Starting a Medical Practice: How much loan to ask for?
BUSINESS DIES IF CASH FLOW DRIES: quote by me!!.
When you go to a bank to ask for loan for starting your medical practice, what is the usual thought process? There is a tendency to ask for minimum amount of loan for the medical practice. Why? because there is apparently a greater chance of acceptance. Now let me make it clear that it is a wrong strategy.
When you go the a bank to ask for a loan to start a medical practice, or any other business, ask for more than what you need. Here are the reasons why:
1) You can never predict all the expenses on a cash flow statement. Extra cash in hand can buffer these unexpected costs.
2) If your payments from medical insurance companies are delayed or your practice takes some time to ramp up, you will be able to survive the crunch (aka cash flow will be maintained. (Remember the business dies if cash flow dries)
3) Bankers are weird creatures, but rightfully so. They will loan you whatever in the beginning. But if you get into trouble, you ain’t getting anything anymore. So instead of waiting for trouble times to me before asking for that extra amount, ask for it upfront before the trouble arises. It is much easier to get a loan when everything is going good.
4) You do not have to pay interest on the secured line of credit. Only when you actually withdraw the money, interest has to be paid
SO HOW MUCH MORE TO ASK FOR ?
For Equipment Purchase: At least 25% more than the estimated cost of purchase when starting a practice. For individual items , bank will loan only the purchase price.
Line of Credit: Line of credit is used for day today expenses of the medical practice. It is your rent, insurances , staff salary etc. I would recommend at least add 25% to your projected costs. That should give you a good buffer for unexpected expenses. But if you can get more, the better.
More resources for small business are available at SBA.gov. Click on the above logo.