A veterinary practice seeking to raise finance can be faced with more choices than ever before. There are various forms of funding available and choosing the best option is likely to be driven by many different factors.

Hire purchase agreement

Keeping up with the latest technology can be expensive, so a hire purchase agreement may seem like the obvious form of funding. In essence, this is a type of borrowing – you do not own the property until the loan has been repaid in full.

The leasing terms may be more generous than what can normally be achieved from, for example, a short-term unsecured bank loan. However, these agreements are arguably a short-term fix for a practice because no cash is actually raised and the monthly charges can be expensive. Be sure that you can keep up with the payments – if not, the provider can remove the equipment.

Bank loan

A traditional form of financing is by way of a bank loan. These loans are good in that no equity is required to obtain the finance and the interest is often tax deductible. The main disadvantage of bank loans is that they often hold higher interest rates, especially if unsecured. A practice owner may also have to personally guarantee the sums owed and grant other security.

Second mortgage

If you own the practice’s property, you may want to consider charging a second mortgage to that property. This form of financing may provide cheaper interest rates because security is provided to the lender; however, should the business default on loan payments, the property may be repossessed.

New business partner

As well as an influx of cash, would your practice benefit from investment in the skill base? In these circumstances, you could consider taking on a business partner who will add to the capital of the practice and provide management support. Having a new business partner will spread the risk and increase the skill base and network. There will however be a reduction in your control of the management of the practice, along with a reduction of your future profits. It is difficult to anticipate the risk of dispute between partners and decision making may become more complicated.

Angel investing

Angel investing is where high net-worth individual investors either act alone or, more often, in a network to invest their personal funds into a potentially high risk/high reward practice. The investors normally have a high level of experience and expertise as well as a network of business contacts, which you may be able to utilise.

Angels typically acquire a significant degree of control over the practice. The financing can be time consuming and complicated to put in place. Angels will nearly always have an exit strategy and a set period of time in which they expect to receive their money back (often with the aim of receiving multiples of the funds invested).

Crowdfunding

Crowdfunding is a popular avenue for businesses to raise finance either through equity or debt. This option involves a collective effort of individuals who network and pool their money, usually via a web-based platform. It can be a quick way to raise money and often the funding platform will take care of the legal documentation and administration.

Given the British public’s affection for pets, crowdfunding could be an option underutilised by veterinary practices. Adversely, the crowdfunding platform will often take a percentage of funds raised, and there could be the added administrative burden of having to deal with a large number of shareholders.

Venture capital funding

Venture capital funding is generally investment by funds that manage other people’s money. The money is raised by offering investors a chance to take part in the fund, which is then used to buy shares in a private company. The main advantage is potential investment of large amounts of capital and the business contacts gained from the investors; however, venture capital funding normally requires substantial equity and control of the practice. It can be time consuming, costly and complicated to put in place. This option may not be appropriate for those wishing to obtain a moderate amount of financing.

So what form of financing is best for you?

The key is to carefully consider the pros and cons of the different types of finance available to you and consider what is suitable to your needs and those of the practice. The drivers in making your decision are likely to include how urgently the funds are required, how much funding is required, what security is available and how much control over your business you are willing to relinquish.