Picture this: A stranger walks up to you and asks you to lend him $50,000.
He has no job and therefore no income. And he is in debt for $150,000 (or more). Even if you had the money, would you lend it to him? Of course not! You’d be crazy to lend anyone $50,000, especially if he or she is unemployed.
Now, let’s change the scenario: After you graduate, you will likely go into a bank and ask a bank officer (the stranger) to lend you $50,000 (or more) to start your practice. You have no income because you haven’t opened your practice yet. As a matter of fact, you don’t even have a practice site. You owe $150,000 in student loans and don’t have any way to pay that loan back – yet.
Will that bank officer lend you $50,000 or more? Not likely. The more money you owe when you attempt to get a bank loan to start your practice, sign a lease on a site, or purchase equipment, the less your chance is of being approved by a bank, equipment lease company, or landlord.
Little wonder so many start-up chiropractors have difficulty financing a practice.
The science of new-practice financing
As most new-practice consultants will tell you, the higher your debt, the lower your chances of getting a startup loan. Therefore, you have to plan a way to change the above scenario and increase your chances of qualifying for start-up loans, equipment leases, and approvals from landlords.
Here’s some steps you can take to reduce your post-graduation debt and increase your chances of getting the financing you’ll need to start your practice.
Work. Yes, you read it right – work! Get a part-time job as you go through college in order to borrow a lesser amount in student loans. The higher your student-loan debt, the less likely you will obtain working capital. If you are married, have your spouse work, too. This can reduce the amount of your student loans further.
Stop. Get out of the habit of using your credit cards so you can reduce the balances outstanding. It’s even better if you can pay them off completely prior to applying for start-up loans and office space and equipment leases. Above all, pay your credit card bills on time. Nothing hurts your credit score more than late payments.
Avoid. Try to not obligate yourself to any additional debt, other than the purchase of an automobile, while you are in college. Remember, the lower your overall debt, the better your chance of getting a start-up loan.
Wait. In order to not increase your present level of debt, you should try to live frugally now. This is the art of “delayed gratification.” You can buy luxury items after your practice becomes successful. You’ll be glad you waited.
Time. Some student DCs purchase equipment before graduating. This is a mistake in timing. Don’t fall for sales pitches like “Half of what you pay can be deducted from your income taxes.” Any new practice coach will tell you emphatically that you won’t pay any taxes your first year in practice. Therefore, 50 percent of nothing is … nothing.
Suppose you ignore this advice, and the equipment you purchase or lease costs $20,000. Add that amount to the $150,000 you may owe in student loans and you now have a debt of $170,000 with no obvious way of repaying it.
Your chances of securing a $50,000 start-up loan just got that much worse.
If you want to increase your chances of qualifying for a start-up loan:
• Work while going to school to reduce your student loans.
• Don’t obligate yourself to any additional debt.
• Live frugally.
• Stop using your credit cards.
• Buy any needed equipment after you’ve secured start-up funding.
• While these steps may not be easy, they lead to a successful practice.