Private Equity vs. Industry Bank Financing

As mergers and acquisitions continue to reshape the insurance landscape, independent agency owners face increasingly complex decisions about financing growth. Among the most prominent capital sources are private equity (PE) and industry-focused bank lenders. Although both offer financial resources and strategic advantages, they carry significantly different implications for ownership, control, and long-term direction.

Private equity has attracted attention for its ability to inject large sums of capital, often accelerating growth through acquisitions or operational overhauls. However, PE also typically comes with ownership dilution, potential cultural disruption, and expectations for aggressive returns.

Bank financing, especially from a lender that understands the insurance industry and the independent agency model, offers a more conservative alternative. This route preserves ownership, aligns with the agency’s vision, and usually comes at a lower cost of capital.

Working with an industry lender that provides informed guidance and sector-specific expertise is a win-win. The lender helps owners assess capital needs in light of their agency’s goals while offering a lower cost of capital and more operational flexibility.

PE firms typically:

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Raise capital from institutional investors and high-net-worth individuals.

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Acquire majority or controlling stakes in private companies.

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Restructure operations and implement growth strategies.

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Seek an exit–typically within 5 to 10 years–by selling to another investor or firm.

PE firms also aim to generate returns well above market averages, often regardless of the broader economic or industry cycle. This investment model can misalign with the values, risk tolerance, and long-term strategy of many independent agencies, especially smaller firms not positioned for aggressive scaling.

Why Customized Lending

Independent agencies often have layered capital needs. An industry lender can construct a debt stack that might involve term financing for specific immediate purposes like acquisitions, upgrading or expanding the agency’s technology, or hiring talent.

For situations that require funding over time such as an acquisition with an earn-out or other growth purposes, multiple-draw term loans can be put in place. Working capital lines of credit are also available for short-term working capital needs.

Should the agency need a commercial mortgage to purchase a building, the lender can review the agency’s cash flow based on its book of business to do 100% financing for the purchase of the building even though the property may be owned by a different entity, usually an LLC.

The loans can involve different term lengths. An industry lender can do this because they understand the value in the agency’s book of business.

Agencies that intend to seek capital should make sure their financial house is in order, including being able to present financial statements in a straightforward manner.

Industry-specific lenders will also ask to view the agency’s various carrier statements, which provide a clear picture of the agency’s cash flow, customer retention, and overall quality of the book of business.

Choosing the Right Path

Ultimately, the choice between PE and industry bank financing comes down to the agency’s growth objectives, capital requirements, desired level of control, cultural fit, and long-term business vision.

Private equity may suit agencies pursuing rapid expansion or looking to exit within a defined time frame. But industry bank financing may offer more stability, customization, and alignment with long-term ownership and perpetuation goals.

Freiday is senior vice president and division director of InsurBanc, a division of Connecticut Community Bank, N.A. Started in 2001 as a vision of the Big “I,” InsurBanc finances acquisitions and perpetuations, including ESOPs. InsurBanc also helps agencies become more efficient by providing cash-management solutions. Email: sfreiday@insurbanc.com.