Are you eyeing the vibrant insurance broking industry, considering a loan to acquire a client book or secure business premises? Here’s your comprehensive guide to making informed decisions and ensuring success in the insurance broking space. 

Loan Details: 

• Client Book: Borrow up to 60% of the portfolio value (based on the bank’s revenue multiplier). 
• Freehold Property: Borrow up to 70% of the property value. 
• Loan Duration: Principal and interest over 10 years; interest-only for 3 years. 
• Cash Flow Finance: Available with residential property as security. 
• Security: Leverage commission income and premium funding. 
• Qualifications: Strong financial position, at least 3 years of management experience, evidence of Australian Financial Services Licence (AFSL), and a business plan may be required. 

Qualifying for a Business Loan: 

In the dynamic insurance broking landscape, success hinges on showcasing your ability to run a thriving venture. Banks look for evidence of at least 5 years of industry experience, with 3 years in managing an insurance brokerage or underwriting business. An accountant-approved business plan, outlining capital expenditure and revenue forecasts, is often a requirement. 

Requirements for Buying a Client Portfolio: 

When purchasing a client portfolio, lenders may have specific benchmarks for financial performance: 

• Minimum Gross Written Premium (GWP): $1 million. 
• Diversification: GWP spread across multiple insurance companies. 
• Minimum Annual Revenue: $600,000. 
• Interest Cover: More than 2.0x the debt level or 1.5x when secured by property. 
• Profitability (EBIT/Gross Income): More than 20% of total revenue. 
• Client Concentration: No single client contributing more than 20% of total revenue. 
• Insurer Limit: No single insurer exceeding 30% of the underwriting agency’s GWP. 
• Diverse Offerings: The business must offer a minimum of 3 types of insurance products. 

Choosing the Right Brokerage: 

Whether online or through networking, finding the right brokerage is crucial. Consider the types of services offered, ensuring they align with your skills and experience. Evaluate the financials over the past 3 years, looking for ATO tax portals and profit and loss statements. Asking why the vendor is selling is key, along with assessing software and systems in place for efficient operation. 

Heads of Agreement and Transition Phase: 

• Ensure key management and staff come with the deal. 
• The Heads of Agreement should outline assurances for staff retention post-sale. 
• Implement a client retention and restraint-of-trade clause for protection. 
• A current owner staying on in a consultative role for 6-12 months provides stability. 

Protecting Your Investment: 

Engage professionals like business brokers, accountants, and solicitors to analyze financials and negotiate fair prices. A solicitor checks for clear titles, absence of caveats, and ongoing litigation issues. Building a team of experts helps you avoid costly mistakes and ensures a smoother transition into ownership. 

Industry Snapshot: 

The insurance broking industry has witnessed significant growth, driven by higher professional standards set by the National Insurance Brokers Association (NIBA). Over half of all Australian insurance policies are now written through brokers and underwriters. While opportunities abound, finding strong client books for sale remains a challenge. 

Conclusion: 

Entering the insurance broking industry requires meticulous planning, due diligence, and professional guidance. A well-structured insurance broking business loan, coupled with a strategic approach, positions you for success in this dynamic and growing sector.