First off, let me remind you that I tried to get a business loan in 2010, right after the entire financial system imploded. Having said that, here’s what happened:
Now that my business plan was complete, it was time to get paid! I was going to request 100% of my startup expenses and working capital. Remember, working capital is the maximum amount of projected negative cashflow on the pro forma.
To summarize this post series, it was IMPOSSIBLE to get a business loan! I heard somewhere that banks turn down 80% of business loans these days. It doesn’t matter even if you’re a “doctor.” The days of obtaining a loan solely on a handshake, smile, and an M.D. are long gone. Especially because I was straight out of residency, having earned only $50,000 a year in my past two income tax returns, many institutions didn’t even bother to give me the time of day. If you have one or two years of practice experience behind your belt, a few more doors will be open for you.
Nonetheless, I never lost hope, and I refused to give up.
First, a little bit of what’s in my arsenal: excellent credit (780 FICO score), no credit card debt, kick-ass business plan, respectable amount of savings, an M.D., BUT no prior business or private practice experience.
I approached traditional banks first. The general rule of thumb is that small, regional/community banks will be more likely to give you a shot. These guys want your business, whether it is large or small. Major banks like Citibank, Chase, BofA, Wells Fargo don’t really need your business as much. They have plenty of bigger players to lend.
I called up various small to mid-size banks in the San Jose area to set up a meeting to go over my loan request. Even these guys shot me down within five minutes over the phone. I was also unsuccessful with local Korean-American banks. Many said that they would have considered my situation two years ago, but in this climate, no way! One bank told me that the only way that I could obtain a loan is if I put in an equal amount into a CD account as collateral, for which I would not be able to withdraw over the life of the loan. If I had that kind of money to put into a CD, why the heck would I need a loan in the first place? My lack of business experience seemed to be the greatest hurdle for me, which was understandable. Who would want to entrust a huge sum of money to someone with minimal collateral and no prior business experience? It still felt unfair that just two years ago, some bloke with horrendous credit and no job could secure a $300,000 home loan over a ten minute phone conversation. Alas, such is life.
After all was said and done, I was able to schedule a meeting with only one bank: Wells Fargo. Who would’ve thought?
I flew to San Jose for one day. Thinking that I would be meeting multiple loan officers from a few different banks on that day, I originally rented a hotel conference room. I didn’t know that Wells Fargo would be the only bank I would meet. Oh well, at least I looked professional and busy. 🙂
Dressed up in my suit, we discussed my business plan. Our meeting lasted 45 minutes. I gave both bankers a copy of my business plan, which was over 60 pages long by the way. We didn’t actually go over any of the numbers though. Instead, we just had a nice conversation about what I want to do, and why I’m doing it. The meeting was mainly to put a face to the client, and to evaluate my character.
In addition to Wells Fargo, I actually had a meeting scheduled with another bank at their branch office. However, I had to cancel because a family friend arranged a meeting for me at the same time with an executive from a Korean-American bank. That ended up being a huge waste of time. This guy came two hours late, and listened to my proposal for less than five minutes. I doubt anything registered in his head. I could tell that he had already made up his mind, and that I had no chance in hell. At least he had the courtesy to send me an e-mail a week later to tell me I didn’t qualify.
So, what other options could I consider? A Small Business Administration (SBA) loan, where the majority of the funds are backed by the government, was one possibility. Funds are still disbursed by conventional banks, but the SBA secures the loan. Depending on the environment and the bank, you will need a 5% to 20% down payment to qualify for the loan. In this current economy, most banks were asking for 20%. Even if you had the 20%, some banks still refused to give out an SBA loan because they don’t want their money tied up to something that would require a big headache to retrieve from the government if the borrower defaults. Also, the paperwork can be intense, the fees are larger, and the loan can take a long time to be disbursed. Because of the last part, this option was out for me as well.
The business banker from Wells Fargo told me that they could not directly offer me a business loan. However, he forwarded my information to Matsco (Wells Fargo Practice Finance), their medical/dental practice lending division, who was eager to give me the loan for the full requested amount. Of course the terms were worse than a conventional loan. However, beggars can’t be choosers. So, I took my only option, and signed a commitment letter.
It turns out that one of the most common financing options for healthcare practitioners is to use medical/dental practice lenders. (my consultant never told me about this option, which comes to show, once again, that they are absolutely worthless. >:( ) The ones I heard to be reputable are:
Matsco and BofA are straight out lenders, and ProMed is a broker that finds financing for you. BofA actually requires you to have one or two years of associating experience. The other two do not. This option should probably be your last resort. Once again, their terms are less advantageous and their requirements are strict.
One final option is to borrow from family or friends. You should still make it official, signing a promissory note and paying interest. Howie discusses more about this topic on Financing a Solo Medical Practice, Part 2. If it’s possible, you can also ask your family to co-sign bank loans, for which you wouldn’t qualify otherwise.
So, these were the options that I explored, and I had no choice but to go with Matsco. In my next post, I’ll talk about the terms and requirements of my loan.