Loans for Veterinarians: 6 Ways to Finance Your Veterinary Practice
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When you open any small business, one of the things you need most, besides the skills to provide the advertised services, is a way to finance it.
The same is true when you open or expand a veterinary clinic or animal hospital or buy an existing practice. You may need a way to finance renovations or necessary medical equipment and office furniture. Perhaps you are interested in building a new clinic on a lot you plan to purchase. Instead or in addition to tapping personal funds, you will most likely get that cash by borrowing it.
There are several lending options available to veterinarians. We’ll walk you through those loans for veterinarians and how to find the best one for you and your practice.
- Six ways to finance your veterinary practice
- Tips for new veterinary practices
- Costs to consider
- Tips for expanding your veterinary practice
- Resources for veterinarians
Six ways to finance your veterinary practice
#1. Bank loan. Many banks have specific programs for veterinary practices including large traditional banks like Bank of America with branches around the country, to online Live Oak Bank, which got its start helping veterinarians obtain Small Business Administration loans.
Vince Dailey, a senior loan officer with the Wilmington, N.C.-based bank, said Live Oak also facilitates a number of conventional loans. Some veterinarians, Dailey said, run out of SBA eligibility, which is limited to about $5 million. Interest rates on conventional loans, Dailey said, can sometimes be even lower than SBA loans. We’ll talk more about SBA loans in a minute.
Keep in mind that traditional bank loans for veterinarians can be difficult to obtain, especially for startup business owners. Community banks are often more likely to take a chance on business owners in their own backyards.
#2 SBA loan. The SBA isn’t a direct lender — instead, it guarantees loans made by banks and credit unions. Under the Small Business Jobs Act, the SBA guarantees up to 90% of a loan. Two popular SBA programs include the 7(a) and 504 loan programs. The difference is what you are financing, the length of the loan and how much equity the loan requires. You can learn more about SBA loans here.
#3 Business line of credit. Depending on the amount of money you need, a business line of credit may meet your requirements. Most banks, including online banks, offer these types of loans. An advantage to this type of loan is that you typically only make payments after you actually borrow money. But some lenders may only provide up to $100,000 in funding and require relatively high credit scores and revenue, plus a year or more in business. Online lenders may have more lenient requirements.
#4 Equipment loan. Some banks have loans specifically intended to purchase new equipment. The equipment you buy serves as collateral for the loan, which means lending requirements might be more lenient than other types of loans. Equipment loans are available from both brick-and-mortar banks and from online lenders. The advantage of the latter is that you might get the money you need faster.
Check out our top picks for the best equipment financing companies.
#5 Business credit card. For small purchases of equipment or supplies, having a credit card in the name of your business can be a quick and easy to finance what you need over the short term.
#6 Seller financing. Some sellers of an existing veterinary practice may be willing to finance some or all of the purchase price at an attractive interest rate. The monthly payments become something of a retirement annuity for the seller. This can be especially helpful if you need extra financing to fill a gap. However, you should be aware that seller financing may be unlikely due to the risk the seller would be taking on you, the buyer, to keep up payments, perhaps over an extended amount of time. An alternative might be to buy the existing owner’s practice outright, using one of the funding sources discussed earlier, or a hybrid of the two with an upfront lump sum plus monthly payments for a set amount of time.
Tips for new veterinary practices
Buying an existing practice is the option Dr. Link Welborn recommends to veterinarians who are interested in striking out on their own. He owns five small animal hospitals in the Tampa Bay area in Florida where he has been practicing veterinary medicine for more than 35 years. Dr. Welborn is also the president of Veterinary Study Groups, which connects veterinarians in the U.S. and Canada, placing them in small groups where they may share best practices with their peers. Today’s typical veterinary school graduate, Welborn said, joins an established practice where they’re able to hone their medical skills. When they’re ready for an ownership stake, he describes three main options:
- Stay put — Associate veterinarians may be offered partial ownership in the practice where they’ve been working since graduation. An alternative is to join another practice as a partner.
- Start from scratch — Welborn said this is the most difficult — and expensive — path, one that typically involves renting storefront space, buying equipment such as X-ray machines and lab equipment, and hiring staff. The advantage would be sole ownership without sharing profits with partners.
- Buy an existing practice — The average age of a veterinary practice owner is 61, Welborn said, which means young veterinarians have a unique opportunity as a generation nears retirement. Many of those senior veterinarians would prefer selling to an independent veterinarian versus corporations gobbling up small practices and consolidating them under one umbrella. Veterinary Study Groups and the American Veterinary Medical Association (AVMA) have teamed up to offer an exit strategies webinar for owners interested in selling to independent veterinarians. The buyer, Welborn said, would typically borrow money in order to buy the retiring veterinarian’s practice and any assets such as equipment that would come with it.
Challenges for new veterinarians
Younger veterinarians not only face competition from corporate consolidation they also face repaying significant educational debt. Veterinary students who borrowed money for their education leave school with an average of $150,000 in debt and can expect an average starting salary of $90,000, Welborn said, “That’s a little bit daunting.” Welborn also advised that, “The ideal ratio of debt to starting salary is 1:1 or less.” The idea of taking on more debt may also be daunting, but practice ownership should boost your earning power since you’ll be taking home more — or all — of the practice’s profits.
One thing students typically don’t receive in veterinary school is business education. In the words of the AVMA , veterinarians are experts at caring for animals, but they don’t always get the training they need on how to operate a successful small business. Here are some helpful tips for veterinarians opening a new practice to keep their new business financially healthy.
- Don’t borrow more than you can afford. To repurpose a well-known phrase, borrow with your head, not over. In deciding how much you can afford to borrow, sit down with the loan representative and find out what the monthly payment is likely to be and compare it with the expected income and expenses. Successful practices see about $500,000 in annual revenue per full-time doctor in the practice.
- Make sure your budget includes expenses for you and your family. While your work as a veterinarian is based on your love of animals, it is also a job. That means the budget for your new practice must include a reasonable wage for yourself. Take into consideration the income your family requires for food, clothes, transportation, shelter and other needs, including saving for retirement.
- Understand the impact of student loans. The amount you can borrow is based on a number of factors, including the income the business generates. It’s also based on your credit rating and other business and personal debt you may have, including student loans. Lenders may look at your personal credit, cash reserves you may have, collateral and expected business cash flow or existing cash flow in the case of an established practice
- Be specific. Loan terms vary based on how the money you borrow will be used. Different rates and terms will be available for funding new equipment versus buying and improving real estate. Your lender will need to know exactly what you are doing with the money you borrow and will offer the best terms it can under those circumstances.
Costs to consider
Like any small business, there will be fixed costs such as rent, but there are other expenses to keep in mind with a veterinary practice including:
Cost of goods sold — Pet treats and toys, food and preventative medicines are all items that you may stock in your practice. This inventory can be an expense that you may not recoup right away. One rule of thumb: Your weekly inventory order should not exceed more than 12% to 14% of the previous week’s gross revenue from the previous week. Consider linking your practice website to a third-party prescription site so you don’t have to carry those medicines on-site.
Staffing costs — You may need staff members to make appointments, greet patients and attract new ones. Well-managed practices spend about 21% of gross revenue on non-doctor staff wages.
Practice management costs — Veterinary practices may want to consider an accountant and other consultants who specialize in the industry, but these may be more expensive than, say, a general certified public accountant.
Tips for expanding your veterinary practice
Maybe you already have a practice and would like to add a new location across town. Or, perhaps you’ve outgrown an existing building and want to build a new animal hospital in its place. Here are some tips for veterinarians looking to expand. Again, Welborn recommends that owners consider acquiring an existing practice. It’s also a way for more experienced veterinarians to retain talented younger colleagues. “In 2017 we bought an existing practice, took a young associate and put him in that location as a one-third partner,” Welborn said. As an owner, the younger veterinarian had a vested interest in making sure the new office was successful without Welborn having to be on-site.
- Line up the funding first. When acquiring an existing practice, Live Oak Bank’s Dailey suggests getting the financing first. “That way the buyer knows you are serious if you give them a preapproval letter.” Then, when choosing a practice to buy, select one that complements your current practice. Maybe the new practice offers pet boarding and your current one doesn’t. Now, you have expanded into a new area that all clients can use. The bottom line is increasing revenue. That will make money easier to borrow to fund the expansion.
- Make sure you have the skills to handle an expanded business. If you buy another practice or build a second location, you will inevitably be managing more staff, as well as monitoring business activities. Dailey said veterinarians who expand have an entrepreneurial spirit but still need to be honest about whether they have the skills to manage people.Dailey said veterinarians should ask themselves: “Do you have the management skill set necessary to own multiple practices?” Veterinarians who expand successfully, he said, “like the business side and are good at managing.”
- Put together the right team. Expanding your practice will mean expanding your team, ranging from having a veterinarian you trust to run the second location to having an accountant and practice manager who, in Dailey’s words, can help you expand.
Resources for veterinarians
Dailey said veterinarians have a unique skill set, but not necessarily one that includes much business experience. Here are several resources for veterinarians interested in starting or expanding a practice:
American Animal Hospital Association (AAHA) — The American Animal Hospital Association also provides financial planning tips and tools.
American Veterinary Medical Association (AVMA) — You can find more tips as well as information on the AVMA’s annual economic summit here.
Vet Partners — Vet Partners’ membership is made up of consultants who specialize in providing everything from IT services to marketing advice to veterinarians and their practices. These consultants could help you set fees, handle your financial statements and review your overall financial health.
Veterinary Hospital Managers Association (VHMA) — Aimed at veterinarians as well as administrators, office managers and consultants, VHMA provides education, certification and networking opportunities to those who run veterinary hospitals and clinics.