Growing your practice? Discussing financing options for RMTs
Lines of credit are like credit cards, the borrower uses only the funds they need and make payments based on what was used. Photo: Getty Images
Running a successful health-care practice requires both medical and business expertise. It is critical to stay on top of day-to-day finances to manage the ups and downs of a competitive market. What happens when the time comes to take the practice to the next level, or an emergency strikes?
Moving to a new location, renovating, upgrading equipment, launching a marketing campaign, or hiring new staff to expand services – these are all potential costs of running a practice. Without quick and easy access to financing when needed, dreams for a successful practice can be crushed. Luckily, there are several ways to go about getting the funds needed to grow one’s practice – some of which aren’t necessarily common knowledge.
There are more than a dozen specific types of business loans, and those offered by traditional lenders typically fall under three distinct categories: lines of credit, short-term loans and long-term loans.
Lines of credit – A line of credit is like a credit card, meaning that it is essentially a pool of money. People can borrow the funds they need when they need them and make payments only on what was used. Although this is a great way for businesses to access the capital they need on demand, lines of credit often have high compounded interest rates. When considering a credit card or a traditional line of credit, it is important to consider one’s situation. These options are best when the borrower needs to make up for temporary shortfalls in income rather than huge purchases like expansions or improvements. Banks and other major lenders offer lines of credit to business owners.
Short-term loans – A short-term loan is a sum of money borrowed from a bank or another type of lender. However, rather than making fixed monthly payments, the borrower simply repays the entire amount, in full, on a specific date. As the name suggests, most business owners use these to settle their short-term needs; they are perfect for things like building inventory, raising funds for accounts payable, or for finishing up some sort of project that will provide a quick return. Most short-term loans are valued at less than $100,000. Banks, credit unions, and other licensed lenders provide them, and they are especially helpful for those who run seasonal businesses.
Long-term loans – Long-term loans are the most popular types of business loans out there – and for good reason. Commercial lenders tend to offer long-term loans for things like working capital, refinancing, acquisitions, and even business expansion. A good credit and a well-established business are required to get a long-term loan with a reasonable interest rate. Falling short of these requirements, the loan application must be accompanied by a solid business plan. If the borrower can prove that the loan will help the business grow, there is a good chance the borrower will be able to get the funds needed, even with a low credit score.
Alternative financing options
Alternative financing refers to financial channels and instruments that have emerged outside the traditional finance system, or are offered in collaboration with banks. There are several sources, each with its own unique set of benefits and drawbacks. We outline a few of the alternative financing options that you should also be evaluated when looking for funding to help you grow your business.
Alternative loans – Alternative loans are an option for people who have average to bad credit, as alternative lenders look at much more than the credit score. They also consider the overall success of the potential borrower’s business, business plan, and wellbeing. Someone who has been in business for a while and generates enough revenue, could qualify for term loans based solely on the length of business and the monthly sales. The interest rates associated with these types of loans are higher than a loan one might obtain from a traditional lender, but they are quite competitive when placed against the common business credit cards that even those with good credit can obtain.
Merchant cash advances – These are an option for business owners whose customers pay with credit or debit cards. Funding can be obtained in as little as one to five business days, and credit score is often not even a consideration. Lenders look at things like the amount of time the business has been operational as well as its monthly revenue to determine funding eligibility. While some merchant cash advances come with high annual percentage rates (APRs), others have one-time fees built right into the total amount of the loan. Instead of monthly payments over a fixed term, repayment for this type of loan involves a percentage of the daily sales.
Working capital loans – This type of loans can help finance everyday business needs. Working capital loans are designed for more immediate issues like accounts payable, squaring up wages, or even pulling a seasonal business through a lull in activity. Oftentimes, lenders evaluate the borrower’s time in business, the average annual and/or monthly sales, and even the immediate business forecast to determine the borrower’s ability to repay the funds. An application must be filled out and a contract needs to be signed if the loan is approved.
When evaluating the many options for business loans, be sure the lender provides fast turnaround of approvals, has a credible history, understands the unique needs of the business, and can deliver the capital when its needed the most. Remember, while traditional lenders all offer lines of credit and short- and long-term loans, a good credit score and/or many years in business are required to obtain a loan with them.
Also, make sure the lender delivers a product that is tailored to your business needs. For example, flexible payment solutions that align with the cash flow of the business and help plan financing based on the terms. Finally, remember the financing is for the business. Make sure the lender has not restricted the use of the financing, so that money can be used as needed to support
Jeff Mitelman is the CEO of Thinking Capital. Thinking Capital has helped more than 10,000 small- to medium-sized Canadian businesses reach their full potential. For more information about business financing in Canada, visit www.thinkingcapital.ca.
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