StudentDC Interactive

I recently received an email from a grad who was concerned about the economic situation and her ability to get a loan.  Here is how I replied:

I have been talking to a lot of new DC’s who are getting loans from banks.  There are certainly still loans available from traditional banks, but, as the SCORE person suggested, they require some collateral/cash on your part, or a co-signer.   Your excellent credit is definitely a plus.

Here are some possibilities:

Leasing.  NCMIC is one place I would suggest trying to get an equipment lease.  They may also have other funds available in addition to the leases.

Non-traditional financing.  I have been writing about other places to get loans that are more “non-traditional.”  Two I have written about are BCS Business Credit and Wirth Business Credit.  I would try Wirth first; I’ll be interested in what they say.  Their interest rates will be higher than a bank, but they may be more willing to talk to you.
SBA Loan Guarantees. The SBA works with intermediaries (non-profit organizations) who will do “micro” loans (up to $35,000) for certain types of businesses.  Women-owned businesses are one of these types, as are veterans businesses.  ACCION USA is one of these organizations.
You might also try your state business development office.  They also help women business owners.

Another possibility is to get a pre-approval by the Small Business Administration.  If they approve you, you can take that to a bank and it might help persuade the bank to give you a loan.  Check with your local SBA office.

The website Business.gov provides a way for you to search for available SBA loans, micro-loans, and state loans and grants.

Oh, yes, and search the Chiropractic Economics website for more!  This is not a complete list, but it will give you a start. I’m not saying it will be easy, but there are still options out there; you just have to be very persistent and keep trying things.  I wish you success!  Please let me know if you are able to find financing for  your startup.

I just talked to a new grad who talked to several banks and got a startup loan with only 10% down and no co-signer.  I also have heard that SBA loan money is getting harder to come by, but I heard of someone else who got an SBA-guaranteed loan.

Can you still get a loan, despite the dificult credit situation?  It depends:

• It depends on the bank.  You have to keep looking, making changes in your request, talking to bank after bank.  If you go to 10 banks, don’t give up. Maybe the 11th will be the one that says “yes.”
• It depends on the region of the country where you are, the state where you are.  The first instance above was out west.  Banks and SBA offices in other states might not be so willing to give.  I’ve never been able to figure that one out.
• It depends on your personal financial situation.  Especially your credit rating.  Banks are requiring higher FICO scores, over 700 and even up to 750 now.  Know your credit score; if it’s low, think about how you will overcome that number.
• It depends on how much you are asking.  Cut down your request to an absolute minimum.  What do you REALLY need, as opposed to what you think you want?  The less you ask for, the better your chances of receiving it.

A note of encouragement:

Perseverance is a great element of success. If you only knock long
enough at the gate, you are sure to wake up somebody.       — Longfellow

You’re headed off to the bank with fantastic business plan in hand, but you have no cash, no co-signer, no collateral.  Don’t be surprised if the bank turns you down. Banks want to loan money via “secured” loans - loans that have something of value behind them that the bank can take if you don’t pay.  That “something of value” has to be something that the bank can quickly turn into cash without much loss.  Obviously, cash is best.  Next would be something like a building that you or your co-signer owns that the bank can expect to get money out of.  In these times of decreasing home values, don’t be surprised if the bank says the equity in the home has to be much greater than the loan value.  The equipment that you bought has value, but it depreciates (loses value over time), so the bank will take a loss if you have to sell it.  That’s why they often ignore all that great stuff you just bought.

Why is the bank so picky about this?  Businesses go bankrupt, including chiropractic businesses.  And banks want to be “first in line” to get their money back.  So they want a solid assurance that they can get that money back, easily and quickly.  In these tough financial times, banks are even more skittish than usual, because business bankruptcies and mortgage foreclosures are more common.  The bank will fail (like Washington Mutual) if they continue to make high-risk loans.

Just one more point:  If you want a line of credit for working capital, in the past a bank might give you this money unsecured, but these days they want security, for the reason I discussed above.  It’s often said that “banks loan money to people who don’t need it.”  This is what they mean.  Be prepared to pledge assets, or find a co-signer who will do so.

If you have been to the bank and you were turned down, don’t despair.  There is another possibility for getting some of the “stuff” you need for startup.  The alternative is “trade credit.”  In a nutshell, trade credit is using vendors and suppliers to finance your purchase of their products.

For example, you will need office furniture for your startup, so you could head to Staples or Office Max and see if they will give you a credit card.  Or, better, go to your local office supply plaee.  You might be able to get credit from them without having to get a credit card.

Talk to chiropractic vendors, like table manufacturers and x-ray machine companies.  See what kind of credit they will give you for startup.

Yes, you may pay more in interest, but you will be establishing BUSINESS credit, which is separate from personal credit.  You could also open a credit card for your business, but be cautious about putting a lot of purchases on it until you are sure you can pay it back.

What I’m really saying is to consider other sources of credit before you go to a bank.  Once you have built up a reputation for paying your business bills, you can talk with a bank more confidently, and they feel more comfortable about giving you a loan when they see that you already have a business going and that you are a responsible business person.

I just saw a great article by a business funding expert, discussing the reasons why business plans fail.

Some of these failings I have been talking about with classes for many years.  In particular:

* Value Inflation - Many DC grads have an over-inflated idea of their value to society.  Just because you think chiropractic is wonderful, doesn’t mean others will too.  You must PROVE your value by providing care that relieves pan and through outstanding customer service.  Don’t toot your own horn until you have something to toot about.

* “We have no competition.”  Yes, you do; it’s every other chiropractor in your community, in addition to orthopedic doctors, physical therapists, and osteopaths.  This statement shows an ignorance about the basics of business that turns off banks and lenders.  Until you can prove to prospective patients that your practice is valuable to them (see item 1), you are just like any other chiropractor.  People who don’t know chiropractic don’t know the difference between NUCCA and Gonstead.

 *Trying to be all things to all people.  I know when you start out, you want to take everyone.  But you need to more specifically define your market.  What kind of patients are you really looking for?  What do they look like?  What kind of care do they want that you can provide?  Limiting your market actually brings you MORE people rather than fewer.  Trust me on this; I’ve seen it work many times.  If you don’t define your market very tightly, no one will know they are supposed to come to your office.

* Unrealistic financials.  I see lots of business plans with very high income projections and minimal expenses.  Back way off on the income projections.  Even if you think you can start out with an income of $10,000 plus a month, the bank won’t believe you.  And be sure to put all possible expenses in your cash flow listing.  Put a large amount in Miscellaneous (at least $500 to $1000 a month).  Remember Murray’s rule:  Over-estimate expenses and under-estimate income.  And you’ll be about half right.

* Forgetting Cash.  Speaking of cash, understand the difference between cash and profits.  Just because you bill it, doesn’t mean it wil be collected.  You must manage collections to bring in the money you need to pay your bills.  If you bill $10,000 a month and you only collect $5000, you may not have enough to pay expenses.  This is the place where I lecture on keeping down expenses (but I’ll save that for another blog post).

In conclusion, read the About.com article carefully and follw what he says.  If you follow the ideas in this article, it could mean the difference between getting your loan accepted or not. 

There are many situations that may cause a new practice or an existing practice to have trouble paying its bills:

• Like many practices in the Midwest this spring, your business may have been hit by a storm or been flooded out
• You may have had a personal tragedy that caused you to neglect your practice
• You may have been a victim of theft or embezzlement
• You may have been served with a malpractice lawsuit or other legal action

In any of these situations, as well as the difficulties of practice startup, you may find yourself in the position of not being able to pay your business bills. 

SCORE (the Service Corps of Retired Executives - an SBA partner) has a new booklet that might help you with these bills.  Their brochure is titled Pay Business Debts You Can’t Afford. It’s worth a look.

The booklet takes you through the steps in debt restructuring, from categorizing creditors setting a monthly budget, sending out hardship letters and working with each creditor, and implementing your monthly budget.

This new DC opened in November and closed in April. A record? Probably not.

If you’re asking “What does ‘undercapitalized’ mean?” let me explain.
I will be talking to her on Monday but here’s what I am guessing, based on what I see a lot these days:

1. She had grandiose ideas of what she wanted in her practice, so when she did her planning, she included all of the “nice to have” stuff as well as the “need to have” stuff. And she was able to get a loan for all this stuff, so she bought it.

2. She didn’t save enough money for “Working Capital” - the money you need to keep paying the bills until the patients start coming in.

3. I know she did some marketing (a direct mail campaign, for one thing), but the patients didn’t come in fast enough.

In other words, she didn’t have enough “capital” (CASH ON HAND) to keep her going while she brought in new patients.

So what is the “take home” message?

When you get your new practice loan, DSATM - Don’t Spend all the Money! Buy only what you absolutely need, and save as much as possible to pay bills. You can always buy stuff later, when the money is coming in. A little restraint now can mean the difference between a successful first year and closing your office.

I’m meeting with the DC on Monday; I’ll let you know what I find out.

The other day, I talked with someone who told me she had paid $1200 to someone to help prepare her SBA loan paperwork.  She said the bank told her they would only take the loan with an SBA guarantee and that they weren’t “comfortable” with doing the paperwork themselves.  So the recommended someone (probably the banker’s brother-in-law!) to help with the paperwork at a cost of $1,200. 

Now, I understand that SBA paperwork is a daunting thing.  Like any government paperwork, it’s full of nearly incomprehensible questions and ridiculous requirements.  But, doggone it, there’s just no reason to have to pay someone $1,200 for this work!!! 

Here’s what I would suggest in this case:

1. Find another bank.  There are plenty of banks who are SBA preferred and SBA certified lenders, who know how to help you with the paperwork.
2. Go to the SBA directly and ask for help.  Your local SBA person can help you walk through things.
3. Go to your local SCORE chapter and ask for help. Many SCORE chapters have weekly Q&A sessions where you can find answers.
4. Find a CPA (you will need one anyway) and have this person help you.  It will be a good way for you to test this CPA’s qualifications.  If he or she doesn’t know what an Income Statement is, for example, you have the wrong person!

For more information on obtaining a loan with an SBA guarantee, go to this StudentDC article. 

If I had a nickel for every time I’ve been asked that question, I’d be a millionaire.  And if I knew the answer to that question, I’d be a billionaire!

I recently heard from a young DC who had associated for several years, had about $25,000 in cash and assets, and a credit rating over 700.  Sounds like a slam-dunk, yes? Well, no.  That’s why he was writing me, for some help.  Here is what I suggested:

1. Go directly to the SBA in your area and see if you can get pre-approved.  The SBA might even know of a bank that might be willing to take you.  With a pre-approval letter from the SBA, you might have a better chance of getting a bank to talk to you.
2. Get involved with networking in the community where you want to be.  Go to Chamber of Commerce meetings, other community events.  What you’re trying to do is get personal contacts with bankers in the area, showing them that you’re interested in the community and that you’re serious about opening a practice.  Ask lots of questions, talk to people about your plans, get them involved.  You never know what might happen.
3. Cut down on the amount you are requesting.  Keep the asset purchases to a minimum and get some money for working capital. Consider what you absolutely must have to start.  People will understand if you don’t have a lot of fancy office furniture.  You can always buy more later.
4. Consider an additional credit card with zero interest.  This is usually a last resort, but with your credit score, it should be possible.  Then spend carefully.  After a few months of getting money in from patients and showing good financial statements, you might be in a better position to go to a bank and ask for a loan. 

I hope these suggestions help.  I know there’s no one magic answer; it’s a matter of persistence and flexibility.  Keep on – you will find a way.  Let me know if I can help or if you need my opinion on your business plan.

In addition, here are a couple of articles from StudentDC.com that might help:

Finding collateral for your startup loan   and   Obtaining an SBA loan guarantee. 

A fellow blogger wrote a post today about credit reports, saying you should avoid “Freecreditreport.com” because of the fine print.  Read her post here:  http://www.yieldingwealth.com/want-your-credit-score-be-prepared-to-pay-for-it/

Here’s a suggestion when you’re going to banks to apply for your practice startup loans:  Go to annualcreditreport.com and pay for the three FICO scores.  Then take the entire report, plus scores to each bank.  Show them the report instead of letting them “hit” your credit score. 

Here is a Chiropractic Economics article you might find helpful: 9 facts you need to know about credit

And here is a StudentDC article about Checking and Repairing Your Credit.