1 Aug
From premises, staffing issues and dealing with local competition to regulatory matters and HMRC, there’s much to think about when running a practice. But one source of worry for many, understandably, is how to keep the financial plates spinning and, in particular, where to source the funding necessary to keep the doors open…
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Bob Hope, the late American comedian, once said that “a bank is a place that will lend you money if you can prove that you don’t need it”. If you don’t know who he is, Google him – he was one in a generation.
His point, while comedic, is well made and very much true – banks are reluctant to help those most in need.
So, where can a veterinary practice go to get the monies it needs? What follows, while simplistic, shows that options exist, and not all are that obvious.
The first stop for many is often a bank loan from a high street bank. Interest rates vary and banks may well, depending on circumstances, be competitive. However, they will invariably impose strict qualifying criteria and requirements – often demanding three years’ accounts, which can be hard for a start-up.
Challenger banks such as Starling, Acorn and Cash Plus are alternatives that shouldn’t be ignored because they’re not on the high street. Visit Cubefunder for a good guide to them.
A business loan can help those wishing to expand a practice, hire employees or invest in practice equipment. A loan is a relatively inexpensive form of borrowing compared to other methods such as using a credit card and comes with flexibility with regards to both repayment terms and the amount that can be borrowed.
Loans are better than overdrafts (attached to a current account, with a set limit) as they are not repayable on demand. Importantly, loans can be used for almost anything from expansion to the acquisition of new equipment.
On the flip side, to be granted, the firm will need to provide a business plan, its owners as well as the business need a good credit rating and personal guarantees as well as security may be required.
Sight shouldn’t be lost of the fact that such guarantees make borrowers personally liable if the business defaults on the loan. Good legal advice before giving a guarantee is essential. However, where a guarantee is given, or security offered, interest rates will be lower.
An alternative to an overdraft is a revolving credit facility. This allows businesses to borrow, repay and then re-borrow when needed over the agreed term. It’s great for emergency purchases and everyday costs. However, they tend to only run for six months to two years.
Another option is to look online for immediate and short-term loans. Google has links to plenty of such firms including Funding Circle, Love Finance, Rangewell and Iwoca. Each varies in what they offer, but these lenders provide money that can be used to pay for new clinical equipment, staff and medical supplies, as well as for the paying of tax bills and VAT.
It’s important to note that these loans run, typically, for between 3 and 18 months. They are simple to apply to, fast to respond and could well be more in tune with the demands of those with poor credit ratings that have a thin credit file – with little information – or for higher risk situations.
The downside is that those needing this funding will pay more for the facility as interest is tied to risk and, of course, the repayment term is short.
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Good plant and equipment is the key to running a successful practice. But such equipment – MRI scanners and x-ray, as well as other paraphernalia such as autoclaves and ultrasound – doesn’t come cheap.
In this instance, practices might consider asset-based finance where lenders fund 80% to 90% of the price of expensive pieces of equipment via a loan that is repaid over a fixed term with interest. Depending on the agreement, the practice may own the equipment once the original loan has been repaid.
Asset-based finance options include the following:
■ The first is a finance lease, which involves the renting of equipment in return for a fixed monthly payment.
■ Then there’s hire purchase (also known as lease purchase). This is akin to the first, but differs in that the borrower ends up owning the equipment once repayments have been made in full and the contract has ended.
■ Finally, there’s contract hire, which often is used for the acquisition of vehicles with payments spread over the agreed term of the contract.
It’s often thought that for a start-up veterinary practice, asset-based finance is the best option for plant and equipment – certainly when compared to the high street bank loan. This form of borrowing makes budgeting easier because of the fixed monthly repayment.
Furthermore – and this is equally important – repayments can be offset against the practice’s tax bill along with capital allowances to further lower a tax bill.
As before, the amount that will be advanced and the interest that will be applied will depend on the applicant’s credit score. Overall, though, asset-based funding is a quick way to acquire equipment and can lead to the business gaining an asset at the end of the term. However, it should be remembered that the equipment becomes security for the loan and will be removed by the lender if payments aren’t kept up.
As mentioned earlier, credit cards offer easy and fast access to forms of finance. Ad hoc purchases such as fuel, stationery and small pieces of equipment suit credit cards well. However – and this is essential to keep in mind – they are very much short-term and carry punitive rates of interest if the borrowing is not repaid before the statement due date. But with the advent of online, it’s very easy to keep tabs on spending.
Using a business credit card for spending has its bonuses. Used correctly – that is, bills are always cleared on time – they can be used to build or enhance a credit rating, which in turn may lead to successful loan applications for large sums; and they often come with large credit limits so when a short-term need arises, there’s no need to apply for further funding. Even better, some give points or cashback on spending.
However, in contrast to other forms of funding, they carry high rates of interest and come with lower levels of facility – borrowing – compared to a traditional loan.
Again, Google offers a window on to what is available, as do sites such as money.co.uk and gocompare.com
But as well as the usual suspects – Bank of Scotland, HSBC, Lloyds and Santander – names exist that may well not be so well-known, including Capital on Tap, Payhawk, Juni and Danske Bank. Credit limits range from £3,000 up to £2 million (Juni) or more.
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An unlikely option that few consider – especially if the business is new – is a government-backed start-up loan from the British Business Bank. This, in essence, is an unsecured personal loan of between £500 and £25,000 with – and this is central to its utility – no personal guarantee.
On top of that, if several business partners are involved in the practice, each can apply in their own right for funding – but to a maximum of £100,000 per business.
Applicants can even apply for a start-up loan when buying an existing business – even if that business has been trading for more than three years under different ownership, provided the applicant has personally not owned the business for more than three years. Loans can also be used to buy a franchise.
The following qualifying criteria needs to be met:
■ Applicants need to be starting a new business or buying one that has been trading for up to 36 months.
■ They need to be unable to secure finance from other sources (self-declaration).
■ The business type and loan purpose must be eligible (practice start-up is, but debt repayment, for example, is not).
■ Applicants must pass a credit and affordability check.
A fixed interest rate of 6% per annum exists and loans can be repaid over periods of between one and five years.
No application fee and no early repayment fee apply. Applicants also receive free guidance on writing a business plan and up to 12 months’ mentoring.
It’s worth noting at this point that a practice may be able to tap into other finance and support depending on use case and region.
Visit Gov.UK for a searchable page on the Government’s website and, for example, BCRS Business Loans can offer loans of between £10,000 and £150,000 to businesses in the west Midlands that cannot get funding elsewhere.
Lastly, something else to consider is a merchant cash advance, which are useful where a practice takes card payments. Simply put, the funder advances a lump sum to the borrower in exchange for a percentage of future card payments made by clients.
The bonus is that the borrowing is unsecured – personal and business assets are not on the line if repayment isn’t made.
As noted earlier, this is an overview of what is available. Practice owners need to apply themselves and devote some time to researching what it is they need and who might supply it.
The information is all out there on the web.