By Michael Tetreault, Editor-In-Chief
LAST UPDATED: JANUARY 19, 2016 – Although concierge medical clinics and direct primary care doctors offices are popping up across the country, some hopeful owners are still struggling to get financing, and this has many “docpreneurs” wondering how to go about getting the cash they need to either start or maintain their medical business.
These days, the application to secure a business loan is extensive and rigorous. According to a recent Pepperdine University survey, nearly two-thirds of privately held, small businesses said they were denied by banks when they applied for a loan. So many hopeful physicians have to get creative when it comes to raising money.
Here are a few tips:
Note: We are not rendering legal, accounting or other professional advice in this subject matter. It is up to the individual or business owner to seek out the advice of competent professional.
If you are looking for a loan under $50,000, a microloan may be the way to go. The Small Business Administration’s Microloan Program provides small, short-term loans through specially designated intermediary lenders, which are usually nonprofit community-based organizations. While the maximum amount is $50,000, the typical loan is for $13,000. The requirements to obtain a microloan are more lenient as far as your credit score goes, plus, many big banks are generally hesitant to approve loans for under $50,000.
Before you fill out that bank loan application, do some homework. If you are planning to use a bank loan to get your concierge medicine or direct care practice started, run a credit check and talk to local bankers about the criteria needed to get a loan. Then, make sure you have a solid business plan that includes details such as a competitive analysis, the management process, a marketing analysis and financial projections. Also be aware that you will be expected to lay out more of your own cash up front. Banks used to settle for anywhere from 10 percent to 20 percent in cash or assets put up by those seeking a loan. Now they are looking for closer to a 50-50 split, the more money that comes out of your pocket the better.
Instead of heading to your rich uncle, look into the relatively new phenomenon of “crowd funding”. This type of loan is where you get small chunks of funding from everyone in a group such as Kickstarter. This route has a lot lower risk for those involved. The other upside is you will have a lot of people with interest in your prospective venture and they may be more likely to give you referrals and opportunities down the road.
“Why does a successful transition need outside funding at all?” asks N. Scott Borden of www.DirectPayConsulting.com. “With the new wave of affordable DPC practices that almost anyone can afford, patients are not expecting first class facilities. They value physician access above scenic views. By educating patients about DPC friendly health insurance plans, more patients will join the new practice. Our goal is to make DPC affordable for both physicians and patients.”
Additional resources include:
- Crowdfunded lending for small business owners: www.Somolend.com
- AngelList, for angel investors: www.angel.co
- Create your own crowdfunding community: www.invested.in
- For creative projects in the arts/music (NOT FOR SMALL BUSINESS): www.Kickstarter.com
- Prosper.com — Prosper is America’s first peer-to-peer lending marketplace, with more than 2 million members and over $2,000,000,000 in funded loans. Prosper allows people to invest in each other in a way that is financially and socially rewarding. On Prosper, borrowers list loan requests between $2,000 and $35,000 and individual lenders invest as little as $25 in each loan listing they select. Prosper handles the servicing of the loan on behalf of the matched borrowers and investors.
- LendingClub.com — Lending Club is the world’s largest online marketplace connecting borrowers and investors.
What Not to Do
The “don’ts” can be just as important as the “dos” when it comes to financing your concierge medicine practice or direct primary care clinic. Here are three pieces of advice on the subject. First, don’t invest all your time in trying to raise money. There have been so many good business concepts that go south because the person has committed everything to raising money and puts the concept on hold. Second, ideas are great but execution is everything. Don’t pursue financing if you don’t have a working concept. Lastly, don’t get hung up on the interest rate. If someone is offering you $50,000 at 12 percent and someone else is offering you $30,000 at 8 percent, the loan with the higher interest rate may be the way to go if that is the capital you need and this may prevent you from spending more than you need.