In many respects, the funding options available for a start-up veterinary practice are no different than any other start-up business which requires financial support in the early days to assist growth and aid the development of the business.
Clearly a veterinary practice has its own particular requirements, notably the need to invest in the latest technology and equipment which will require a major up-front capital investment. Also, as with other non-online businesses, given the nature of the veterinary profession a new practice will require premises to trade from.
In this article I will evaluate six principal sources of finance available for funding a start-up veterinary practice.
Traditional bank loans from main high street banks
While high street banks can generally offer lower rates of interest than the many new challenger banks and online funders, their strict qualifying criteria and requirements (usually three years of accounts) may be hard to comply with for a start-up practice which has not yet got at least 12 months of trading under its belt.
Equipment and asset finance
This is a good option for the purchase of expensive items of equipment such as X-ray machines and ultrasound scanners. Most lenders will look to advance 80 to 90 percent of the purchase price of the equipment, with the advance serviced or repaid over a fixed term with interest. Depending upon the precise type of asset finance used, once the original cash advance has been repaid in full, ownership of the equipment will pass to you.
For a start-up veterinary practice, asset finance is usually a far better option than a traditional bank loan. The fixed monthly repayments make cash flow and budgeting easier, while repayments may also be offset against taxable profits
For a start-up veterinary practice, asset finance is usually a far better option than a traditional bank loan. The fixed monthly repayments make cash flow and budgeting easier, while repayments may also be offset against taxable profits. Depending upon the type of asset finance used, a start-up veterinary practice may also be able to benefit from various capital allowance tax relief schemes.
Types of asset finance
There are three main types of asset finance: finance leases, hire purchase (sometimes known as lease purchase) and contract hire. Finance leasing, or simply leasing, is essentially the renting of equipment in return for fixed monthly payments. Hire purchase is similar to finance leasing except that, provided all payments have been made, instead of handing back the equipment at the end of the contractual term you will own it outright. Contract hire is frequently used for vehicles with payments spread over the agreed term of the contract.
Government-backed start-up loans
In common with other new start-up businesses, a veterinary practice, or rather the individual practitioners behind it, may be able to benefit from a government-backed start-up loan. These are unsecured personal loans of between £500 and £25,000.
Successful applicants receive free help and guidance for writing a business plan and up to 12 months’ mentoring. There is a fixed interest rate of 6 percent per annum and loans can be repaid over periods of between one and five years. There is no application fee and no early repayment fee.
Successful applicants receive free help and guidance for writing a business plan and up to 12 months’ mentoring. There is a fixed interest rate of 6 percent per annum and loans can be repaid over periods of between one and five years
Applications are made online through the gov.uk portal. No personal guarantee is required, but applicants need to have (or plan to start) a UK-based business that has been fully trading for less than 24 months.
Veterinary practice loans from challenger banks and online funders
Many challenger banks and online funders provide unsecured business loans to veterinary practices to fund refurbishment, fit-out costs and other capital expenditure.
While valuable business assets do not have to be offered as security for such loans, most lenders will instead insist on personal guarantees from the individual practitioners or directors if the business is incorporated as a limited company. The individual practitioners or directors will be personally liable if the business or company borrower defaults in repayment of the loan. Lower interest rates are usually available if the business is prepared to grant security over its assets or premises for the loan.
Independent legal advice should always be sought on the terms of such personal guarantees.
Merchant card advances
These are also known as business cash advances and are worth considering if the veterinary practice takes credit card payments from clients. Merchant card advances are essentially an arrangement with a funder where the practice receives a lump sum in return for a small percentage of the practice’s future debit and credit card sales.
Merchant card advances are essentially an arrangement with a funder where the practice receives a lump sum in return for a small percentage of the practice’s future debit and credit card sales
This is potentially a good funding solution as repayments remain in sync with the practice’s cash flow, and the funding is unsecured, therefore the practice’s business assets are not at risk.
To be eligible, most lenders will specify a minimum average monthly card sales figure.
Business credit cards
This is another unsecured source of finance which has the added benefit of helping to build up the practice’s credit rating.
Credit limits for business purposes are generally far higher than for personal use. However, as with all credit cards, interest rates are high and it is therefore important to maintain control of repayments.