There are different stages in your optometry career where you may find yourself in need of an optometry practice loan.
Perhaps you’ve recently graduated and are looking to start an optometry practice from the ground up. Starting a new practice “cold” can cost anywhere from $150,000 – $500,000, and that doesn’t include the monthly operating expenses you’ll need for the first few years before you start earning a profit.
Or maybe you’re an established OD looking to acquire and consolidate another practice. In some cases, you might simply be looking to purchase an expensive new piece of equipment to help expand your services.
Regardless of where you’re at, you’re probably going to need some form of financing to help you take that next step and achieve your goals. In this article, we’ll go over the different types of financing available, eligibility for optometry practice loans, and tips to help you avoid common financing mistakes. Let’s get started!
Optometry Practice Loans & Financing Options
Before you decide to take out a loan, it’s important to consider the different types of financing available and determine which is appropriate for your specific situation and needs. Here are the major kinds of loans optometry practices can consider:
- Term Loan: This is the most common type of business loan. A term loan can be long-term or short-term. A term loan is usually a large lump sum of cash to be paid back at regularly scheduled intervals over a period of time with an interest rate.
- Business Line of Credit: This option is a revolving loan that acts more like a large credit card and can be used to increase working capital. One advantage is that you only have to take out and pay interest on what you need, so you accrue less interest compared to a large lump sum loan.
- Business Credit Card: This option is similar to a personal credit card, but used to cover business expenses. Credit cards offer greater convenience and more rewards compared to cash or checks.
- Equipment Loans: These smaller loans tend to be pretty easy to get and often finance 80-100% of the price of the equipment. They usually have low-interest rates and are easier to qualify for than larger, more general business loans.
- Merchant Cash Advance (MCA): These loans are structured similar to term loans, but are repaid with a set amount of future credit and debit card sales. They usually come with much higher interest rates.
There are other types of financing to consider as well, such as invoice factoring, but these are not very common in the field of optometry.
Are You Eligible for an Optometry Business Loan?
Most optometry students will graduate with some student debt, which can range from $120,000 on the lower end to more than $200,000 on the higher end. Fortunately, significant student debt (on its own) will not typically disqualify you from an optometry business loan to get your practice off the ground.
If you are thinking about applying for a loan, you should be sure to have other aspects of your finances in order. Usually, banks look for the following:
- Good credit scores (typically at least 680 or above)
- Minimal credit card debt
- Personal tax returns showing high levels of income in recent years
- Production experience
If you are serious about applying for an optometry practice loan sometime soon, be careful about your spending and save as much as you possibly can. It’s usually recommended to hold off on buying a new car or home until after you’ve purchased your new practice. A broker can usually help guide you to a trusted, specialized lender.
5 Tips for Applying for Bank Loans to Start an Optometry Practice
The tips below will help you find the best optometry practice loan and avoid some of the most common financing pitfalls:
1. Plan Ahead:
The most common mistake optometrists make when it comes to financing is failure to plan ahead, which causes them to fall behind on paying off the loan. You need to figure out not only how you’re going to spend the money you get, but how you’re going to pay it back and how long it’s going to take you. Think strategically about these three factors: liquidity, free cash flow, and return on investment. For example, spending money on new equipment might help you expand your services and generate new income to pay back the loan more quickly than if you were to hire new employees.
2. Look for Function-Specific Loans:
Rather than applying for a standard small business loan, look for a provider that specializes in optometry loans or can adjust their small business loans to fit exactly how you plan to use the money. For example, MedTrust Capital offers commercial real estate loans specifically designed and set up for optometrists.
3. Pay Attention to the Term Life:
Pay close attention to the term rate and don’t underestimate the time it will take you to pay off the loan. Maybe you’re just taking on a small loan to help you through a difficult period, in which case a shorter term would be more reasonable. However, if you’re looking for a large loan to help you purchase a commercial building and establish a new practice, you’ll likely want a longer-term loan (maybe 30 years instead of 15).
4. Shop Around for the Best Terms:
Don’t accept the first loan that is offered to you! It’s important to shop around and compare and contrast the specific terms of the loan before making a decision to move forward. When reviewing loan terms, be sure to insist on transparency in disclosure of the interest rate, prepayment penalties, and any additional loan terms or covenants. For best results, consult with an optometry practice advisor who can help you review and weigh your options.
5. Finance More than You Think You Need:
Even if you have enough savings and only really need 50% financing, don’t automatically settle for less than what you’re offered. If 100% financing is available to you and the terms and period are favorable, it would probably be a mistake not to take it.
Where to Find Optometry Practice Financing
When it comes to finding lenders for optometry practice loans, your options include banks, credit unions, the U.S. Small Business Administration, and alternative financing companies that specialize in the optometry industry. As mentioned above, it’s important to look for loans specific to the field of optometry. Some popular financiers include MedTrust Capital, Bank of America, Live Oak Bank, Bankers Healthcare Group, and 1st Med Financial, just to name a few. It’s important to note that the application process may differ depending on what type of lender you go with. For example, traditional bank loan options sometimes have strict lender credit requirements and more loan paperwork than alternative financing companies.
Benefits of Optometry Practice Financing
Optometry practice financing can help you take your practice to the next level. First of all, financing can help ensure sufficient cash flow or working capital needed to run a practice and pay your staff. A safety net is essential, especially when you’re first starting out. Financing can also help you acquire the latest equipment, software, and technology that you need in order to keep up with best practices in the industry. In some cases, financing can also help with business debt consolidation.
PECAA Can Help With Optometry Practice Loans & Practice Valuations
Thinking about financing can be stressful and overwhelming. The good news is that you don’t have to find and apply for an optometry practice loan on your own!
Our PECAA advisors help members get their finances in order and set them up for success in their loan applications. Not only that, we offer optometry practice valuations, cold start programs, and countless other resources to help you establish and grow your optometry practice.
Dr. Meg Richardson found this support to be invaluable when she was starting a new optometry practice: “I joined PECAA pretty much as soon as I decided to open my own practice. My PECAA membership proved immediately beneficial in many areas. An area that was invaluable was when I was applying for a bank loan. Bryan was able to help me polish up my financial goals and projections before presenting myself to our local bank to ask for a loan. Needless to say, we got it!”
Join PECAA today and you’ll be on your way to running a more successful optometry practice tomorrow!