Cash, Credit and Character

By David Foster D.C. Published in Chiropractic Economics – July 31, 2015

Master the 3 Cs to gain financing ease.

You have a long-cherished dream of owning a practice, and now that you have your diploma in hand, you’re ready to make it happen. Maybe you’ve been working for another chiropractor for a few years and now you’re ready to strike out on your own. All you need is money. That means obtaining a small-business loan. And that is where many chiropractors with an entrepreneurial mindset run into problems—getting banks to lend a significant amount of money.

Prepare your move

Before you can hope to open your own practice, you need to have your personal finances organized. Banks do not like people who lack funds, who are saddled with debt that may take decades to repay, or whose credit is destroyed by years of poor spending habits. Banks want people who have already demonstrated they are responsible with money. If you are already in trouble, solve your financial problems before attempting to ask for money. If you have just graduated, take the time to establish stellar credit and gain relevant work experience. If you are working for someone else, stay there and take the time to ensure you are ready to face the lenders, who don’t care if you’re a nice person or a gifted chiropractor with big dreams— they just want to know you can be trusted with their money. So how do you prepare for that day when you sit across a desk from someone who has the power to say yes or no to your loan application?

Good credit counts

There is an equation lenders use when considering a loan application, and responsible borrowing, spending, and repayment are part of it. Go ahead and open a credit card—one with the highest credit limit you can qualify for, to show you will never build up as much debt as you have available, and demonstrate that you always pay off your balance on time. For example: Suppose you have clean credit to begin with—no outstanding debt, or you are making responsible payments on the debt you do have. You qualify for a credit card with a $25,000 spending limit. You could spend $2,000 a month on that card, pay it all off every month, and banks will see you as someone with $23,000 credit available and using it wisely. On the other hand, if you run that credit card up to $23,000 and only pay the minimum every month—or worse, miss a few payments—the ban will see you as being irresponsible.

Student loan liability

Consolidate, refinance, do whatever it takes to minimize your student loan debt. If you have been living on your student loan money, or borrowed so much that it will take you decades to pay it back—if ever—banks are not going to look kindly on you. Show that you have kept your student loan debt as low as possible and have been steadily paying it off, and you’ll present yourself as someone who can be trusted to make timely payments.

Credit score concerns

Some banks offer your credit score as part of their regular service on your checking account. If not, you can subscribe to receive your scores from the major credit reporting bureaus. For business loans, banks require a minimum score of 680. If you discover your score is below that, it is because you have not been responsible with your debt. Satisfy your creditors, make all of your payments on time, and you will see that score go up.

Dodge charge-offs

Bankruptcy is the worst thing that can happen to your credit. It means you amassed so much debt that your creditors were forced to zero out your balance, leaving you with credit so tarnished you may never recover. The same applies to credit consolidation contracts: if you have so much credit card debt that you have to bring in a third party to negotiate lower rates and payments with credit card companies (which also closes out those accounts), your credit will be shot. Charge-offs are huge black eyes when you come face to face with a potential lender.

Accumulate cash

Make sure there is plenty of money in your bank account at all times. Lenders will want a look at your last three months of bank statements, and the last thing they want to see is that you are out of money, or worse, making overdrafts. If necessary, around four months before you apply for a loan, get somebody to give you a gift of cash that you can put in your account and leave there. Later, the cash withdrawn from your account will represent the “burn” you go through before you break even each month and eventually become profitable in your practice.

Gain working wisdom

When you succeed in garnering a loan, it can still take a long time to build up a client base, a period during which you will have little money coming in and a great deal going out. In fact, if you are planning on being an insurance participating provider, it could take three months to get credentialed by the insurance company, and another four weeks to get paid, all while you have reduced funds and still have to pay down your debt. Instead, spend time working under an experienced chiropractor with an established practice and plenty of patients. An additional benefit of this partnership is the value of gaining a mentor; banks look at that as another sign of preparedness.

Build a business plan

Assuming your financials are in order, before applying for a business loan, construct a solid business plan that shows what your practice is going to be, how you will fit into the market in your area, how much you expect to spend, and how much you expect to bring in over the next three to five years. This must be more than narrative—it has to be numerical, too. Do the research, draft a budget, and prepare to show how you plan to work within that budget. How long will it take you to break even and eventually become profitable? Your business should be able to support three things: your practice expenses, your debt service, and your personal expenses. You have to meet these criteria as part of your plan. Banks want to see that you have it figured out before they will finance your future.

The sum of the parts

Have your documentation in order before you approach a potential lender. Be ready to show that you have excellent credit, manageable debt, cash on hand, a budget for your practice, and plenty of professional experience that will enable success in your own practice. If banks have to wait while you get your documents together, it will reflect poorly on your professionalism. Ultimately, this preparation means you will not only get the loan you seek but the groundwork will be laid for your long-term success. About David Foster D.C. Dr. Foster has practiced Chiropractic for the past 20 years and has co-owned 10 satellite practices. His undergraduate education includes a BS degree from Boston University with a major in finance and marketing prior to attending Life Chiropractic College. With his acquired knowledge and experience Dr. Foster has consulted the Chiropractic community for the past decade in appraisals, Buy-Sell and Associate agreements in addition to a wide variety of legal, financial and strategic issues related to the business of Chiropractic. ChiroEcon_MainPhotos
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