Live Oak Bank – Know Before You Grow – Down Payments on Agency Acquisitions

One of the most frequent and multi-faceted questions we receive is, “How much of a down payment is needed to buy an agency?”

Hold on a minute – we need a little more information!

On down payments, the overarching requirement is cash flow. The purchase price, down payment, and deal structure must result in sufficient cash flow to operate the business, compensate the owner, and repay the loan. In situations where the purchase price is steep, there may be a larger down payment required simply for the deal to make cashflow-sense.

A great feature of SBA agency acquisition loans is the 10-year loan term (longer with real estate) with no prepayment penalty. This provides for a lower monthly payment and the ability to prepay if you determine that is best use of cash.

Here are the SBA down payment requirements for insurance agency acquisitions:

  • For Purchase Price under $500,000, there is not a specific down-payment amount required. Same as most lenders, we like to see the Borrower come to the table with some cash and put “skin in the game;” however, the cash amount varies by each individual borrower’s liquidity situation. It could be $2,000 or $40,000 – generally speaking, half of personal available cash (checking, savings). This does not include 401k or retirement assets.
  • For Purchase Price in excess of $500,000, there must be an “equity” component of 25% of the Purchase Price. This “equity” component includes any combination of the following:
    1. Cash down payment from the Buyer. For new owners this can be daunting. Self-directed 401k/IRAs can work, please call to discuss.
    2. Equity value of existing agency owned by the Buyer (if any). This can eliminate the need for any cash down payment. Again, we do like Buyers to put cash in the deal, but it varies widely by situation. Please call for a confidential discussion.
    3. Seller Finance is a standard element of agency acquisitions and provides renewal retention protection and motivation for the Seller to assist in the transition to the new owner. Seller Finance must be subordinate to the Lender and include a two-year “Stand By” period, meaning there may be no required interest or principal payments in the first twenty-four months of the loan.

The drivers of any deal are profitability and cash flow. To evaluate a potential acquisition, we have a simple worksheet to run scenarios regarding purchase price, cash down payments, and loan terms. Please contact me today to discuss your plans, and, together, work for the right lending solution. We want to be your business partner, not just a bank.

Kelly Drouillard is the General Manager of the Insurance lending division at Live Oak Bank. Reach her at 913.980.7773 or