Two steps to avoid excess expenses


This post is part of a series sponsored by InsurBanc.

It is amazing how the world changed during the first quarter of 2022. Globally, there are heartbreaking and nerve-wracking upheavals. Domestically, we’re all facing a “bigger-than-expected” inflation jump, persistent supply shortages, and wallet-draining fuel costs. To reduce inflation, the The Federal Reserve raised interest rates in MarchThis is the first price increase in several years. Most experts expect a total of six or seven increases of 25 basis points this year.

What can your agency do to withstand these monetary policy adjustments? Here are two procedures to consider:

First, review the terms of any debt instruments you currently own. Higher interest rates can significantly increase your payments if you carry debt with a variable interest rate. Many agency term loans, especially SBAs, are variable rate loans and are therefore subject to these pending rate increases.

Most experts believe rates could rise as much as 2% through the 2022 balance. Consider a $1 million note on 10-year amortization: A 2% increase could result in a $1,000 increase in required monthly payment, and possibly an additional $120,000. Interest over the life of the loan. Some forecasters point to further increases in the rate in 2023.

Take action now to fix the interest rate on your agency’s debt and avoid extra expenses.

Second, if you plan to make any capital changes, such as completing a continuation step, purchasing a book of business, or purchasing an agency, consider submitting the schedule. There are significant savings in interest expense that you can have when you access capital. All indications are that the cost of borrowing is increasing rapidly in 2022. Securing fixed rate financing before these pending rate changes can lead to significant long-term savings.

Either way, it’s important to act quickly. Connect with a banker who understands the independent insurance agency model and explore options for addressing these items. Be sure to identify a relationship that can meet your needs and help support your plans as you continue to navigate 2022 and beyond.

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