By Matthew Gillman, Business Financing Expert & SMB Compass Founder
Planning your healthcare practice’s expansion involves capital, which can be challenging to get when you’re not ready. You have to weigh in a lot of factors, from the type of financing you need to get to the lender you’ll be working with. When you don’t ask the right questions, you might have a hard time getting the money for your business.
There are six important questions you need to ask yourself before you apply for business financing. Knowing why you need money or how much you need to grow your healthcare practice will go a long way in securing capital for your upcoming ventures.
Why do I need more capital?
Before you apply for any type of business financing, you must know why you need the money and where you will use it. Most borrowers often overlook why they are applying for a loan in the first place. However, loans are debts, and not knowing their purpose would only do your business more harm than good.
Do you need the money to purchase new medical equipment? Do you need more funds to pay your suppliers, hire temporary employees, or relocate to a bigger location? Identifying the purpose of your loan is the first step you need to take to answer the next questions.
How much money does my business need?
Contrary to popular belief, having a lot of money in your bank account won’t solve all your problems. The same thing applies to your loan application: don’t simply ask for the maximum amount of money you can get. You have to know how much cash you need for your practice to avoid taking on more debts.
Borrowing money comes with interest charges and service fees that increase depending on several factors, such as your credit profile, the amount you’re borrowing, and your term. If you’re going to take out the maximum allowable loan amount, you might end up paying more than you’ve prepared for.
Who would be the best lender to work with?
Each lender has its specialization. Some lenders are good with working with small businesses, while the others cater more to larger corporations. Some lenders specialize in offering loans to retail or food businesses, while others are experts in financing for healthcare companies.
For peace of mind, you can look into a lender and see if they have any certifications or accreditations to certify their expertise. You can ask about the Better Business Bureau (BBB) rating; if they have an ‘A,’ you know that you are working with reputable lenders.
Also, find a lender who knows the ins and outs of your industry. These lenders know the requirements you need to submit to increase your chances of securing the loan. If you’re applying for an SBA loan, working with a lender who already specializes in the healthcare industry will help you get the funds much faster.
Is my personal and business credit strong enough to get a loan?
Personal and business credit are both important factors when applying for a loan. Your credit history determines your credit score–the longer your history and the more responsible your payments have been, the higher your score will be.
A high credit score means you’re a low-risk borrower, which could lead to a lower interest rate on your loan. Conversely, a low credit score could mean you’ll end up with a higher interest rate and may not be approved for a loan at all.
As you prepare the documents you need to apply for financing, you must prioritize your credit profile. What does it look like? Do you think your credit score is high enough to secure a small business loan from traditional lenders? Do you need time to improve your credit score?
To give you an idea, lenders typically require a minimum credit score of 600. Depending on the type of financing you’re applying for, some lenders won’t do credit checks on you if you put up collateral, if you show how much you’re earning every month, or if you agree to pay higher rates. No-credit-check loans are usually costly and might put you in a bad financial position.
How soon do I need the cash?
Apart from knowing why you need capital and how much money you need to finance your healthcare practice, you need to know when exactly you’ll be needing the cash. Some types of financing (like an SBA loan) take a while to apply for without guaranteeing approval.
If you need the funds for emergencies like replacing worn-out equipment, addressing cash flow issues, or consolidating your past loans, you might want to apply for quick loans. Quick loans or fast business loans give you access to cash to address time-sensitive needs. These are the types of financing you can get within 24 to 48 hours with minimal documentation.
Remember that getting fast loans also means that you have to repay them quickly, and they often come with steep interest charges. Otherwise, you can opt for alternative small business loans like a line of credit or purchase order financing, which takes anywhere between 30 and 90 days to get but won’t charge you high-interest rates.
Am I earning enough to repay the loan?
Before you consider getting financing, you must check your business’s ability to pay its debt. Are you currently keeping up with your bills payments, or you’re barely keeping afloat? Can your healthcare business afford to have more financial obligations?
One crucial step you need to take is to check your business’ debt-to-income (DTI) ratio. Your DTI is a key measure of your business’ overall financial health. This measures the percentage of your business’s annual gross income towards servicing debts. You can use your DTI to determine whether you have too much debt and may be at risk of defaulting on future loans.
A high DTI can limit your ability to borrow more money. To maintain a healthy DTI, it is vital to keep your expenses low and revenue high. To compute your debt-to-income ratio, simply add all your monthly debt payments and divide them by your gross monthly income. To give you an idea, your DTI must not go over 43%, or else lenders will consider you as a risky borrower.
Work with your lender to know your options
While there are important questions you need to ask yourself before applying for a loan, it’s equally important to ask questions directly to your lender. Understand the processes involved in applying for business financing, and determine what type of loan is most suitable for your healthcare practice. At the end of the day, only your lender can help you secure the funds you need to grow your practice.
About the Author
Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.
Healthcare Business Today is a leading online publication that covers the business of healthcare. Our stories are written from those who are entrenched in this field and helping to shape the future of this industry. Healthcare Business Today offers readers access to fresh developments in health, medicine, science, and technology as well as the latest in patient news, with an emphasis on how these developments affect our lives.