How To Talk With Your Banker

By Paul Rudersdorf

As an insurance agency owner, how do you explain your business to your banker? Most businesses have assets on their balance sheet that a bank feels comfortable lending on, like receivables, inventory, equipment, and real estate. But every now and then, you may need cash as well. Perhaps you’ll need cash to upgrade your computer system, hire new agents who won’t produce for 12 months, or buy another agency. Your balance sheet assets might include your building and cash, but not much else. How do you justify to your banker that you are a good candidate for a loan?

If you have been successful, you have a book of solid clients that provide great cash flow for your business. That book of business does not show up on your balance sheet, but it is real, it’s stable, it’s predictable, and it pays all your bills. It is a very dependable stream of earnings. The dilemma you face is the difficulty bankers have in lending on an intangible “asset” that doesn’t show up on any financial report.

Here is what we know. The client book of business typically shows a high retention rate and determines the value of your business. Most banks don’t really understand this and have difficulty lending to an agency, and if they do, they often require a government guaranty and restrictive loan requirements.

How do you tackle the frustration of seeking a bank loan when you need the money? You need a bank and a banker that understands the industry and feels comfortable lending to agencies. They are experienced and understand the uniqueness of the industry and how your business is valued. They understand your mix of business, and they ask the right questions.

Knowing how to talk to your banker is very important, and if you are a valued client of theirs, they will go to great lengths to serve you. What if you want to buy another agency? If your banker is on their game, they can help you determine the value of the agency, how much to pay, and structure a loan that makes sense to your unique situation. The bank doesn’t always have the upper-hand, and it is not a given that you will have to pledge your home as collateral, do an SBA loan, or agree to numerous restrictive requirements. Every situation is different. There is no one way to structure a loan.

When I was interviewing a prospective agency client as a banker, it was the norm that the agency owner believed the banker held all the cards, making them jump through numerous hoops to get a loan approved. They felt like they were begging for the money.

Banks want and need good clients, and you want them to fight to get you as a client. Maybe that should be your mindset at the start of the conversation. Remember, you are interviewing them as much as they are interviewing you.

Paul Rudersdorf is the owner of Northpoint Business Consulting, LLC, a former bank CEO, and works with insurance agencies.