Agency Perpetuation Loans


As senior leaders in large agencies decide to retire or pursue other interests, they are faced with the challenge of ensuring that the agency continues without them. FIRST has experience designing loans that allow key staff to buy out agency owners and principals. These loans usually use the agency stock as collateral and often have terms of up to 10 years.

The following is the story of how a member of the Business Insurance Top 100 was able to finance an agency perpetuation program through FIRST when local financial institutions were unable to provide funding.

The Need
Satisfying the company’s growth plan meant diversifying its ownership to ensure that the agency would survive and not be reliant upon any member of the founding family. They wanted to reward their key executives and producers with the opportunity to purchase significant ownership in the agency they helped to build over the last several years.

Local financial institutions, who had limited knowledge of the structure and valuation of insurance agencies, found loans based on the agency stock prohibitive since their private-ownership made liquidity a risk.

The Solution
FIRST designed a loan program that allowed agency principals to finance the entire cost of the agency stock (100% loan to value). Each agency principal received a 12 year loan with a variable interest rate.

The principals augmented their loans with a separate “Put” Agreement with the agency. While this agreement mitigated the liquidity risk to FIRST, it allowed the agency to regain control of its stock (at a potential discount) in the event that one of the principals defaulted on the loan.

The Results
Over a two year period, FIRST loaned more than $5 million to six agency principals (including the COO, CFO and two top producers) to buy stock in the agency. They secured a $500,000 leasing program and have been an exclusive premium finance customer of FIRST’s for more than 10 years.