Owning your own veterinary practice offers two distinct advantages: First, you get complete control over how your veterinary practice is run. And, second, you have the potential to earn more money — both now and down the road when your practice is sold.
The bad news? According to the American Veterinary Medical Association, 83% of vet school grads in 2018 had student debt, with an average debt load of $183,014. If you’re dealing with student loans anywhere near that range, you may think that veterinary business loans are out of the question.
But, as you’ll see in this guide, that may not be the case. Let’s take a look at what veterinary loans are, where to find them and how to qualify for them when you have student loans.
Veterinary business loans: What are they used for?
Depending on the lender you’re working with, loans for veterinarians can be used for three primary purposes:
- Buying an existing practice
- Expanding your current practice
- Starting a new practice
If you’re planning to buy an existing practice, your lender will want to see that the practice can realistically provide enough revenue to cover your veterinary loan payments, pay you a reasonable income, and still leave a little left over for savings.
If you plan to start a new practice, the lender won’t have past revenue to evaluate. So, startup loans can be a bit riskier for them. To improve your chances of approval, be sure to create a strong business plan before applying.
Qualifying for veterinary business loans despite high student debt
It’s no fun graduating with nearly $200,000 of student debt. But there is good news for aspiring veterinary practice owners. Your student loans may not be as big of an obstacle to qualifying for veterinary practice financing as you think.
Here’s why: With veterinary business loans, the loan is being used to buy an asset that produces income. That makes a business loan a completely different proposal than most types of debt, like credit cards, mortgages and auto loans.
For this reason, the cash flow of the practice is one of the most important factors affecting your chances of getting a loans designed for veterinarians, sometimes even more so than the size of the loan. If the cash flow of the practice is high enough to keep your overall debt-to-income ratio at a reasonable level, you stand a good chance of being approved.
How to prepare for getting a veterinary business loan
How can you increase your odds of being approved for veterinary practice financing? Here are three steps to take:
1. Improve your debt-to-income ratio.
When you apply for any loan, your debt-to-income (DTI) ratio will be an important factor. And veterinary loans are no different.
Live Oak Bank, for example, says that to qualify for its veterinary business loans, no more than 50% of your annual income should be going toward debt payoff. So if you bring in $120,000 per year, your annual debt payments (including your mortgage, student loans, car loans, and credit cards), will need to be under $60,000.
How to lower your DTI
One way to lower your DTI is to pay off small debts like credit cards or auto loans. But what should you do with your student loans?
Choosing a longer payment schedule could be a smart move. In the case of student loan refinancing, if you’re refinancing a 20-year loan, you’d want to refinance into another 20-year loan, as opposed to five or 10 years.
If you want to use income-driven repayment, PAYE and REPAYE are both good options to keep your payments low. REPAYE is best if you’re planning to pay your student loans off (due to interest subsidies), whereas PAYE would probably be better if you’re pursuing forgiveness.
2. Check your credit.
Your personal credit will have an effect on your odds of getting approved for veterinary loans. So you’ll want to make sure there aren’t any mistakes on your credit report. If there are, work to get them resolved before you start the loan application process.
You can get one free credit report from each credit bureau every 12 months at AnnualCreditReport.com. If you just want to check your credit score, your bank or credit card issuer may provide it. Or you can use a free credit service like Credit Karma or Credit Sesame.
3. Build up your savings.
In his experience, Travis Hornsby, founder of Student Loan Planner, says he’s found veterinary business loans to be a little tougher to get than other practice loans such as dental loans. For this reason, he says that some veterinary business loans will end up needing to be Small Business Administration (SBA) loans.
And, unlike some traditional veterinary practice financing, you’ll need to have at least a 10% down payment for SBA loans. So, to be safe, you’ll want to have at least 10% of the project or practice price in savings.
Where to get veterinary business loans
Think that veterinary practice financing is right for you? If so, here are three lenders that offer veterinary business loans.
Live Oak Bank
Live Oak Bank has put a lot of time and effort into helping veterinarians succeed with starting or buying their practice. In addition to the veterinary loans the bank offers, it provides helpful articles, videos and webinars via its online Veterinary Resource Center.
Live Oak Bank offers three types of veterinary business loans:
- Acquisition loans
- Construction loans
- Multipractice ownership loans
If your loan is just for the practice, your loan term can stretch to 10 years. But if your loan includes real estate, your loan terms could stretch to 25 years.
The bank says that underwriting on its loans for veterinarians typically takes one to two weeks and can close within 45-90 days. Also, every borrower is assigned a Live Oak Bank business analyst to answer questions and help you grow your practice.
Bank of America
Bank of America offers veterinary business loans through its Practice Solutions loan product. Veterinarians can receive up to $5 million in funds and up to 100% of startup costs. The bank also offers payment flexibility by allowing vets to choose interest-only and graduated payment terms.
Are you a member of the American Animal Hospital Association or the American Veterinary Medical Association? If so, you can earn a 50% discount on loan fees. United States military veterans can earn a 25% discount as well.
And Bank of America won’t abandon you after your loan closes. Through its Practice Heartbeat program, new practice owners get the chance to work with a practice specialist to hone their business strategy and improve their financials.
Through the Wells Fargo Practice Financing product, a variety of medical professionals can get business loans, including veterinarians, dentists, optometrists and doctors. The bank offers both acquisition and startup financing.
For acquisition loans, the funds can be used to buy out the full practice, an associate or partner, or a satellite location. Startup loans can be used for building a new facility and purchasing your equipment. Their loans come with fixed interest rates and terms of up to 10 years.
Denied for veterinary practice loans? You still have options.
By focusing on lenders that understand the ins and outs of the veterinary business, like the ones listed above, you may improve your chances of approval; however, there’s still a possibility you could be denied.
Even if you strike out with traditional financing, you may still be able to find funding, though. One option is to apply for a small business loan with an alternative lender like OnDeck, Kabbage or BlueVine. Or you could try to secure an SBA loan.
Small Business Administration loans
SBA loans are partially guaranteed by the SBA, which makes them less risky for lenders. Plus, the SBA dictates the guidelines on these loans, which could make its terms more favorable than what you’d see with a traditional loan. Here are the SBA’s terms and fees:
- Loan amount: Up to $5 million
- Interest rate: Fixed or variable rates available, generally capped at prime +2.75 percent (higher rates may apply for loans less than $50,000
- Terms: Generally up to 25 years for real estate and 10 years for other assets
- Guarantee: 50% to 90%
As mentioned earlier, you will need to have at least a 10% down payment to qualify for an SBA loan. You’ll also need to prove that you’ve exhausted your traditional financing options. And, finally, your veterinary practice will need to meet the SBA small business size standards.
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