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Empowering local agents Titan Lending Group offers financing and consulting to an underserved industry segment By Elisabeth Boone, CPCU Why do agency owners go to banks? Because, as notorious holdup artist Willie Sutton famously observed: “That’s where the money is.” Independent agencies need access to capital for a host of reasons: perpetuation, expansion, mergers and acquisitions, and equipment purchases, to name just a few. To obtain financing, many owners do indeed go to the bank—but they don’t always get what they want. As highly as a local bank may value its relationship with the owners of a successful agency, it simply may not have sufficient understanding of the agency business to make an informed lending decision. Enter Titan Lending Group™, a specialty finance group based in Nashville, Tennessee, that offers an array of loan solutions to local independent agencies and also provides support in the form of access to the services of a leading insurance industry consulting firm. Titan Lending is a wholly owned subsidiary of Brooke Credit Corporation (BCC), a specialty finance company that arranges loans to agencies that are franchisees of Brooke Franchise Corporation, Allstate captive agents, and managing general agents. As such, Titan represents the non-franchise lending arm of BCC for loans to independent agencies. Titan Lending Group operates under the direction of Vice President Woody Ratterman III, who from 2002 to 2004 worked on mergers and acquisitions during Brooke’s independent agency franchise expansion. Ratterman’s 14-year insurance career also includes experience as an owner of his family’s independent agency and as a broker with Willis. “I’ve been involved in just about every aspect of the industry,” Ratterman says, noting that he held a Series 6 and 63 securities license and directed the life, health, and financial services division of his family’s agency. Underserved market When it comes to independent agencies, “This is an industry that for a long time has been underserved and underappreciated by traditional lenders,” says Michael Lowry, president and chief executive officer of Brooke Credit. “Traditional lenders don’t understand the business, and it’s very difficult for them to look at an agency’s book of business as collateral. When we underwrite a loan for an agency, we focus on the owners’ experience and their track record as insurance professionals, whereas traditional lenders focus more on net worth and personal credit scores. They’re more interested in what an agency owner has in terms of tangible assets. “At the end of 2006 we had about a $500 million loan portfolio, and the bulk of that was loans to the insurance industry,” Lowry points out. “In the past, Brooke Credit primarily focused its lending activities on franchisees of our sister company, Brooke Franchise Corporation. We launched Titan Lending to provide our financing product to agencies that are not franchisees of Brooke Franchise Corporation.” Ratterman agrees that independent agencies are underserved by traditional capital markets. “From my own experience as an agency owner, I know how hard it is for independent agents to find capital to expand their agencies and really get aggressive from an entrepreneurial standpoint by acquiring other agencies,” Ratterman says. “From all the reports we’re seeing, the owners of independent agencies are getting older and older, and they’re having a hard time finding ways to effectively perpetuate their agencies, whether they take on the owner financing role or decide to sell to a bigger operation, which is not always what they want,” Ratterman says. “For example, my father wanted our agency to stay in our small community and keep that tradition going. That’s hard to do when you can’t find local buyers because they can’t borrow the money.” It’s locally owned agencies like his family’s that Titan Lending was created to assist, Ratterman says. “Our mission is to help independent agents achieve their long-term objectives, whether it’s growing organically, finding other agencies that share their philosophy and would be a good fit with their organization, or expanding into additional locations,” he says. Not only are agency owners growing older, Ratterman remarks, but also the number of independent agencies is shrinking. “In fact,” he says, “the lack of local financial resources has been one of the reasons for the 19% decline in operating property/casualty insurance agencies over the past 10 years.” Beyond lending “We’re looking not just to lend, but also to be a capital partner and to help ensure the agency’s success,” Ratterman adds. “After the loan, we want to make sure we’re putting them in a position to succeed, so we work with a third-party collateral preservation group that guides the agency in achieving its objectives. Especially when you’re expanding an agency or taking on a new acquisition,” he observes, “there’s always a lot of turmoil and challenges. We’ve brought in MarshBerry, one of the premier industry consultants, to work with us and our borrowers to ensure that their business practices and other activities are moving them in the right direction. “We independent agents are normally good entrepreneurs and salespeople, but most of us don’t really like managing the day-to-day operations,” Ratterman says with a chuckle. “I grew up watching my father in our agency, and he despised those routine tasks. Managing the agency is normally way down on the list for agency owners. They want to grow their business, build their client base, be involved in the community, and maybe find other agencies to buy. So checking the monthly commission statements, making sure the numbers are going in the right direction, and overseeing other details aren’t popular activities for most independent agency owners. That’s why we’ve brought MarshBerry in to work with owners to make sure the right business practices are in place.” Having access to the services of a top consultant like MarshBerry as part of a loan package, Lowry comments, is a significant advantage for an independent agency owner from a cash flow perspective. “Particularly in a soft market, cash is really tight for these folks. They don’t have a lot of cash flow to retain a qualified consulting firm to help them be more efficient in areas like marketing,” he says. “What separates Titan from everyone else is: First, we offer much better terms than our competitors,” Lowry asserts. “Second, we support our customers by giving them access to a top consulting firm.” The cost of retaining a consultant on their own would be prohibitive for many independent agency owners, Lowry points out. “Titan is willing to give up some of its profit to help our customers be more successful, and that’s good lending,” he says. “That’s what we mean by being a capital partner.” Adds Ratterman, “Depending on the size of the loan, we’ll put up a portion of our own money to give our customers essentially unfettered access to MarshBerry for the first 12 months of the loan period. We know that during those first 12 months there’s a lot going on and an owner can benefit by bouncing ideas off an experienced consultant, like whether it makes sense to bring on a new producer, or how many CSRs are needed in terms of the agency’s commission income, or what is the feasibility of a proposed marketing plan. “Especially in the case of an acquisition, that first 12-month period is really critical to the borrower,” Ratterman says. “We show our support by paying for MarshBerry’s services, and even extra services if needed, during that period.” Wanted: entrepreneurs Titan Lending’s target market is independent property/casualty agencies that are locally owned and operated, and that have a book of business that is three or more years old. Loan amounts range from $100,000 to $10 million, with repayment terms from seven to 12 years. Loan proceeds may be used for agency acquisition, partner buyout, debt consolidation, cashing out equity in the agency, and growth initiatives like producer recruitment, marketing campaigns, and others. When evaluating an agency’s business, Ratterman says, “We’re really looking at their track record on commissions. We want to see a book of business that’s been out there for three years so we can calculate trailing commissions because, to us, that’s obviously where the value of an agency is. “We’re looking for entrepreneurs, for agents who want to help grow the independent agency system,” he says. “We support the system, and we don’t think the fact that the number of independent agencies is declining is a good thing for the industry. We think that number should be going in the other direction.” * For more information: |
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