accessing funding for insurance companies may prove tougher during the COVID-19 pandemic given the risk now inherent in certain insurance industry sectors. In a 305-person survey of the insurance industry conducted in April 2020, 71% of respondents listed financial impacts as their key concern regarding the COVID-19 pandemic, and 19% of respondents ranked difficulties with funding as another top concern. However, even amidst the challenges of the novel coronavirus pandemic, funding options remain available for insurance companies.
Financial options for insurance companies
It’s not always simple to obtain insurance company loans, especially at affordable rates. However, you have options. There are several types of SBA loans available, plus other types of funding, such as business lines of credit. Below, learn everything you should know about your insurance company loan options. As you learn more, keep in mind that small business loan wait times, rates, and fees vary by provider.
The SBA 7(a) loan program
If your insurance company qualifies for a low-cost SBA 7(a) loan, this funding option might be your best choice. The low monthly payments, low rates, and long payment terms of SBA 7(a) loans make stabilizing and growing your business much easier – and these loans streamline saving money as well.
You can use an SBA 7(a) loan to cover costs including:
- Working Capital – Working capital is the amount of cash your insurance company can quickly, regularly access. Many experts view working capital as the strongest indicator of your company’s health, and you can calculate it by subtracting your current liabilities from your current assets. A negative difference signifies a need for additional working capital to achieve stability.
Insurance company ownership means having enough working capital for all regular expenses. That’s why SBA 7(a) loans are especially useful – since you can use them toward working capital, you can use their funds to upgrade your equipment, improve your services, contract third-party companies, and hire new employees.
- Commercial Real Estate – SBA 7(a) loan proceeds can go toward owner-occupied commercial space purchases. If your insurance company has any commercial mortgages, you can use your loan to refinance them as well.
- Debt Consolidation Loans – Debt consolidation loans allow you to refinance any short-term business loans, daily or weekly payment loans, merchant cash advances, or high-interest business loans that you’ve previously taken for your insurance company.
Advantages of SBA 7(a) loans for an insurance company
There’s a reason lending experts see SBA 7(a) loans as the “gold standard” – actually, there are several. They include:
- 10-year terms (25-year terms for commercial real estate loans)
- Low rates and affordable monthly payments
- Wide use of funds
- No prepayment penalties
- Available in all 50 states
- Requirements to apply for an SBA 7(a) loan for an insurance company
With variation by lender, you can expect the following requirements when you apply for an SBA 7(a) loan:
- You must be a U.S. citizen or lawful permanent resident
- You must be at least 21 years old
- Your insurance company must be located in the U.S.
- You and your insurance company must be on track with all government-related loan repayments
- Your personal credit score must be above 650
- You must have no bankruptcies or foreclosures during the past three years
- You must have no recent settlements or charge-offs
- Your insurance company must be at least two years old with no outstanding tax liens
That said, no two lenders have exactly the same approval requirements. For example, some lenders will require you to present your insurance company’s business plan, but others (including SmartBiz Loans) have no such rule.
How to apply for an SBA 7(a) loan for your insurance company
Step 1: Confirm that your insurance company meets the above requirements. If it does, you’re off to a good start. Learn more via the SmartBiz Loans page about SBA Loan Requirements for Existing Business to learn more.
To discover how your business financials stack up for funding, use our easy-to-use online tool. SmartBiz Advisor™ helps you track the financial health of your business and learn how banks typically evaluate your business.* SmartBiz Advisor also recommends ways to help you improve your credit and strengthen the financial health of your business as needed. Read feedback from real SmartBiz Advisor users and sign up here.*
Step 2: It’s paperwork time. As you can guess from the above list of requirements, SBA 7(a) loan applications include piles of paperwork, so it’s never too soon to start gathering and organizing your documents. To learn more about your documentation needs, visit the SmartBiz Loans blog How to Get an SBA Loan: Documents You Need. You may find it helpful to have your accountant, bookkeeper, or other financial professionals prepare your paperwork.
Step 3: Choose your lender based on the following important factors:
When can you contact your lender? Is phone an option in addition to email? Choose a lender that’s always available, and make sure your lender connects you with an agent who understands your industry, application, and insurance company. If you face difficulty achieving any of these things, you may want to try a different lender.
Open lines of communication are just the start. Your lender should be unafraid to discuss your loan’s APR or annual interest rate.
Obvious loan terms
Complex fine print should be concerning. Anything other than crystal-clear details may be obscuring unfavorable payment schedules and loan costs. Look for a clearly stated total loan amount, prepayment penalties (if applicable), collateral requirements, and required payment amounts and frequency.
Another thing to avoid: hidden fees. You want to partner with a lender that charges interest fees and repayment fees -- and little else. Ensure that the fees owed are very clear and easy to understand. Make sure all fees are due during your loan’s lifetime and before loan funding.
Assessing your lender’s reputation is a great way to double-check favorable loan terms with transparent repayment structures and fees. See what people on Consumer Affairs, TrustPilot, or Google say about your lender. Compare their experience to your needs before choosing.
The SBA 504 loan program
Through the SBA 504 loan program, small businesses can obtain low-cost modernization and expansion funding. If your insurance company needs new commercial real estate, then SBA 504 loans might be for you.
SBA 504 loans might also work for you if your company falls within the public policy goals of your local community development corporation (CDC). If it does, your CDC might cover as much as 40% of your project cost. Your 504 loan could cover up to 50%, with your own cash down payment covering the rest.
The SBA microloan program
Through the SBA Microloan Program, your insurance company can access loans of no more than $50,000 if it meets the SBA definition of a very small business or microbusiness. No matter from whom you obtain your SBA microloans, your funds cannot go toward real estate purchases or debt payments. However, they are valid for all other business use.
Non-SBA loans and other funding options
SBA loans aren’t your only route for insurance company funding, but your other options will often require larger payments, span shorter terms, and have higher rates. These options include:
Merchant cash advances
If your insurance company accepts credit and debit card payments, you may be able to pursue a merchant cash advance (MCA). With an MCA, you receive advance funding that you repay by funneling a percentage of all your transactions toward your loan provider. You can also make regularly scheduled payments instead. This convenience isn’t always cheap: MCAs often have extremely high APRs. Read more about MCAs via the SmartBiz Loans blog What You Need to Know About an MCA.
Bank term loans
If you don’t qualify for SBA loans but you still need funding quickly, consider bank term loans. Usually, you can use bank term loans to obtain working capital, buy new equipment, or refinance your debts. Consult your lender about repayment terms, prepayment penalties, rates, and possible loan amounts.
Business lines of credit
Through business lines of credit, you can borrow money up to a maximum that varies with your credit. This means that business lines of credit usually allow access to less funding than do term loans.
Business lines of credit only require interest payments on funds you actually use, and they allow you to borrow money as often as you’d like until you hit your maximum. Additionally, putting up collateral isn’t usually a requirement for obtaining business lines of credit. Read more via the SmartBiz Loans blog Small Business Lines of Credit Pros and Cons.
Business lines of credit are somewhat similar to business credit cards, as both are revolving lines of credit. However, you can reuse business credit cards after reaching their credit limits and repaying your loan, which is not the case for business lines of credit. Some business credit cards also include the added perk of spending rewards.
Insurance Company Funding Success Story
Renzo Campanella is the owner of Allstar Assurance, a multi-line property and casualty insurance agency that offers customizable policies for Florida companies and individuals. Campanella came to SmartBiz Loans when he needed low-cost small business funding after tapping out his own personal resources. When he founded his business, he said, he “maxed out my credit cards and line of credit. I used all of my savings and hoped for the best.”
Campanella used his 10-year, $350,000 SBA loan to launch a marketing campaign via social media, billboards, and magazine ads. Additionally, Campanella said at the time of his loan, “We currently have six on staff and [can use our loan] to hire three more people.”
Why choose SmartBiz Loans?
Need funding to rebuild your business? Don’t waste time going from bank-to-bank filling out multiple applications. SmartBiz helps you find the best financing for your unique needs whether that’s an SBA loan, Bank Term loan, or other financing. About 90% of qualified applications we refer to banks are funded and our financial professionals are on hand to answer your questions. Discover if you’re pre-qualified here without impacting your credit scores** and read the SmartBiz 5-star customer service reviews on TrustPilot.
*The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.
**We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.