Definitive Guide to Veterinary Clinic Financing
Financing a veterinary clinic can be a difficult undertaking, especially if you are looking to purchase your first clinic. Every financing loan looks a little different, and it can be daunting to figure out which is the right choice for you.
With help from our brokers, you won’t have to be frustrated with false starts to your veterinary clinic financing; find the perfect fit for your needs today.
How Do You Finance a Veterinary Clinic?
Financing a veterinary clinic may sound difficult, but as small business increases in popularity, the options available for veterinary clinic financing expand as well. This explosion of small business opportunities has led to a significant interest in small, locally-owned veterinary clinics, both focused on common domesticated pets, as well as farm clinics and clinics that can take wildlife for rehabilitation cases.
You might be tempted to go with the first option you find, especially if it looks like your business is ineligible for other types of loans, however, it’s important to shop around and do your due diligence as well, with any loan program, to avoid getting your business into debt early on. (1)
“A Lending Tree survey found that 58% of small-business owners did not shop around when searching for small-business loans online. You’d shop around for a mortgage or a car loan to get the best rates and terms, so why not shop around for a small-business loan?”
– Huffpost.com
Veterinary clinic financing doesn’t have to be difficult, unlike what many new business owners believe. Don’t know where to start? There are three main types of financing sources that can help you start getting financing for your practice:
Conventional Loans
Bank loans are often known as conventional loans, as they’re conventionally available through your local lender, often where you do your business banking. If you use an established bank, the loan programs available can range from short to medium or long-term with varying caps on the maximum capital based on your business’ current income or credit history.
Often, the APR on these loans is low, as the bank can seize assets or collateral to protect its investment. Depending on the program you choose, it’s not uncommon to find an APR as low as 2.7%.
The drawback, however, is that banks require significant qualification steps to ensure your business is eligible for the loan program, and unless you have an excellent personal credit history, or are purchasing a pre-existing business that is turning a profit, it can be difficult to get approval for these loan programs.
Small Business Administration
As a part of the federal government, the Small Business Administration, or SBA, helps facilitate small business by providing flexible loan programs to business owners who meet the requirements of the loan program.
The drawback? These loans often require you to track the finances and use the funds for a specifically stated purpose, whether for purchasing commercial property, payroll to retain employees during times of crisis, or financing new equipment.
While this drawback isn’t a deal breaker for many business owners, it can be a tricky process to get approved. Seeking professional help from a veterinary practice broker can help you find the program that is the right fit for your needs, and a certified accountant can help guide you through the financial process.
Once your business is approved for the loan, setting up a loan repayment program is essential to avoiding business debt in the future.
Broker Financing
Whether the financing is for new equipment, expanding into new locations, or buying your first practice, it can be difficult to source funding on your own, especially while you’re trying to operate the business at the same time.
A financial broker is an intermediary that helps you find and obtain the funding you need and can help you come up with creative ways to maximize the benefit to your business while consolidating and setting up a plan to pay off collective debts from previous loans.
The downside is that broker financing often comes as an extra cost on top of the loan repayments, however, and these firms often charge a percentage of the loan amount or an ongoing fee while you have outstanding loans. While it isn’t the right choice for every business owner, if you have enough capital and don’t mind the extra cost, it’s an easy solution to finding the right loan.
Veterinary Clinic Financing Solutions
There are multiple veterinary clinic financing solutions available to you. In the past, all you had to do is have the right connections or find the right programs for your business’ needs, and after a grueling approval process, your business could be granted funding.
Fortunately, these resources for small businesses are more widely available today than ever before, making it easier for first-time and experienced business owners alike to find financing solutions. (2)
“In general, small business loans help businesses access the money they need to operate and grow. However, there are several types of small business loans, and it’s important to find the best fit for your needs.”
– Forbes.com
The wide availability of loan and financing options does not remove the number of choices a new business owner will have to make, however.
Depending on the business they intend to buy, it may not be profitable enough to meet eligibility requirements for certain loan types, or in the case of startups, it could be based on personal assets and credit scores.
For Acquisition
Acquiring a new business is an expensive undertaking and must be paid in full. Even with a pre-existing business turning a profit, it is often better for the business’ cash flow to take out an acquisition loan, allowing them to purchase the property immediately but pay it off over time.
These types of loans are common for veterinary practices that are expanding into multi-practice operations, or acquiring a new business, in which case personal assets may be used to lessen the lender’s risk.
For Construction
Construction is expensive, and not many business owners are able to front the cost at once, even with a profitable business. New construction loans are common for veterinary practices that are looking to expand their current building for more exam rooms or office space or renovate existing construction.
New construction may include construction on the same plot as the existing business, or related construction on a different plot. The details for intended use is up to the discretion of the lender for approval, though they may outline projects that are eligible prior to approval as well.
For Multi-Practice Ownership
If you’re looking to expand into multiple practices, branching into a multi-practice business, you may need startup capital to buy a pre-existing business or start a new practice from scratch.
Fortunately, so long as you remain the business owner and the new practice operates under the same or incorporated entity, you can acquire funding for this expansion rather easily. These loans will often require you to submit a business plan, including new construction plans, or a plan for the acquisition of a pre-existing space.
The cash flow of the pre-existing business is often used in assessing risk for this type of loan.
For Debt Financing
There are loan programs that help your business consolidate its debt into a single loan, providing enough capital to pay off all existing loans and instead pay off a single, higher APR loan.
This type of loan is essential for any business looking to get out from underneath significant debt from multiple sources, which is often the case in a low-valuation practice. These practices can often be purchased for a relatively inexpensive amount, but the new owner inherits the debts of the business as well as the assets, making it a tougher business to turn around and showcase growth with.
How Much Money Does It Take to Open a Veterinary Clinic?
For most veterinarians looking to stat their first clinic from the ground up, it can take anywhere from $1 to $5 million to build and begin operating a small domestic animal clinic. This range depends on the operating location, the number of staff, and equipment required.
Often, student loan forgiveness programs are available for veterinarians who are willing to work in areas that are in demand for these jobs, which can offset these costs significantly, however, it may mean a lower annual ownership salary to work in areas that need a clinic but cannot raise the clinic’s revenue over a certain cap.
There are always trade-offs like these when considering how much money it takes to open a veterinary clinic, and much of it is circumstantial. For more information on financing your veterinary clinic, call or email the team at BSF today to learn more and receive guidance about your financing options
Criteria Influencing Loan Approval
A few primary factors influence your loan approval rate once you apply to a program, though every lender is different and may factor these criteria in at different levels of importance. Likewise, these factors are not the only factors that the lender will take into consideration, as each has their individual standard of eligibility.
- THE AGE OF YOUR BUSINESS
This is not always a factor in loan approval, but it may be depending on your lender, as many businesses fail to make it through the first 3-5 years of business, so a business within that timeframe is a higher risk for the lender.
For first-time small business owners, their loan’s APR is typically much higher than what might be seen on a more established and sustained business.
- APPLICABLE COLLATERAL
It is not uncommon for a lender to ask for collateral, which may be in the form of a business or personal asset. Business owners who don’t want to put anything up for collateral are best looking for collateral-free loans, however, this comes at the expense of a higher APR as the lender must protect its investment and mitigate any risks.
- THE TYPE OF BUSINESS
The type of business you are looking for financing approval on plays into the approval rating, as the lender must consider the level of risk for that type of business as well as the number of like-businesses in the local area.
- A BUSINESS PLAN REVIEW
A review of your business plan is essential to getting financing approval, no matter if you’re looking to start a brand new business or expand a pre-existing business. A business plan must be reviewed by the private lender or banking firm, and additional steps may be necessary if it is complete by their standards.
How Do You Choose a Lender?
Choosing a lender is just as important as choosing the loan program itself when you’re seeking veterinary clinic financing. Depending on the lender you use, you may get additional perks or bonuses that help you pay off the balance faster.
Before you commit to a loan program, compare different lenders and the programs that would be right for you. Find the APR that suits your needs with the term that you can reliably pay off the balance under and compare the benefits and drawbacks to each program.
If the lender is willing to be flexible with their loan program terms or eligibility requirements, you will experience a much easier loan application process than most conventional banks offer.
Private lending firms are often much more willing to extend their programs to businesses and individuals with lower eligibility requirements in exchange for a higher interest rate. This ideal for the business owner who is just getting started with their practice and has no prior history to show.
Alternatively, if you have prior history working with the lender, you may be able to negotiate different terms that are better for your needs.
First and foremost, the customer service the lender offers will help your business greatly in negotiating new terms and solving problems that may arise during the application or repayment process.
If you have an established relationship with a certain lender, you can utilize that history to your advantage when discussing loan terms and repayment options, as the lender may be more flexible for a return customer with a proven history over someone who is brand new to the firm.
How Do I Start My Own Veterinary Practice?
Starting your own veterinary practice is not for the faint of heart, especially if you are looking to finance the business from the ground up. Still, the passion that drives many veterinarians to owning their own practice is a strong push to accomplishing the next steps for the business.
There are many ways you can start your own veterinary practice, whether you’re looking to purchase a pre-existing clinic or build the startup from scratch.
Ultimately, consulting with a business advisor is an excellent first step, as well as shadowing other clinic owners to learn more about how their business is run, the struggles these practices face, and helpful advice from those more experienced in the field.
Finding a good veterinary practice broker is an excellent start to buying your first practice, as the broker will be able to help you find a good deal but also help negotiate the sale and provide loan recommendations.
If you’re looking to start the practice from the ground up, a business plan is an essential step that will help tell lenders how you plan to operate your business and the revenue you can expect to start bringing in. An accountant and business lawyer are the best choice for professional help when drafting this business plan.
Need Help with Veterinary Clinic Financing?
Financing a veterinary clinic can be difficult to navigate on your own, which is why help from an experienced veterinary practice broker can be beneficial when you’re first starting your journey into business ownership.
Instead of reviewing the different loan programs, repayment terms and APRs while trying to find a practice on the market that fits your budget, a veterinary practice broker can help you with a multifaceted approach to buying the business, negotiating terms, and finding the right loan for you.
Contact the team at BSF today to learn more about buying, selling, and financing your veterinary clinic today.
We’ll help point you in the right direction. Email or give us a call today and let’s talk about how we can help you take the next step with your business.
References:
- Forbes.com 5 Stupid Small Business Finance Mistakes to Avoid in 2016
https://www.huffpost.com/entry/5-stupid-small-business-f_b_8864446 - Huffpost.com, Everything to Know About the Best Small Business Loans
https://www.forbes.com/advisor/business-loans/best-small-business-loans/