|
The question we hear most often from students
is: “How in the world will I ever be able to get a loan to
start my practice when I have more than $100,000 in student loan
debt and no collateral?”
We can say confidently, “It happens
every day.”
On the list of difficulty in starting a
practice, new DCs usually name “obtaining a startup loan”
as the item with the highest difficulty.
The trick to getting a loan is figuring
out how the bankers think and what they want. Actually, it’s
pretty simple: Bankers want to know only two things:
- How much do you want?
- How will you pay it back?
It’s true that, as the old saying
goes, banks lend money to people who don’t need it. The bank
wants to be certain that it will be able to get its money back in
the worst-case scenario — if your business goes bankrupt.
The way they do this is through the four C’s:
• Character. Are you
a responsible financial citizen? Do you pay your bills? If you pay
your personal bills, you’re more likely to pay your business
bills (including repayment of the bank loan).
• Capacity. Does the
business have the capacity to generate enough money to pay on its
obligations (read: bank loan)? The bank knows that you need money
to live on, and that you have certain business expenses, but it
wants to see how soon you will be in a positive cash-flow situation,
with more money coming in than going out.
• Collateral. The bank
expects that you, as the business owner, will contribute to the
new business. As one banker stated, “We want you to hurt as
much as we do, financially speaking, if the business fails.”
So the bank wants collateral, in the form of cash, assets, pledges.
If you don’t have it, they will ask you for a co-signer, or
you may be able to get an SBA guarantee (see our article on this
subject), or both.
• Capital. Finally, the
bank looks at the assets of the business to see if, in that worst-case
scenario, they can use those assets to generate money to pay back
the loan.
Now that you know what the bank is looking
for, here are some tactics to help you make this process easier:
1. Get your personal credit in order.
Check your credit rating early in your schooling and work
to repair bad credit or remove errors. A good credit score (a FICO
above 650) is your best weapon in the fight to obtain a loan. Banks
are more likely to loan to people with excellent credit and no money
than to people with money and bad credit.
2. Keep your expectations low. You
do not have to have the most up-to-date x-ray equipment when you’re
starting out. In fact, some DCs have found it advantageous to send
their patients to local hospitals and clinics for x-rays. Think
“used” instead of “new.” Don’t buy
everything all at once; wait until you have the money.
3. Prepare a business plan. It
should include financial spreadsheets with information on your startup
purchases and your cash flow. Most banks want three-year projections
on cash flow and income. You may also want to prepare several scenarios
(a “worst case,” “best case,” and “expected”
scenario), based primarily on your income expectations. Show the
bank that you can generate a positive cash flow in your expected
scenario by the end of the first year.
4. Keep track of what you are bringing
to the practice. If you get a little money, buy view boxes
or used tables. Contribute your own computer to the practice. Banks
appreciate people who have contributed to their own businesses.
5. Know how you will answer the question
of collateral. If you don’t have any, show what assets
you are contributing. Have a co-signer lined up. Get pre-approved
by the SBA. Don’t wait until the banker asks the question
to think of how you will answer.
6. Work your plan. Take your
plan to several banks at the same time. Consider smaller local banks,
which have a greater interest in you as a professional in the community.
Talk to each and ask, “What would it take to do this deal?”
Some will say no outright. Others will ask for unreasonable amounts
of collateral.
The most important advice we can give you
here is this:
• Be prepared with
a great business plan and a credit rating that is excellent, and
with knowledge about the subjects above.
• Keep trying. If
the first, second, third, fourth, and fifth banks say no, go to
a sixth. We know DCs who have gone to as many as nine banks and
received a loan from the tenth.
• Be flexible. You
may need to reduce your expectations further, cutting out some assets
or leasing them, waiting to buy some things until your cash flow
is positive. Remember that the only things you really need to start
a practice are a room, an adjusting table, and a phone.
Remember that new chiropractors obtain startup
loans all the time, all across the United States and the world.
If they can do it, so can you.
Back
|
