A Guide to Veterinary Practice Finance

Key takeaways

Launching and running a veterinary practice requires a sizable financial investment. Veterinary practice financing encompasses the funding and financial strategies required to establish, expand, and sustain a veterinary clinic.

Strong financial planning improves a practice’s cash flow, supports growth, and increases long-term profitability. When your practice uses the right financing mix, you stay competitive, stable, and ready to expand.

What is veterinary practice finance?

Veterinary practice finance refers to the financial management and funding solutions veterinary businesses use to cover costs ranging from startup expenses to ongoing operations and expansion.

These statistics can help you understand what financial benchmarks might look like in your practice.

• Most veterinary practices aim for a net income margin of at least 10% to 15%.
• Practices generate an average of $300,000 to $600,000 of revenue for each full-time-equivalent veterinarian.
• A practice owner’s discretionary cash flow often ranges between 24% and 41% of gross revenues.

On the whole, the veterinary industry is not money-driven. The majority of veterinarians choose this career out of a passion for and interest in animal health. But veterinarians still need to focus on financial strategies to stay afloat and acquire the capital necessary to deliver the best patient care.

Veterinarians often experience challenges related to cash flow gaps, equipment costs, expansion barriers, and debt. Strong financial planning can help vets overcome these obstacles and gain a competitive advantage.

Weave’s communication platform was created with vets in mind to reduce operational burdens, streamline rote tasks, and decrease costs.

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The basics of veterinary practice finance

Creating a financial strategy involves thinking critically about each of these components of your practice’s finances:

• Working capital, which is current assets minus current liabilities
• Capital expenditures, which refer to the funds your practice uses to acquire and maintain equipment, property, and other long-term physical assets
• Debt, or any financial liabilities your practice owes to an external creditor
• Equity, or ownership interest in the practice
• Cash flow forecasting, which refers to the process of estimating your practice’s future cash inflows and outflows

It also involves differentiating between your practice’s short-term and long-term financing needs. Short-term needs might include covering seasonal cash flow gaps with short-term loans or business credit cards. Long-term needs might include major investments like purchasing a practice or buying expensive equipment, with repayment terms spanning several years.

Balancing these components is an important step in supporting sustainable practice growth. While both types of financing act as an investment in your practice’s revenue and future growth, shorter loan terms help cover more immediate needs, while longer veterinary practice loans represent long-term practice investments.

Key financing options for veterinary practices

Opening, maintaining, and growing a veterinary practice often involves taking advantage of financing options to afford upfront costs and invest in your practice’s future. Different types of veterinary practice financing options offer distinct benefits, limitations, and considerations for vets. These are the key financing options your practice can consider.

Bank and traditional loans

One of the most straightforward ways to seek financing for your vet practice is through a bank or traditional loan. VetTimes refers to these loans as a “first stop” for many veterinary practices.

These financing options offer stable repayment schedules and often have lower interest rates than other lending options, especially for existing practices. They can be used for almost anything, whether buying new equipment or expanding your practice.

However, they can be difficult to obtain for new practices, and they often have collateral requirements or personal guarantee conditions. This means that if your practice defaults on the loan, you could be held personally liable for the remaining balance.

To qualify for a bank or traditional loan, you and the business would need a good credit history, several years of financial statements, and, most likely, personal guarantees. When seeking this type of loan, you might strengthen your prospects by having good financial statements, providing collateral, and having an established relationship with the bank.

SBA loans and government-backed lending

Small Business Administration (SBA) loans and other types of government-backed loans are often more readily available to small veterinary practices than traditional loans. The U.S. Small Business Administration guarantees a portion of the loan for the bank, reducing the lender’s risk and making financing more accessible to practices that might have trouble qualifying for other financial solutions.

SBA loans offer a few main benefits:

• Potentially lower interest rates than traditional loans
• Longer repayment terms, spanning up to 25 years for real estate
• Lower down payment requirements, with some requiring zero dollars down

The major downside of government-backed loans is their lengthy and complex application process, which usually requires extensive documentation and in-depth financial information. There is no guarantee of approval, and borrowers are often required to provide personal collateral and be personally liable for the loan. Some SBA loans also have early repayment penalties during the first three years.

SBA loans are especially useful for acquiring a new practice, refinancing an existing loan, or purchasing commercial real estate for your veterinary practice to operate out of. It may be worth talking to a practice finance specialist before applying for this loan due to the complex requirements and limited loan approval.

Asset-based finance and equipment financing

If your practice needs to purchase big-ticket items, such as diagnostic or imaging equipment, asset-based financing might be a good option. Lenders fund between 80% and 90% of the price of expensive equipment through a fixed-term loan with interest.

Common types of asset-based financing include:

• Finance lease, in which the finance company owns the asset, with options for the vet practice to own it at the end of the loan
• Hire-purchase, which involves the vet practice taking ownership of the asset after making all payments
• Contract hire, which is common for vehicle purchases and acts as a rental agreement rather than a purchase

The fixed monthly repayment structure makes budgeting for this type of loan easy. Your practice might even gain tax benefits from asset-based financing, as equipment may be offset against tax as a capital allowance.

Lenders determine eligibility for asset-based financing based on the value of the asset rather than solely on your practice’s cash flow, making this loan more accessible to new practices. However, these loans require you to use the equipment as collateral, putting the equipment at risk if you cannot keep up with payments.

Business credit cards and revolving credit facilities

Business credit cards are a worthwhile short-term vet financing tool to consider. They are often faster and easier to secure than other financing options. Many veterinary practices use them to pay for low-cost supplies or cover short gaps in cash flow from missed client payments or late bills.

Business credit cards tend to have higher interest rates than conventional loans, which is why most vets aim to pay off the card before accruing interest. These cards can be used to improve your practice’s credit approval opportunities, which may expand your access to better veterinary practice finance solutions down the road. Credit cards also offer rewards and cash back that can provide a small return on spending.

It’s easy to accumulate high levels of debt with a business credit card, so your practice must spend wisely.

Alternative lenders and online loans

Exploring alternative lenders outside of typical financial institutions may expand your access to lending options. Online lenders, for example, are becoming more widely accessible. These loans often run between three and 18 months, and their eligibility requirements tend to be more generous, making them accessible to practices with poor credit ratings.

Online lending options are often faster than other lending products, making them a good option for practices experiencing quick growth. But because the repayment terms are shorter and interest rates are often higher than other options, they may not be the best choice for every practice.

Merchant cash advances

Merchant cash advances (MCAs) involve borrowing funds in exchange for a portion of future credit card payments made by clients of your vet practice. This type of borrowing is unsecured, meaning your equipment and other business assets won’t be on the line if you don’t repay the advance on time. However, cash advances often have high effective interest rates and fees, and daily automatic deductions can deplete your practice’s cash flow.

MCAs might make sense if your card volume is strong and you need fast funding, but you should fully understand the terms before accepting this loan type.

Equity, investors, and internal funding

Many businesses turn to investors for the capital they need to finance expansions or other projects. While this is less common with veterinary practices, it is an option to consider. You might seek funding from family members or other investors.

Investors give you access to funding for your practice’s growth, and they help spread financial risk across multiple parties. However, they require you to give up total control over decision-making, and there is the risk that relationships with investors will become strained.

How to choose the right financing mix

You have a range of options when it comes to veterinary practice financing. Choosing the right blend of lending solutions can be tricky, but these considerations can help guide your choice.

Assess your clinic’s financial health.

Start with a solid understanding of your practice’s financial health. Assess metrics like:

• Revenue per doctor
• Fixed vs. variable costs
• Cash reserves
• Debt coverage

Use financial projections and scenario modeling to better understand how different financing options would impact your practice’s financial situation. This can help you adequately plan for the change to your finances.

Match financing to purpose and term.

Different types of financing are best for short-term versus long-term growth. For example, business credit cards are best for purchasing supplies, while asset financing is better for funding larger equipment. Long-term debt is often best for funding commercial real estate.

Mitigate risk and prepare for contingencies.

All veterinary practice finance options involve some level of risk, so understanding the potential consequences of defaulting on a loan is important. Loans that involve personal guarantees put your personal finances at risk. Asset-backed loans require you to offer a valuable asset, such as veterinary equipment, as collateral to guarantee that the loan will be repaid.

Your practice can mitigate risk by building liquidity cushions as a financial safety net, having fallback lines, and using stress testing to determine your resilience against adverse financial scenarios.

Consider timing and pre-approval strategy.

It’s often a good idea to seek pre-approval for a loan before you start planning a major purchase. This helps you understand how much you can afford to borrow and the potential implications of non-payment. Having pre-approval also gives you negotiating power in real estate transactions.

Timing also matters for veterinary practice financing. You may want to wait for low-stress periods to reduce risk when securing financing. Lead times, regulatory requirements, and underwriting delays may also impact how quickly you can secure a loan.

Implementation strategies and best practices

Before you apply for financing, understand a few best practices to maintain financial health:

• Build a strong business plan first. This involves outlining your financial projections, marketing strategy, and goals, and can help you qualify for certain types of financing.
• Consider working with vet-focused lenders. Lenders that are familiar with the veterinary industry may offer better terms or more personalized solutions that better meet your specific business needs.
• Consult a financial advisor. Having support from an expert can help you adequately compare all lending options and fully understand the risks versus rewards of each.
• Review and rebalance your financing structure periodically. This can ensure that your financing risk remains optimal for your practice’s goals, risk tolerance, and current economic conditions.

Case studies and illustrative scenarios

The right financing solution is highly subjective to your practice’s intended use for the funding, financial situation, and goals. These examples can help you understand when specific types of practice financing might make sense.

• A practice owner is looking to expand to a second location. They complete the application requirements for an SBA loan to fund the commercial real estate investment, then use asset-based equipment financing to purchase imaging and diagnostic equipment.
• A practice experiencing a temporary cash shortfall uses revolving credit through a business credit card to purchase supplies, then pays off the balance before accruing interest.

Financing your veterinary practice

With so many veterinary practice finance options to choose from, choosing the right solution can be challenging. Start by auditing your current financing, reassessing your debt portfolio, and exploring options that meet your practice’s needs.

Weave is the best solution for handling administrative and communication operations in vet practices. Request a demo to learn how Weave can support your practice.

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