Where will you find the money in today’s tight economy?
By William J. Lynott
Credit is the oil that lubricates the machinery of business and professional practices. Whether it’s a loan to buy inventory or supplies to support expansion, a capital equipment purchase, or just the need for a short-term loan to meet payroll or other operating expenses, most chiropractors need to depend on credit at some point. Unfortunately, the upheaval in today’s economy has resulted in a “credit crunch” that seems to have made it tougher than ever to swing a business loan.
Still, for those in the know, there are enough options available to make the task a little easier. Money may be tight, but business loans are being made every day to those who know how to ask. “In today’s banking climate good deals still get done, but with more equity, more collateral and much higher credit scores required of the borrower than in the past,” says Linda Feltman, Pennsylvania State University, Small-Business Development Center.
If you’re looking for financing for your practice, now or in the future, here are some choices along with hints on how to greatly improve your chances of coming away with the money you need:
The first place most professionals turn to when they need a business loan is their local bank. That’s why it’s essential to build a solid business relationship with your bank well before you need to ask them for money. Allowing your bank to become familiar with your practice sets the stage for the time when you need to ask for a loan.
“The news media tends to lump all banks together when it come to tight money,” says Bob White, president of Abington Bank, Jenkintown, Pa., “but there are big differences among banks. Like many other small community banks, we have always followed conservative lending practices. As a result, our default rates haven’t suffered and we’re in the same healthy position for making loans now that we were two years ago.”
Even after establishing a banking relationship, some professionals in practice meet with frustration when the bank turns down their loan application. Most bankers agree that this is often because the owner has failed to come prepared with the information a lender needs to make a positive decision.
“How to find the money to finance a renovation, expansion, or other need is the last thing that many professionals and business owners think about when they plan a project,” says James G. Marshall, vice president of Fulton Bank, Lancaster, Pa. “It’s best to have a team lined up behind you when you plan a major financial move—and your bank should be a member of that team.”
How should you prepare for a meeting with a bank loan officer? Marshall suggests that you come armed with: financial statements for your existing practice; accountant-prepared financial projections and cash flow analysis; your personal financial statements and tax returns; and your information on the experience you have, and any credentials you may possess.
“With this information,” says Marshall, “the bank can give proper consideration to your loan application.
Be careful to avoid the red flags that may raise concerns in the mind of a loan officer. “One of the things that would turn me off,” says White, “is an applicant who has over-leveraged himself or recently financed the purchase of an expensive asset. And, of course, it’s absolutely essential that the applicant be honest and up-front with all pertinent information.”
When your best efforts fall on deaf ears at your local banks, all is not lost. Here are some alternate sources of business financing that may meet your needs:
State Government Programs – Most states have loan programs designed to provide small business financing. Some of these programs provide loans at lower than market interest rates, provided the business will create jobs in the state. Since almost every chiropractic practice will employ at least one or two persons, there should be no problem qualifying for one of these programs.
Some states have partnered with local banks in lending arrangements designed to attract, retain and expand businesses. Typical of these is a partnership between the state of Ohio and Huntington Bank. Known as the Ohio Huntington Business Loan Program, it has provided more than 2,000 small and medium-size Ohio businesses with loans totaling $465 million.
For information on small business financing programs in your state, contact the office of your state representative or state senator.
Federal Government Programs – The federal government also has loan programs available to assist small business owners. The most popular of these is the Small Business Administration’s (SBA) guaranteed loan program that guarantees as much as 80 percent of the loan principal. This program gives your bank an incentive to lend to a borrower who does not otherwise meet the bank’s lending guidelines.
Among other SBA loan programs is the so-called 504 loan. Established in 1980, the 504 Loan Program provides long-term, fixed-rate financing for major fixed assets, such as real estate, facilities construction or expansion, or other fixed-asset needs.
If you decide to seek an SBA loan, your best bet is to work through a certified or preferred lender. The SBA’s guaranteed loan process is rather complex, so you want a lender who has experience working with them. To find certified or preferred lenders, visit the SBA website or call your local SBA office for guidance.
The SBA has local and regional offices in every state. You’ll find their phone number in the federal government section of your local phone directory. Or, for detailed information on all SBA programs, log on to sba.gov.
Small Business Investment Companies (SBICs) – SBICs are private investment firms licensed by the SBA to provide investment financing and long-term loans to small businesses. Some SBICs make only equity loans, others provide debt loans, and some provide both. As a rule, SBICs will require the same level of collateral and credit ratings as banks.
For information on how to contact an SBIC, check with your local SBA office or log on to sba.gov/inv.
Local Economic Development Organi-zations – Your local Chamber of Commerce or other business group may have some revolving loan funds available to businesses specific to your community. Generally, these funds come from local resources and have specific guidelines for their use.
Begin by contacting the director of your local Chamber of Commerce to see what help might be available for the specific purpose you have in mind.
Angel Investors – When conventional financing options seem out of reach, many business owners have had success seeking out individuals or commercial lenders willing to invest in a business expansion, either with debt financing or by taking an equity position in the business. When you find an “angel” investor, you’ll probably find that this option is more flexible than a bank loan or government program.
If you don’t know anyone with the economic firepower to fund your loan, don’t give up. There is an entire industry of professional investors looking for opportunities to invest in growing businesses or professional practices. For more information on how to match up with an investor who might be interested in your situation, log on to entrepreneur.com/money/howtoguide/article52742.html.
Keep in mind, though, that unless you’re willing to give up an equity position in your practice, working with a professional investor is not for you.
Depending on the size and economic health of your practice, the only source of expansion money available to you may be what you can dig up on your own. Be advised, however, that each of these money sources carries special risks.
Friends and Family Members – If you have a friend or family member able to help finance your growth, you may find this to be the easiest type of loan to obtain.
But use caution. Most financial experts agree that mixing business and personal relationships can lead to destructive problems in both your business and personal life. If you do take a loan from a friend or family member, make sure that all details are carefully spelled out in a written contract.
Credit card financing – If your needs are modest, you may have credit cards with lines of credit substantial enough to fund all or part of your financing needs. While it can be tempting to simply charge everything, this is arguably the riskiest and least desirable of all financing methods. The burdensome interest rates charged by credit card issuers these days can become impossible to meet if your practice hits even a minor bump in the road. The result could be a severely damaged credit rating—or even the loss of the practice.
When you need to raise money for your practice, say most experts, a thorough and detailed business plan is the key to the safest and most desirable types of financing. While other than conventional sources of money may seem the easiest to find, they are seldom the wisest choice.