You Might Not Need a Down Payment to Buy Your Next Agency

When agency owner's think about financing an acquisition, most assume a sizable down payment is part of the deal. According to Covington Carlson, a loan officer at Live Oak Bank who spends most of his time financing insurance agency acquisitions, that assumption is often wrong.

"Live Oak does have the ability to do 100% financing once you've owned your agency for more than 12 months," Carlson told agency owners on FindBob's Summer Series webinar. A down payment only comes into play for first-time buyers, or for anyone who's owned their business for less than a year. For everyone else, the deal gets financed entirely on whether the cash flow supports it.

That's the single most useful thing to know before you size an acquisition: the real gate isn't your savings account, it's a number a lender calculates from the target's cash flow.

The number that actually matters is 1.25

Carlson underwrites a debt service coverage ratio, not a credit score or a purchase price. "At one to one, you're breaking even. At 1.25, you're in the green and you're cash flowing extra," he said. Below that threshold, a deal doesn't work no matter how attractive the multiple looks. Above it, a lender has room to be flexible on almost everything else, including the down payment.

That ratio depends on what a business actually generates once personal expenses run through it are stripped out. Carlson's team runs a "true" cash flow analysis on every deal, messy books included. Buttoned-up financials speed up the process, but they aren't a requirement to get taken seriously.

Seller notes do more work than most buyers expect

For larger or lopsided deals, seller financing is often what makes the math work. Carlson described one active deal where "the seller is five times larger than the buyer." The bank agreed to finance 60% of the purchase price, with the seller holding the remaining 40% as a note. On a more typical $1 million deal, that might look like $800,000 funded at close with the seller holding a $200,000 note, which also gives the buyer some protection if client retention slips in year one.

Most first-time buyers have never structured a seller note and don't know it's an option. Raising it early, with your lender and your attorney, changes what deals are even possible.

A soft credit score isn't automatically a no

Carlson was direct about where the personal side of the application matters and where it doesn't. Live Oak pulls personal credit mainly to check for red flags, like a pattern of overdrafts or a bankruptcy, not to price the loan the way a mortgage lender would. The general threshold he mentioned is a credit score around 680 for a smooth process, but that's a guideline, not a wall. Talking about a buyer below 650, Carlson said: "I've had that happen before. And we come up with a plan to get it above 650, pay down some of this, pay down that, and then they come back six months later." The deal didn't disappear. It just moved by a few months.

The same logic applies to loan structure. Smaller deals often route through SBA financing, which is capped at $5 million but comes with a guaranteed term, no prepayment penalties, and no covenants. Larger or more complex acquisitions tend to move to a conventional loan instead, where terms are more flexible but the underwriting looks closer at the specifics of the business. Neither path requires a business to look a certain way going in.

Financing has its own timeline, and it starts before you're ready

Carlson's team plans on 45 to 60 days once financing is underway, and that clock doesn't move for anyone. "We get a lot of phone calls August 1st where they're saying, hey, I need to close August 30th. And that's just really tough," he said. Starting the lender conversation before a letter of intent is signed, rather than after, is what keeps financing from becoming the reason a deal falls apart.

Where this leaves you

None of this should talk anyone out of an acquisition that otherwise makes sense. If anything, it should open the door wider: no hard collateral required, no perfect financials required, and in a lot of cases, no down payment either. As Carlson put it, "never, never count yourself out. It's always worth it to have the conversation."

Before that conversation, know your rough top-line revenue and where profit stands, know whether the target has been owned for over 12 months, and start talking to a lender well before you have a signed letter of intent.

If you want a clearer read on where your numbers land first, FindBob is a reasonable place to start. It won't replace a lender's cash flow analysis, but it gives you a baseline to bring into that first call.