InsurBanc Helps Fast-Track Agency’s Perpetuation Plan After Principal’s Passing

When an owner quickly succumbs to a fatal illness, the right financing—and a deep appreciation of agency value—helps ensure a successful transition

For an insurance agency, executing an internal perpetuation plan can be tricky enough. But when unfortunate circumstances force the plan to be completed on an accelerated timeline, the challenges mount.

Such was the case for Branford, Conn.-based V.F. McNeil Insurance, which saw its agency principal and fifth-generation owner, Paul H. Sturgess, pass away from amyotrophic lateral sclerosis (ALS, often referred to as Lou Gehrig’s Disease) before completing his plan to sell the business to Daniel McNamara, who at the time was a vice president with the agency.

Facing the hurdle of securing the transaction’s financing after Sturgess was diagnosed, McNamara went to three different banks: two were traditional banks, while the third, InsurBanc, specializes in providing financing to insurance agencies. 

The initial perpetuation plan, developed in 2006 long before the ALS diagnosis, called for Sturgess to hold the whole note of the agency (meaning he would act as the exclusive lender and be the only one to receive any interest paid in the transaction, without a bank’s involvement). But as his condition quickly worsened over the next few months, McNamara says Sturgess decided it would be a good idea to get a bank involved to fund either all or part of the deal so that he could get some money upfront and take care of his family. 

“We really had to get on the fast track to find a bank that could do this,” says McNamara, who encountered a number of difficulties in conveying the agency’s value to traditional banks. One lending institution, he says, wanted to see all of the agency’s premium financing, “which we don’t have very much of. They were looking for about $1 million worth of premium financing, so that was pretty restrictive.”

At TD Bank, McNamara says he tried to see what the terms and conditions for a Small Business Administration (SBA) loan would be, but the person he dealt with didn’t know how to read the agency’s reports or value the business, which required lengthy explanations. Still, ultimately he was able to secure a loan offer from TD.

Dealing with InsurBanc was a totally different experience, says McNamara: “They primarily deal with insurance agencies, so it gives them a better understanding of what we do.”  

InsurBanc, he says, ultimately offered more favorable terms and conditions than TD; a better interest rate; worked with him on the length of the loan; and responded quickly under a tight timeline, offering him a solid proposal within weeks of their meeting.   

Robert J. Pettinicchi, InsurBanc's executive vice president and chief lending officer, says many agencies run into the same issues McNamara did when trying to get a loan from a traditional bank. “In our case, we view independent-insurance agencies as a very nice, professional-practice business with reliable recurring cash flow. We know how they work and how to analyze them. We’ve lent to hundreds of them.”

After engaging with InsurBanc, McNamara was able to quickly get the deal under way, although it was not finalized until after Sturgess’s death, which tragically occurred just six months after he had been diagnosed. The final terms were a 50/50 split of the loan between the estate and the bank.

Much of McNamara’s praise is reserved for Sturgess and his foresight in developing a perpetuation plan in 2006. That foresight serves as a lesson: “Bad things happen, and agents have to be prepared for them.” 

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