Funding Your New Agency

Keith Butler, Territory Manager and Recruiter

So you want to start your own company, but you’re not sure how exactly you’ll fund those initial costs before you can start bringing revenue in. Whether you are starting your own independent insurance agency, or setting out on another business venture, there are a few things to keep in mind.

Most entrepreneurs start their companies by investing their personal savings. This financing option can be ideal – if you can afford it. It will put you in full control of how much ­­­funding you will get, and you will never have to justify your business decisions to investors. You will have the freedom to operate as you see best.

There is a trade-off, though: this freedom can come at the expense of having little personal savings left and not a lot of capital to launch your business with.

So what are the other options available to you? Let’s look at the 8 most common.

1. Personal Savings:

Saving up to start a business takes determination and sacrifice. Save as much as you can for as long as you can. You will need every dollar you can get your hands on. Consequently, you may have to give up luxuries – such as vacations and new cars – for a while. The reward is the ability to launch your startup.

2. Personal Credit Cards: 

If you can’t secure a business credit card, a personal credit card (or two) with a reasonably high limit can help you get those first few purchases and your business underway. Keep a close eye on your credit utilization and pay your bills on time, because putting business expenses on personal credit cards can hurt your personal credit scores.

3. Business Credit Cards:

While many of us think of credit cards as a safe and convenient way to pay for purchases, they also offer access to an unsecured loan in the form of a line of credit. Business credit cards can help you get off on the right foot, separating business and personal finances and establishing business credit.

To qualify for a business credit card, issuers will generally look at your personal credit scores and combined personal and business income. While they may not require collateral, they typically require a personal guarantee.  A good tip would be to choose a card with a 0% introductory rate offer. Doing so allows you to make purchases and carry a balance for 9, 12, or even 15 months without paying interest while you get your business going. In a recent survey by the Federal Reserve Small Business Credit, 53% of small businesses reported using credit cards to help fund their operations.

4. Savings/Home Equity: 

Dipping into your savings is an even riskier business, but if you have a good amount set aside this could be the cheapest option for you. Borrowing against your home’s equity is a cheap option but very risky. 

5. 401K/ IRA Savings: 

You may be able to withdraw funds from your retirement plan, borrow against a 401(k) or a 403(b) plan to shift retirement funds to your business.  Keep in mind that it may not be wise to bet your whole retirement savings on your brand new business.

6. Small Business Administration (SBA) Microloans:

SBA microloans are also an option, though they can vary widely. Check your local SBA office for more information.

7. Equity Financing:

As you can likely guess, dilutive funding (or equity financing) means an entrepreneur has to cede a portion of his or her ownership to secure capital. Invariably, dilutive funding requires a willingness to sacrifice some control over the company’s direction as well as a cut of the future profits.

8. Friends and Family:

Many businesses have been funded with the help of friends and family members. Tread carefully, and don’t apply pressure, but if they’re willing, your family can be a positive backing for your new venture. Another way to approach it is to ask them to be the first backers in your business.

While there are other options out there, selecting the best business financing option for you is critical in successfully starting your insurance agency. Based on your unique business venture and your financial history, one or a combination of these options will be best for you.

If you are looking to start your own independent insurance agency, Mountain Empire Agency Alliance has a proprietary Foundation Program to help new agencies get started, by providing mentoring, direct carrier access, software, and more. Having someone in your corner from day one will help you succeed is helpful as you ponder your many questions, from financing your business to making sure you create something profitable and long-lasting.