If you're planning on buying a clinic or expanding your current clinic, you're probably going to need financing. Here's what you need to know to set yourself up for success.
Posted in Planning on Tuesday, July 5, 2022
Financing is one of the most challenging — and important — aspects of purchasing or expanding a clinic. Here’s what you need to know to secure the funding you need.
Before You Begin
To maximize the odds of a smooth lending process, it’s important to have your ducks in a row going in.
Save for a Down Payment
10% is typical, but to cover costs and provide some breathing room, at least 12% is ideal. The down payment can come from gifted funds but not borrowed funds. Lenders will also look for a credit score above 680 and a couple years of chiropractic or relevant work experience.
Research Your Ideal Clinic Size and Type
Look for a clinic with income that can support your lifestyle and loan payments, but be realistic about the size that you can effectively manage. Unless you’re an experienced owner, steer clear of fixer-upper clinics, which require time and expertise to make profitable.
What Type of Loan Should I Get?
Buyers have three basic options for funding:
- Owner financing
- Conventional loans
- Small Business Administration (SBA) loans.
This option eliminates the bank middleman, but it comes with complications. Because the seller shoulders the risk that comes with a new owner’s decisions, they may charge higher prices or interest rates. They may also want to stay involved in the clinic’s operations post-sale. It’s easy for the relationship between buyer and seller to break down over time, which can lead to disagreements and litigation.
Many buyers have a hard time obtaining conventional loans. Banks often have a poor understanding of the chiropractic industry and are hesitant to lend to new owners. Unless you’re a highly experienced doctor, a conventional loan is likely to be out of reach as it may require as much as a 35% down payment, typically has a shorter loan term (which means higher monthly payments), and some sort of collateral such as real estate or an investment account to secure the loan.
That leaves SBA lending, which is the best option for the vast majority of chiropractic buyers. Although it involves some extra bureaucracy, SBA loans have lower interest rates and longer payment terms than conventional loans or owner financing. The SBA is designed to help the new business owner succeed.
How to Get a Loan
Be Financially Prepared
As exciting as it is to transition into ownership, don’t quit your job too soon. Outside of borrowing for the purchase or expansion, avoid taking on unnecessary debt. Lenders will closely examine your experience and credit history, and you want both to look as appealing as possible. You must show a strong payment history and that you have limited any frivolous debt such as credit card, automobile, or extraneous debt.
Do Your Homework
The bank will also evaluate your knowledge of the lending process and clinic ownership. Be careful what you say and how you speak — everything that reflects poorly on you as a buyer or owner will hurt your chances. Make sure you understand the business side of clinic ownership, and provide your lender with every reason to believe that investing in you will pay off.
Consider Consulting an Expert
Expert help can be of substantial value during this process, but choose wisely. Friends and family members may have your best interests at heart, but they rarely have the expertise to help you secure the loan you need. The chiropractic industry is unique in many ways, and the lending process is no different. Just because your cousin's uncle is successful plumber doesn’t mean that their business expierence directly translates to understanding a chiropractic clinic acquisition. Likewise, the chiropractor may not be the best business consultant for the hardware store owner.
Work with a Broker
For the smoothest path, work with a loan broker. Experienced brokers can walk you through the lending process, secure the best possible loan terms, and act as an intermediary between the buyer and the banker, mitigating the possibility of the buyer inadvertently causing the bank to decline to fund the loan. A broker with chiropractic expertise can connect you to lenders who understand the potential behind clinic purchases.
In sum: Do your homework before you start, go after an SBA loan, and invest in professional support so you are well-represented to the bank. With adequate preparation and a little persistence, there’s no reason that a qualified buyer shouldn’t get the funding they need.
About Crystal Misenheimer
Crystal Misenheimer received her BBA from Baylor University in International Management Information Systems. She worked in database management in the non-profit sector prior to taking over the management and marketing aspects of three of Kevin's chiropractic clinics. As the Lead Broker for Progressive Practice Sales, Crystal has helped hundreds of chiropractors to successfully transition into the next stage of their careers. With an in-depth understanding of the intricacies of practice valuations, the constantly changing challenges of the current marketplace and the many complexities of practice sales, Crystal is the leading expert in the chiropractic practice sales space. You can find her regularly featured in industry podcasts, blogs and periodicals. She lives in Chattanooga, TN, and enjoys spending her free time hiking, practicing yoga, and spending time with her husband Kevin and their four children.