Eight Tips for Securing Your Allstate Agency Loan
By Paul Clarke
PPC LOAN has been working with Allstate agents for over 8 years and has funded over $180,000,000 in agency loans. We pride ourselves on our proven track record of helping people realize their dreams of owning a successful Allstate agency. Purchasing an Allstate agency is a tremendous decision, and knowing what your lender is looking for can help you secure the best financing terms available. Allstate agency loans are structured differently than home mortgages so application requirements are very different. There are many ways in which you can prepare for a successful loan approval in advance of contacting a lender.
1. Check your credit. As a general rule you should review your credit report at least once a year to make sure your identity has not been compromised. Additionally you should check your report before applying for a loan. The Federal Trade Commission requires each of the three credit reporting agencies provide consumers with a free copy of their credit report once each year. A central Web site, approved by the FTC has been set up for this purpose. You can visit http://www.annualcreditreport.com/, call 877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The form can be downloaded from FTC’s Web site at http://ftc.gov/credit.
It’s difficult to believe that a $70 utility bill from a year ago would have much effect on your credit rating, but even seemingly small items can drastically affect your score. Verifying that your balances, payment history, and social security number are all correct is crucial. Staying up to date with your credit rating will allow you to be prepared for any questions your lender may have, and to ultimately save thousands of dollars by securing a lower interest rate.
2. Avoid credit card debt. High levels of credit card debt are viewed unfavorably from a lender’s perspective. It’s unfortunate when you have years of proven experience, a thriving agency, with a favorable cash flow, but are faced with a higher interest rate or possibly a declination due to high levels of credit card debt. Maintaining a revolving credit card balance below $25,000 will go a long way to helping you secure a favorable loan. Lenders will likely have some tough questions if you let your balance increase much over this amount. Keeping your credit card balances below 30 percent of your available limit will also reflect well on your credit report.
3. Be careful about what you buy. It may be tempting to purchase that new Mercedes, or a big boat, but the amount of debt you have incurred will directly affect the amount of money that you can borrow. When a lender analyzes your loan, they factor in all current obligations such as mortgage, automobile, and credit card payments. Lenders also like to see a net worth that is 25 percent or greater than the total loan request. You may have found the perfect agency to purchase, but if you have high living expenses the agency simply may not be able to provide the cash flow that you need.
4. Be fiscally responsible. Although there is no hard and fast rule that you must adhere to in regards to personal finances it is important to realize to some extent, your personal financial statement is interpreted as a reflection of your character. Individuals with responsible and well managed finances show that they have discipline, an important attribute in maintaining a successful agency. Bankers want to feel comfortable that when they make a loan they will receive timely payments and a responsible financial statement helps to create this assurance.
5. Take your time: Purchasing an agency is a very big decision. Make sure that you have allowed yourself plenty of time to make the best choice for you and your family. Will you still be happy with your agency five, ten, or fifteen years down the road? Eventually the honeymoon ends and the reality of your decision will set in, so be sure that you’re selecting the right agency. Ask yourself if you are buying this agency because it is really something that you want to do and will allow you to improve your quality of life. Are you considering this purchase just because the opportunity arose? Perhaps you’ve found something in the perfect location, but it’s the wrong agency. It can be easy to get carried away and follow an impulse, so take some time to step back and think about your decision. Most agents will only purchase one agency in their lifetime - so don’t rush into something that you may regret for a long time to come.
6. Understand the business. Borrowing money for an Allstate agency is very different than securing a home mortgage loan. When you purchase an Allstate agency the lender is extending you a large amount of money without any tangible assets as collateral. Instead, the bank is lending to you based on the qualifications of your business skill and ownership ability.
Familiarizing yourself with the business operations and the numbers involved with the agency you are looking to purchase creates a very good impression with a lender.
It is a good idea to keep in mind some important benchmarks that affect the bonus from Allstate, such as the rate of retention, policy growth, and profitability. A rate of retention above 83 percent is the standard, with 88 percent being an above average retention. It is important to at least maintain the policy growth each year, as well as maintaining a loss ratio below 60 percent. Having a business plan shows that you have put some thought into this purchase and you have a plan to succeed. Important things to address include why you have chosen this specific book of business, how you plan to run the agency, any changes you might make, and why you know that you will succeed. When you present a strong argument to a lender, you are more likely to secure approval of a loan with attractive terms.
7. Revamp your resume. You are requesting a large amount of money based on your skill and knowledge, so showing a lender that you have past experience and expertise is significant to gaining approval for the loan you want. Typically, at least two years of insurance experience is required to obtain loan approval, but if you show that you have solid business experience and are able and willing to make a down payment often loan approval can still be acquired. It is always good to list past education, employment, and other accomplishments; but it’s also important to relate specific accomplishments and how they have prepared you for future success as an Allstate agent. Maybe you have exceeded performance expectations, been able to grow an agency despite tough market conditions, consistently performed at a high level, or excelled in customer service. Whatever it may be - make sure to include these achievements on your resume as they will help a lender to understand why you are a good candidate for a loan.
8. Be prepared for the loan process. The loan application process does not have to be stressful or difficult. However, you are requesting a large sum of money without physical collateral so it does take time and dedication on your part to secure favorable terms. Submit a complete and organized loan package to ensure that you will receive approval as quickly as possible. Once you have returned an accepted and signed commitment letter to your lender, you have passed the negotiation stage and the closing process begins.
Closing is all about communication and getting things completed quickly and efficiently. If you are willing to put in a little bit of work, you can have your loan closed in as little as 10 days. Prior to settling into a newly acquired business may seem like a great time to take a vacation, but it can greatly hinder the closing process if you are out of touch and unable to complete the needed documents.
Good luck with your loan application
As a borrower, it is not easy to know exactly what a lender is looking for in a financing opportunity. Hopefully this information has been helpful and provided you with a little insight on how to secure the best loan terms available. With a little attention to detail, you will be in great shape the next time you apply for an agency loan!
Paul Clarke is Chief Operating Officer of PPC LOAN, a nationwide lender with over 10 years of experience in providing financing for Allstate agents. Paul and his staff can be contacted at (800) 456-2779 or you can visit PPC LOAN online at ppcloan.com.
