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.

The SBA (Small Business Administration) just announced two new courses to help small business owners learn more about how to get a loan.

I put a blog post on this subject on my About.com site (U.S. Business Law & Taxes).  The post links to the two SBA “courses” (really PowerPoints):  One on the basics of an SBA loan guarantee, and the second on how to prepare an SBA loan package. 

Please take a look at this site, and the 5 “Realities” of SBA loans.  This is important stuff, and it answers a lot of questions I get from students and grads about the SBA loan process.  For example:

1.  The SBA does not loan money.

2.  Your personal credit does matter.

3.  You can’t get a 100% loan.

4.  You can’t get a government grant for a chiropractic practice.

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.

As I look at business plans, I notice that some grads try to tell the bank what terms they want for their loan - what kind of loan, how the loan package will be structured, even the term of the loan and the interest rate. I saw a business plan today that tried to tell the bank when a line of credit would be converted to a term loan. I’m not sure I understand the logic behind that. Another one stated that the borrower would pay back the loan over 10 years.

Good luck with that.

It’s about what the bank feels comfortable with and the kind of terms they usually give. For example, some banks might give you a line of credit for the whole loan, while some break it up into a term loan for startup, with a credit line. And some aren’t comfortable with credit lines; they want you to take the whole loan as a term loan (easier for the bank, and you have to pay interest on the whole amount.

Go with the flow, talk with several banks, and let them tell you. You can certainly negotiate with the bank, and try to get terms that are most favorable to you. But you aren’t really in a position to dictate, given that many banks won’t even talk with you. Just tell them how much you need and for what. Then take it from there.

It’s more important to get enough money.

This is a sad story I saw about a new DC in Wichita, Kansas .  Reading between the lines, it sounds like he got in too far with a lease commitment, then he couldn’t get patients in the door fast enough (or he couldn’t get them to pay) to meet his commitments.  If he had borrowed a little more and spent a little les on startup, he might have had enough money to pay his bills while he was building his patient base.

This is a classic example of “lack of capital.”  It can happen any time, but is most common in the beginning.  How do you overcome it?  A wise chiropractor told me “DSATM - Don’t Spend All the Money.”  In other words, dole out your loan proceeds very carefully, not spending on all your “wants” but focusing on the minimal needs you have in startup and the requirments to pay back your loans and make required payments (like the lease, utilities, etc.).  Then you’ll (hopefully) have enough money to pay your bills while you work to build up a good patient base.

This young doctor sounds optimistic.  I would encourage him to try again.  What do you think?