There’s nothing more fulfilling than finally becoming the boss of your trade. For many medical practitioners, opening their private clinic is their ultimate goal. However, many of them fail to realize that once they open their doors, they assume another role, too. That is, becoming an entrepreneur. If they want their business to succeed, then they should know the ins and out of running a business. This includes when and how to obtain a medical business loan.
If there’s one thing you need to do before applying for financing, it’s to plan. Working with banks or private lenders can be either easy or difficult – it all boils down to how prepared you are. Thorough planning and preparation are crucial to the success of your loan application. Whether you want to purchase medical equipment or start your own practice, here are five steps on how to prepare for a medical business loan:
1. Check Your Credit Score
One of the very first things you should consider when you’re planning to apply for a business loan, no matter what type, is your credit score. As you may not know, your credit score will play a huge part in determining whether you’ll be eligible for a loan or not. This will also dictate the terms, interest rate, and repayment period of your loan, should you get approved.
Credit scores will come in handy especially when you’re planning on taking out a traditional bank loan. Before banks approve your loan application, they will perform due diligence on their clients. This basically translates to a series of financial background checks. If you have a history of bankruptcy, payment defaults, and a lot of missed or late payments, your chances of approval lessen.
To remedy a poor credit score, you can check your credit report with the credit bureaus. You can also do it by paying your debts on time, applying for lines of credit, and other alternatives.
2. Organize and Update Documents
Potential lenders will most likely check your business records to see how it’s doing if you have an existing medical practice or business. Make sure you have the following documents ready:
- Business credit
- Business assets
- Current debts
- Profit and loss reports and balance sheets
- Tax returns
If you don’t have an existing business but are looking to start one, you will need to create a financial forecast (a minimum of three years) for your future practice. This will give you a baseline of your financial data, which you can use for sales comparison in the future. The number you come up with in your financial forecast will largely affect the decision-making process of banks. This will help the lender determine how you’ll reach that numbers and whether it’s favorable or not.
2. Prepare a Business Plan
You can’t expect lenders to fund your business if you don’t have a business plan. This doesn’t mean you have to create a 25-page plan. If you can cover all of the necessary information in three pages, then by all means do that. However long it is, just be sure it covers these three key factors:
- How much money you need.
- Why you need it and what you will spend it on.
- How you will be able to repay the loan.
3. Prepare Answers for Questions Regarding Capital, Collateral, and Credit
Credit (both personal and business), collateral (cash you can use to secure your loan), and capital (business assets that can be used to secure a loan), are the three most important factors lenders consider for business loans. If you don’t have enough of the three Cs, you may want to look for a co-signer who can pledge for you.
4. Include Your Personal Financial Information
Whether you’re currently applying for a startup loan or you’ve applied for a business loan in the past, lenders will want to know more about your personal financial information. Depending on the type of lender, you may be asked to personally guarantee your loan. Before you apply for a medical business loan, be sure you get your finances in order. Some lenders may require you to submit one (or more) of the following documents:
- A credit report showing your FICO score.
- Your personal budget to show the amount of money you will need to take from your business to pay for living expenses.
- Your personal financial statement that lists all your personal assets and liabilities, as well as your net worth.
5. Put Everything Together to Create a Medical Business Loan Proposal
Organize all of the necessary documents detailed above in a binder or folder so it’s easier for lenders to view everything in one place. You may want to include an executive summary to tie it all together.
Should You Apply for a Medical Business Loan?
Based on the competitive nature of the medical field, if you’re planning on opening your own business, you should always secure a medical business loan. This will ensure that you will gain a competitive advantage over the others. You can also use the money to obtain equipment or streamline your business operations. Whatever your plan is, it will cost you money. Before you run out, it’s better to secure medical financing to maintain stable cash flow in your medical business.