Getting Started: Business Loans for Vets
Setting up a veterinary practice can be a lengthy procedure and may initially appear daunting. You’ll either have to look into acquiring an existing practice or setting up a whole new practice from scratch.
If you’re considering acquiring an existing veterinary practice there are a number of key factors to consider:
- Check its location.
- Check its structure.
- Check the existing equipment.
- Review its history and the customer network.
Alternatively, if you’re looking to set up a new practice from scratch you’ll need to consider:
- The location and local competition.
- Whether to buy or rent a property.
- The structural and design changes to the building.
- Buying or leasing new equipment.
- Market yourself to get customers.
Regardless of which option you choose, you may need to consider need financing to get your new venture off the ground. When it comes to funding, you have a wealth of options to choose from. However, the most widely considered finance option is taking out a business loan.
For a veterinarian seeking finance to purchase an existing practice or a property to set up a practice, there are several different types of loan opportunities and its important to consider all of them before deciding which is right for you. Before taking out a loan, its important to consider all the intricacies of the process, but let’s take a look at the basics:
Even with conventional loans, there are a number of decisions to make, for example, whether to go with a floating or fixed interest rate. This rate can be influenced by the lenders’ assessment of risks associated with the borrower and the practice which is to be acquired, as well as the general market and wider economy.
To keep marketing and restoration costs to a minimum, if you’re purchasing an existing practice you’ll want to make sure it’s in good condition and has an established customer base. This then increases your chances of getting a better interest rate from the lender.
Conventional loans are generally structured with a 10 year repayment term however, there are additional options available with terms of 15 years or more.
Small Business Administration Loans
The SBA has a lending program which is backed and supported by the government to aid small business owners of all kinds. While the SBA guarantees loans through this program, the funds are dispersed through individual lenders.
These banks and lenders tend to have options regarding finance for vets, as there is a high likelihood that vetenerian businesses would not shut down, even during an economic downturn. This reduces the risks of failure in repayments of debt by the veterinarians and so they are favoured by the banks.
Owner financing is not a regular form of financing but can be used as an option whilst acquiring an existing practice or during buy-in opportunities.
This is a unique funding method wherein a senior practitioner allows a younger veterinarian to purchase an existing practice even when the finance is not available from any other lending source. In a sense, the owner of the existing practice is providing a loan to the younger vet.
Owner financed loans are private agreements between the seller and the buyer, and interest rates and loan term are often negotiated as part of the purchase agreement.
As a rule, owner financing is not advisable for the seller as it delays payment over an extended period and requires the seller to assume the risk of the buyer’s ability to pay. Owner financing agreements occur less frequently these days because there are many banks which readily provide capital on loan to the young aspirants. This type of finance is now reserved for cases where the bank’s financing falls short of the sellers desired price.
Lines of Credit
This type of loan is taken when you need operating capital for the short term. Some practices use line of credit for projects which are smaller in size and scope.
Rather than completing a more involved loan process, a line of credit enables a practice owner to borrow up to a certain amount of capital annually.
You must use lines of credit in a sensible manner as the interest and late fees can compound rapidly, leaving a practice owner with an extra burden of unexpected debt. So, it can be better to take up a traditional loan if you are considering a project of any scope.
Criteria Influencing Loan Approval
A lender considers many factors when evaluating a prospective loan applicant. The most influential factors are:
Cash Flow of the Practice
The very first thing a lender does is check the ability of the borrower to repay the loan amount which was borrowed for acquiring, constructing or renovating a practice.
The lender must have guarantee that the borrower can repay the debts on time and for that the lender should take the following factors into the consideration to assess the borrower:
- The expense involved in running the practice.
- Revenue growth trends.
- Perspective of growth in future.
- Bottom line cash flow.
After taking these factors into consideration the lender can then decide the terms and conditions of the loan along with the term and the interest rate.
History of the Practice
A money lender’s business will run only when the loaned finance is paid back by the borrower. That’s why lenders generally prefer to financially back projects which have a good financial history and a good record of repayment of loans.
Thus, they avoid the risks of repayment on time by taking a look at the borrowers financial past. Here we show a few scenarios that could negatively impact your ability to get funding:
- Late payments of debts to the lender.
- Having a track record of being a defaulter.
- Poor credit history.
- Late or failed payments of other business debt.
Many potential borrowers get second thoughts when applying for an acquisition loan due to their own personal debt obligations.
Lenders not only check your debt history with respect to your business but also take a look at any personal debts you might have such as car loans, housing loan, student loan or a mortgage.
This reflects your ability to repay a loan and alerts the lenders on the risks associated with loaning you the requisite finance due to your track record of personal loans and their repayments.
An aspirant practitioner looking forward to owning their own veterinary practice has many options financially to assist them in setting up their dream practice. But, it is important for you to understand all the details of financing and your responsibilities associated with it. You also have to make sure you work with a lender who can meet all your individual needs.