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Optometry Practice Financing

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Operating a private optometry practice comes with more responsibilities than examining your patients’ eyes. Whether you start a new practice or purchase an existing one, you’ll likely need financing to get the business off the ground.

Potential financing sources include banks, credit unions and the U.S. Small Business Administration, as well as alternative financing companies that specialize in the industry.

If you’re unfamiliar with the financial aspects of running an optometry practice, we’ll help you understand how to figure out what you need to borrow and where you can find financing.

Reasons to get optometry practice financing

The cost of starting an optometry practice can be between $150,000 and $500,000 — per the Review of Optometric Business — and the business may not be profitable for the first few years. Besides operating expenses, fixed costs such as rent and labor contribute to that amount. There may also be an additional 15% in startup costs, including extra equipment, security deposits or construction delays.

Lack of sufficient working capital is the downfall of many new practices. To keep the business afloat, you may need financing. If you purchase an existing practice, the seller could offer financing to you as the buyer. You may be able to work out a deal that allows you to pay the full purchase cost over time.

If you’re starting from scratch, you’ll likely turn to outside lenders, who are sometimes reluctant to finance smaller practices and startups. Before approaching a lender, calculate how much you expect to spend on inventory, equipment and improvements to the building. Also consider how long it could take to generate enough patient revenue to cover monthly expenses, including rent.

The financial components of your practice that you’ll need to monitor most include billing, collections, fees, income, salaries, overhead and equipment costs. Equipment needs can pile up for optometry practices. You’ll likely need chairs, stands and stools for exams, digital imaging and diagnostic tools, retinal cameras and various lenses, among other equipment. In some cases, it may be better to lease equipment instead of making a purchase outright.

Optometry financing requirements

When approving you for optometry practice financing, lenders will generally consider the following:

  • Personal credit history
  • Cash flow statements
  • Balance sheet
  • Collateral
  • Business plan

The better your personal and business financials appear, the more likely you are to be approved for financing. Next, we’ll discuss which financing options may be available for your business.

Optometry practice financing solutions

Optometry practices have access to financing that can cover a range of expenses. The variety of choices allows you to borrow money in a way that’s easiest to pay back. Here are some examples:

SBA loans

The SBA backs certain loans made to small business owners through various banks and financial institutions. The 7(a) loan is the SBA’s most common loan and can cover things like working capital, equipment purchases and hiring expenses. You could borrow up to $5 million with a 7(a) loan, though you may be required to make a down payment or offer collateral. Interest rates for 7(a) loans range from 6.3-10% on average, according to ValuePenguin, which is owned by LendingTree. You may have to pay a guarantee fee that could range from 0.25% to 3.75%, depending on the size of your loan. Terms could be up to 10 years for a general purpose loan, and up to 25 years for loans used to cover commercial real estate purchases.

Term loans

Both long-term and short-term loans are available to business owners. Long-term loans can be used to cover major upfront costs, such as building renovations. These small business loans typically have repayment terms from three to 10 years and usually require some form of collateral. But short-term loans typically need to be paid back in between three and 18 months on a daily or weekly schedule. Long-term loans often have lower interest rates because of the long repayment terms and collateral required to secure the loan. Short-term loans typically have a faster time to funding because of less strict underwriting requirements, though you’ll end up paying for that speed with high interest rates.

Lines of credit

A business line of credit would allow you to access funding as soon as you need it. You could withdraw money from a set credit limit, then gradually pay back your balance. Interest only applies to the amount you borrow, and the full credit limit becomes available again after you repay the debt. You may have a high interest rate if you’re a low-credit applicant. If you have a strong credit profile, you may be able to receive a higher credit limit and competitive interest rates. Lenders are more likely to approve established businesses with revenue streams that can support a line of credit. You may need collateral or a personal guarantee to secure the line of credit.

Equipment financing

An equipment financing company can cover up to 80-90% of a purchase. You would put down the remainder of the purchase price and pay back the loan in monthly increments with interest. Equipment financing would give you ownership of the equipment. If you’re not interested in owning the assets, you could consider an equipment lease.

Instead of purchasing equipment, an equipment lease would allow you to pay a fee to rent the equipment. When the lease is up, you can return the equipment or buy it for a discounted price. A lease usually makes more sense for equipment that needs to be replaced often. This would include software or certain medical devices, such as retinoscopes or autorefractors used to determine prescriptions.

Where to find financing

Optometry practice owners can turn to traditional banks for financing, as well as alternative business lenders. Here are a few lenders that cater to optometrists and could approve you for financing.

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Bank of America

Bank of America offers optometry loans for up to $5 million. Loans can be used to pay for construction projects, working capital or equipment. Interest rates, repayment terms and fees are dependent on your application and the type of financing you’re seeking. A limited-time offer — available through May 31 — from Bank of America allows qualified borrowers to receive a waiver of certain fees on loans between $100,000 and $2.5 million that are issued to purchase or refinance commercial real estate. You could also receive a 3.89% interest rate on debt consolidation loans for the first three years if you apply before July 31.

Bank of America’s Practice Heartbeat program is also available to new optometrists. Through the program, the bank can help you complete a comprehensive evaluation of your practice based on your revenue projections. The bank would provide a coach who could suggest ways to manage your billing, insurance, marketing, staffing and budgeting strategies. Bank of America also offers rewards and benefits for business owners. For example, those in the Gold tier get a 25% rewards bonus on base points on business credit cards, which rises to 75% for those in the Platinum Honors tier.

Live Oak Bank

Live Oak Bank provides financing solutions for optometrists and ophthalmology businesses. You can use financing to cover expenses including construction, expansion and real estate. The bank states on its website that it offers favorable terms for real estate loans: 25-year terms with low down payments and no balloon payments. You could pay off your balance early without penalty if your repayment term exceeds 15 years.

Alternative lenders

Bankers Healthcare Group

Bankers Healthcare Group provides working capital loans to optometrists ranging from $20,000 to $500,000. After applying online, you could be approved for a loan in 24 hours and receive funds in as few as three days. You could use the loan to make renovations to your practice, create a new marketing plan or consolidate existing debt.

1st Med Financial

1st Med Financial provides health care-specific financing to business owners, with a number of options available for optometry practices. Optometry loans from 1st Med Financial can cover working capital costs, real estate acquisitions and partner buy-in or buy-out. It also offers optometry startup loans for new practices. You could borrow between $250,000 and $10 million with a fixed-rate term.

The bottom line

The type of financing you need depends on what you want help paying for as the business owner. When starting a new practice, your costs — such as real estate and equipment expenses — could add up before you’ve made any money from patients.

Financing would help you bridge the gap within your business. Banks and alternative lenders offer funding that’s tailored to optometry practices. Online alternative lenders tend to have fast underwriting processes and could provide fast time to funding. But banks may be able to loan you larger amounts with more favorable rates and terms.

Whichever provider you choose, funding should come with a repayment schedule you can handle. Be sure to read the fine print in your loan agreement before signing. Once you’re comfortable with the terms, you could start financing your own practice.

The rates and fees mentioned in this article are accurate as of the date of publishing.


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