Having sufficient capital is an essential part of running a successful veterinary practice. Aside from caring for everyone’s pet, veterinarians also have to make sure they have enough cash on hand to sustain their business operations. They may turn to small business loans – or in this case, veterinary loans – to get the additional cash injection they need.
If you’re thinking of running your private vet practice, or have been managing one for quite a while now, then you know there are several loan options available on the market. With the rise of alternative financing, alternative small business loans have become more accessible for SMEs, including veterinary practices.
In this article, we’ll discuss why veterinary practices might need a loan and dive into the different loan options that would best fit their needs. If you’re in the process of finding the best loan option for your business, this can be a helpful guide.
Why Veterinarians Need Financing
There’s a variety of reasons a vet may seek a loan for their practice. Maybe you’re a startup looking for additional cash to cover the startup costs. Perhaps you’re planning for expansion, which can cost a lot and cause a cash flow strain if funded out of your company’s cash reserves.
In general, veterinarians seek additional funding to cover the following:
- Acquiring a practice
- Capital to cover the first few months of business operations
- Renovations for an existing clinic or construction of a building
- Equipment purchases (i.e., x-ray, CT scan, and other diagnostic equipment)
- Hiring staff
- Covering seasonal cash flow gaps
- A safety net in case emergencies or unforeseen events occur
Veterinary practices must stay on top of the latest trends and technology to remain competitive. To do that, they need additional cash to spend. With veterinary loans, they can secure the funding they need to provide top-notch services for their clients.
5 Best Veterinary Loan Options for Veterinary Businesses
If you’re having trouble navigating through the different veterinary business loans, we’re here to help. We’ve laid out the top five veterinary financing options below, along with how each of them works.
1. SBA Loans
SBA Loans are business financing options guaranteed by the Small Business Administration (SBA). One of the most important things to emphasize with this loan is that the SBA itself doesn’t underwrite the loans to the business owners. Instead, they work with SBA-certified lenders who extend the credit to SMEs.
The government guarantee incentivizes the lenders, especially risk-averse banks, to extend credit to almost any business. This makes the loan more accessible to borrowers who won’t typically qualify for conventional credit from banks without the government guarantee.
Many business owners seek SBA loans because they’re among the most affordable financing options available to businesses. They also offer longer repayment terms, with some loan products having a repayment period of 25 years.
Although SBA loans are among the most accessible and affordable, it’s not exactly the easiest to qualify for. Since the federal government backs it up, these loans are reserved for the most creditworthy borrowers. In other words, businesses should be able to present a good credit score, long business history, and excellent financials, among others. The lenders may also require collateral or down payment to secure the loan.
Furthermore, SBA loans are known for their lengthy application process. Businesses applying for their loan products may have to go through a stringent application process and may be required to submit a long list of documents. From start to finish, the SBA loan application process could take a few weeks to months. That said, if you’re in a cash crunch and you need access to the capital quickly, this might not be the best solution for you right now.
However, if you have the time on your side, SBA loans could be one of the best financing options for your veterinary business. In general, business owners usually apply for the SBA 7(a) and SBA CDC/504 loan. Here’s how each of them differs from each other:
a. SBA 7(a)
The SBA 7(a) loan is the most highly coveted SBA loan out there. This is because once the business is approved, the proceeds can be put towards any business initiative. Whether it’s for business expansion, equipment purchases, real estate investments, hiring staff, or covering day-to-day expenses.
With the SBA 7(a) loan, eligible businesses can get between $5,000 and $5 million in funding, with interest rates starting at 7.75%. The loan amount and interest rate will largely depend on your business’ credit score and financial background. Essentially, the higher your credit score is, and the more solid your financials are, the better the terms will be.
b. SBA CDC/504
The SBA CDC/504 loan is designed to help small businesses finance assets that can help with business growth. In this financing option, the SBA partners with the Certified Development Company (CDC), whose primary goal is to promote economic development within a community by creating jobs.
The CDC pools the loan applications together then auctions the applications off to venture capitalists, who will provide a portion (40%) of the project’s funding. The SBA also partners with certified lending institutions such as banks to cover as much as 50% of the financing. The business owners will cover the remaining 10%, which will serve as the down payment for the loan.
Once approved, the business can put the proceeds towards purchasing assets such as real estate and/or equipment. Specifically, business owners can use it for the following purposes:
- Building or commercial property purchases
- Space renovations
- Buying equipment
- Buying fixtures and furniture for your clinic
- Refinancing debt (as long as the debt is spent on acquiring real estate or equipment)
The SBA CDC/504 loans can have a repayment period of 10 to 25 years, depending on how the business owners use the proceeds.
2. Equipment Financing
Veterinarians need top-notch equipment to provide better services to their clients. However, diagnostic equipment tends to be one of the most expensive investments for veterinarians. Funding it out of the business’ pocket can be damaging as it can cause a strain on the business’ cash flow.
An alternative would be to apply for equipment financing. Equipment financing provides the funding you need to buy or lease much-needed equipment – be it an x-ray machine or state-of-the-art CT scan and MRI machines. The proceeds of equipment financing could also be used for automation, such as online appointment booking.
One of the many benefits of equipment financing is that it can be a tax-deductible expense. The interest rate you pay for the funding can be considered a tax write-off, lowering the taxes you’ll have to pay annually.
The repayment period for equipment financing could vary from one lender to the next. However, they usually base the repayment on the expected lifespan of the financed equipment. In general, equipment financing has a maximum repayment period of five years.
3. Term Loans
Companies use term loans to fund a single, large purchase or investment. For instance, if you plan to expand to another location, you can apply for a long-term loan to cover the construction or renovation expenses. You can also use the funds to purchase expensive equipment, bridge cash flow gaps, cover day-to-day costs, or take advantage of certain business opportunities such as business acquisitions.
Term loans can be classified into three types according to the length of the repayment period:
- Short-term loans, as the name implies, are suitable for short-term capital needs. It could be staff hiring, covering temporary cash flow gaps, or addressing an emergency expense. The repayment period for short-term loans can range from a few months to a year.
- Medium-term loans typically have a repayment period ranging from one year to five years. You can use the proceeds to cover equipment purchases, renovations, or refinance existing debt.
- Long-term loans can provide up to $5 million in funding for qualified business owners. Once approved, business owners can use the funds to cover larger investments such as commercial property acquisition, equipment purchases, or construction expenses. The repayment period can be anywhere from five to 25 years. However, this type of financing requires a long-term commitment, which is why lenders may only offer it to mature businesses with solid credit and financial records.
There are multiple avenues in which a business owner can receive term loans. Banks usually offer the best terms, but qualifying for a term loan from them could be challenging as they only extend credit to creditworthy borrowers.
Alternative lenders, such as online lenders, may be more flexible and willing to risk lending to businesses with less than stellar credit and shorter history. They also have a quicker and more straightforward application process. However, in exchange for this convenience, they may charge higher interest rates.
4. Business Line of Credit
Businesses looking for continuous access to cash may turn to business lines of credit to get what they need. Once approved, the lenders can set up a credit line for the company, which they can tap into as-needed, as long as they don’t exceed the set credit limit. They only have to pay for the amount they use, plus interest, then reuse the funds again if the need arises.
One of the advantages of business lines of credit is its spending flexibility. Businesses can cover almost any business initiative with this type of funding. It could be for equipment purchase, reordering inventory, buying fixtures or office supplies, or bridging cash flow gaps. A business line of credit could also be used as a safety net in case of emergencies.
Eligible businesses can have a credit limit of up to $5,000,000, depending on their credibility, with a draw period of 10 years. The business must ensure that they repay what they owe before the end of the draw period to avoid paying late fees.
5. Business Credit Cards
Business credit cards are among the easiest financing options to qualify for because providers mainly use your personal credit as the basis for your eligibility. Like business lines of credit, credit cards offer some spending flexibility. You can use the card to purchase just about anything business-related – from your staff’s lunches to equipment.
Aside from flexibility, business credit cards also boast other benefits. Having one can help you build credit as long as you pay your dues on time. Business credit cards typically have a larger credit limit than personal credit cards, so you won’t have to worry about maxing out your credit line. In the end, you only have to pay the funds you used, plus interest.
However, it is worth noting that credit cards can come with high-interest rates, depending on the lender. If you apply for one, the lenders may also require a down payment or collateral. You would also have to sign a personal guarantee agreement, which is a legal promise to pay your business’ debt using your personal resources if the company becomes unable to do so.
Final Thoughts on Veterinary Loans
Veterinary businesses face many expenses, regardless of whether you’re in your early stages or are well established. While you may hold out for the first couple of months by bootstrapping, chances are you will eventually need more capital to sustain your business operations or for expansion.
Fortunately, you can opt to apply for the financing options mentioned above. Some offer flexibility, while others may be tailored to fit a specific need. That said, veterinary practices can be assured that they’ll find the most viable financing option for their business’ current situation.