Be right on the money

If you need capital for a practice start-up, upgrade or expansion, should you pursue debt or equity financing? With one you answer to a lender and the other to an investor.

Be right on the money
Dr. Kristina Kanani Henricks opted for debt financing to launch her Hawaii practice.

Kristina Kanani Henricks, DMV, MS, Ph.D., was following her dream when she opened Good Karma Spay and Neuter Clinic in Hilo, Hawaii, this past summer. “I had no idea how hard it would be to secure financing,” Dr. Henricks said. “My credit score is exemplary, and I am an experienced veterinarian, so I thought I could just go to a bank and get a business loan. I was very wrong.”

There’s no denying that starting or growing a veterinary business can be expensive. If you don’t have a nest egg set aside, what options do you have for financing your business? Essentially, practice owners have two categories of financing to consider: debt and equity.

I’ll explain both so that you can determine which is a better fit.

Debt Financing

Debt financing provides access to money to build your business. You repay the loan with interest over a fixed period and at a set payment amount. You may get either a secured or unsecured loan.

For a secured loan, you pledge an asset against the amount you want to borrow. Should you be unable to repay the loan, the lender can seize the asset to cover what’s still owed. A secured loan is a great option if you are starting your business or don’t have a high credit score. If this is the case, keep in mind that a lender might insist on a secured loan. Making loan payments on time can build your credit, helping you to qualify later for unsecured credit.

If you have great credit or a solid payment history, you might qualify for an unsecured loan. In this case, you don’t need to pledge assets. Credit cards are a type of unsecured loan, as are most business lines of credit.

Kathryn Primm, DVM, CVPM, who owns Applebrook Animal Hospital in Ooltewah, Tennessee, qualified for a good interest rate on a Small Business Administration loan that she quickly repaid. She’s used debt financing in other ways.

“My vendors have allowed delayed billing at no extra charge when I bought larger equipment items over the years,” Dr. Primm said. “I financed a large remodel at the practice through a local bank. I have business credit cards that have rewards I enjoy.”

Pros and Cons

With debt financing, you don’t lose ownership in your hospital the way you would with equity financing. You remain in full control and don’t have to consult with anyone regarding how you run the practice.

Having access to money when you need it can grow your business faster than if you bootstrapped it. You can buy more equipment to treat more pets, expand the hospital or hire more employees to meet increased demand. Many veterinarians find debt financing well worth the interest payments.

Another benefit to debt financing is that the interest you pay might be tax-deductible. Be aware, however, that making late payments or defaulting on a loan or credit card can hurt your business and personal credit scores, which could cause you to be rejected for another loan.

Dennis Boyd, director of the West Hawaii Small Business Development Center, has worked with Dr. Henricks and hundreds of other entrepreneurs. Choosing debt or equity financing is a very personal decision, he said.

“Everything being equal, which it never is, I would say that debt, although more difficult to set up, is a better choice if financing rates are reasonable,” Boyd said.

Equity Financing

The other type of financing — equity — happens when you give up a portion of the ownership of your practice in exchange for capital. Essentially, you first determine the value of your business and then calculate what percentage of equity the investment would be worth.

Here’s a simple calculation: If you determine that your veterinary practice is worth $500,000 and you need $25,000 (5% of the $500,000), you would offer the investor a 5% stake in your practice.

Several types of equity financing are available, the most well-known being venture capitalists and angel investors. In addition, equity crowdfunding platforms can serve as a springboard to attract investors and generally allow you to raise up to $1.07 million if the platform is approved by the Securities and Exchange Commission.

Investors might want to be actively involved in your business decisions, so consult with them about this before you sign on the dotted line. An investor also might want a seat on your board of directors.

Remember that you’ll share the profits with investors based on their equity percentage. If the agreement stipulates it, you can buy out the investors at some point.

Pros and Cons

For some practice owners, having an investor, especially one who knows the veterinary industry, provides another resource for building the business. Maybe you’re great at dealing with two-legged clients and four-legged patients but don’t have a clue how to take the practice to the next level. The right investor can propel your business forward.

You think veterinary practices don’t appeal to investors? Think again. Veterinary medicine is a growing market with consistent revenue. We’re seeing a trend of private equity investors buying and consolidating practices.

Another perk of equity financing is you don’t have a loan to pay back. That allows you to put more money into the practice.

As for drawbacks, not every veterinarian wants a business partner weighing in on decisions. You might prefer to operate independently, in which case having investors might not be a good fit.

“The decision,” Boyd said, “revolves around how much decision-making are you ready to give up and how much of the eventual reward are you willing to share if you hit the bull’s-eye with your business plan?”

Financing Tips

While financing — debt or equity — can empower you to do more with your practice, make sure to treat it as a tool and not a crutch.

Applebrook Animal Hospital’s Dr. Primm likes to minimize her debt as much as possible.

“I budget for and pay off debt as quickly as possible,” she said. “I certainly never carry a balance on any credit card, as the fees are wasted capital.”

For Good Karma’s Dr. Henricks, the search for financing felt like one step forward, two steps back. A donor offered and later rescinded no-strings-attached funding. A friend proposed a $25,000 loan but then hesitated to mix business with friendship. In the end, Dr. Henricks secured an equipment loan, which she supplemented with savings.

“Although it didn’t solve all my problems, this line of credit is still an amazing deal,” she said.

Asked what she’d say to other veterinarians, Dr. Henricks advised being cautiously optimistic.

“It will be challenging and it won’t always work out the way you want, but you shouldn’t give up,” she said. “More than likely, there will be a viable solution. You just have to keep working to find it.”

Gerri Detweiler is director of education at Nav, an online marketplace that matches business owners and financing offers. She is the author or coauthor of five books, including “Finance Your Own Business: Get on the Financing Fast Track.”


If you’re not sure which financing option is best for you, do what Dr. Kristina Kanani Henricks did and get free mentoring from a Small Business Development Center. (You can find one at www.SBA.gov/tools.) Dr. Henricks consulted with Dennis Boyd of the West Hawaii Small Business Development Center.

Also consider:

  • SCORE mentors, who provide free one-on-one assistance. They and additional resources can be found at www.SCORE.org/nav.
  • An accountant. This person can be a key ally, especially in explaining the implications of financing options.

“Whatever the decision about how to proceed in securing money for your business, it’s not a one-size-fits-all scenario but one that requires some thought about what is and the what ifs,” Boyd said.

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