How to Choose the Right Bank for your Agency

As an independent agent or agency owner, you have unique financial needs. Unfortunately, few banks truly understand those needs. Worse yet, it has become the norm for banks to also sell insurance, meaning they actually compete against you.

How can independent agents or agency owners find the right bank for their agency? Choosing an agency-focused bank is one of the most important things you can do to help your agency grow and succeed.

1. Does the bank understand your unique cash flow?
All banks offer business deposit products, such as checking and savings accounts. However, independent agencies are not like many other businesses. Independent agencies have unique cash management needs by virtue of monthly fluctuations in premium payment volume. A bank that recognizes that difference will offer a range of specialized deposit products to help agents facilitate cash management and maximize value.

For example, when it comes to better ways to make the most of your daily operating funds, find out if your bank offers an account specifically designed to give you a preferred interest rate on your premium trust deposits. Also, depending on the amount of excess cash your agency has available, perhaps a sweep account that automatically transfers excess cash into an investment account is appropriate. Another helpful cash management tool is a custom-term certificate of deposit–where you determine the maturity date that best matches your cash flow cycles. Your bank might offer online banking, money market ac-counts and overdraft protection to business customers. However, it is important to read the fine print and ask your banker about the product features, interest rates and monthly fees to make sure those accounts meet your financial needs.

2. When you need a loan will you be able to get one?
What sets a good bank apart from a great one is its understanding of how independent insurance agencies work. This understanding is especially important should you need a sizeable loan for agency acquisition, perpetuation or producer development. While all lenders factor a business’s collateral into their loan decisions, not all lenders define “collateral” the same way. Traditional banks typically require tangible assets to collateralize a business loan. The problem is, agencies don’t have much to show in tangible assets. In the absence of inventory or equipment, agents may be required to pledge their homes or other personal assets.

The solution is to look for a lender that understands it is your total book of business that reflects your agency’s size and strength. They will be more likely to define “collateral” more broadly by taking into account your agency’s history, the relative stability of its cash flow, the strength of your client relationships and the ongoing potential of your book of business. This can make all the difference when an agency principal needs capital to expand, buy out a competitor or keep the business in the family.

3. Is the bank competing for your clients?
In the past few years, federal regulations have changed the face of the financial services industry. What does that mean to you? More traditional banks have entered the insurance business. Why would an independent agent want to bank where his or her deposits can help to finance expanded initiatives like selling more insurance? For many agents, doing business with a bank that sells insurance simply boils down to aiding a competitor.

4. Is the bank your trusted business partner or just a transaction manager?
What level of service does your agency command at the bank? Of course, you expect accuracy and quick processing. But the real measure of a bank’s service to your agency is its ability to help you solve business problems. First off, is your banker accessible? Does he or she understand your business well enough to recommend financial efficiencies? Will your banker offer a variety of options to solve your problem? Bottom line, do you consider your banker a valued and trusted advisor, dedicated to the financial vitality of your operation? If not, your agency may be better served by a bank more focused on customer service.

You do have a choice!
If you’re not happy with your current bank or wonder if there’s one better suited to your agency, the important thing to know is that you have a choice. You don’t have to stay with your current bank just because it is comfortable. Insurance is a specialized industry. A bank that specializes in serving independent agents and agency owners will be more likely to appreciate the challenges of running an agency and provide the products and services agencies need to grow and prosper. Making the switch may take some time and effort, but it could be one of the most important decisions you make in helping your agency grow and succeed.

Mary C. Grazen is executive vice president and chief operations officer of InsurBanc, a federal savings bank that provides banking products and services to and through Independent Insurance Agents. For more information about the Farmington, Conn.-based bank, or to request a free Financial Benefits Review, log on to www.insurbanc.com/free. Grazen can be contacted directly at (866) 467-2262, ext. 2304.