Financing a Start-up Practice
Local Versus National Bank
My son Craig graduated from University of Houston College of Optometry last spring, and is opening a practice cold next spring. I have been acting as an advisor. We both learned some things that I think are worth sharing regarding financing.
Business Plan and Forecast
Craig had a solid business plan which included the demographics of the new practice, as well as a five year forecast of revenues and expenses. He provided the plan to two local bankers and three large financial banks with programs specifically for optometry practices. The new location had some timetable requirements; we basically asked each bank to give us at least a verbal commitment within three to four weeks upon their receipt of his business plan.
Co-signer and collateral
Since Craig was fresh out of school, and had no assets, I agreed to be a co-signer for the loan. I also had real estate that I was willing to use as collateral for the loan. That helped a lot.
Big Dog Banks Fail to Deliver
Of the three large banks, one required Craig to complete a 3 page spreadsheet that detailed every expense It seemed like they wanted to know how many staplers and paper clips he would use- way too detailed! That package got put on the bottom and set aside as a last resort – looked like way too much work! And we felt the submitted business plan was detailed enough for the purposes of the loan.
The second big dog was woefully slow. After several follow up emails and phone calls asking them for an answer, we were given terms that would essentially require us to purchase a CD for the loan amount as collateral! Huh? If he had the cash to buy a CD, why would he need to borrow! We turned that one down. Oh, and the third? Uh, never did hear from them (again, despite our emails and phone calls).
Local Bank Quickly Delivers
The two local bankers we approached – Richard and Mark – were home-town banker that I had done business with before. Neither did the deal, but both helped make the deal. Craig’s office is 100 miles away. Richard and Mark both told us that while they could do the deal, they recommended Craig find someone closer to the new office, and recommended a colleague there. Craig met with that banker and had immediate rapport – they formed a relationship. He quickly provided Craig a loan that we felt was fair and reasonable.
Improving the Loan Terms
While the original deal sounded good to us, Mark said the rate could be lowered by ¾%. He suggested calling the new banker and requesting the new rate, and if he couldn’t do it then Mark could. Craig’s new banker did just that and the rate was lowered.
Local Relationships Save the Day
What was surprising to me should not have been. It’s all about creating and building relationships. The relationships I created in my career helped my son to establish his own. And while I thought the big banks we approached would be streamlined and offer the best product, we experienced the opposite – poor customer service and a poor deal.
The lesson learned is deal with people oriented banks, not big banks with no local decision authority.