Axiom Physician Advantage
By TED SHEPPE
Along their professional journeys, physicians experience many graduations: college, medical school, residencies and fellowships. From a financial perspective, here's another graduation to keep in mind -- moving on from your first Small Business Administration 7(a) loan to conventional financing.
SBA loans, as the 7(a) loans are often known, can be a critical first step for healthcare providers seeking to acquire or grow a business. Providers often use these funds to expand office space, buy equipment, hire new staff or make other strategic business moves.
While SBA loans are designed to be easier to get than conventional financing, they're usually not the most cost-effective long-term solution. Over time, the lower interest rates on a conventional loan can yield significant savings. It may mean the difference between paying 8 percent and 5 percent each year.
A community bank can be a valuable partner in reassessing your funding goals. At Maitland-based Axiom Bank, we specialize in helping our customers navigate growth with resources tailored to their needs.
If you've had an SBA loan for at least three years, you may want to consider refinancing with a conventional loan. Here are some signs you might be ready:
Your financial trends are positive. When your patient list, revenue, profits and cash flow are trending up over a sustained period, it signals stability in your business -- which may mean you're ready for the next stage of financing. On the other hand, if your financial indicators are choppy, flat or trending down, you will likely need to delay that conversation until they become steadier.
Your debt-to-worth ratio is modest. If you have equity in the business and if your current financing agreement is leveraged properly, you may be able to revisit the terms of your loan. In this scenario, you likely have some wiggle room to add debt, provided you have cash flow to repay it. The common guideline is to stay below a 3:1 debt-to-worth ratio.
Your spending plans are moderating. The early or transitional stages of a business typically bring a heightened need for capital to cover expenses such as new equipment and employees. However, many businesses can moderate their capital expenditures starting in years three to six. If your spending, debt and equity are sufficiently balanced, you may be able to qualify for a conventional loan, which gives you the freedom to add capital as needed.
Your bank isn't paying enough attention to you. Does your banker have an outdated perspective on your business? Ideally, he or she should meet with you quarterly to discuss your projections and long-term goals. Regular conversations are critical to understanding your company's lifecycle and crafting a financing package that fits the next two to three years.
Make no mistake: short-sighted banking relationships can hinder the growth of your business. One of our clients in the healthcare industry had a stellar growth profile and contracts with major drugstores, but his former bank couldn't see past his humble beginnings, so he went elsewhere.
Bankers should work in your best interest, and that might mean suggesting you reconfigure your financing arrangements. If your banker isn't regularly adding value to your business, it may be time to revisit the relationship.
As an SBA Preferred Lender, we frequently recommend SBA loans as a viable first step, while recognizing that many businesses will eventually outgrow them. Often, a bank with Preferred Lender status can easily convert SBA loans into conventional loans.
If your business is getting traction and generating solid financial indicators, it may be time to graduate from an SBA loan. With steady cash flow and an improving balance sheet, conventional financing can come sooner than you may think. In turn, that can spell out a more profitable future, full of possibilities to expand your impact as a healthcare provider.
Ted Sheppe is the Executive Vice President for commercial banking at Axiom Bank, N.A., a Maitland-based bank that specializes in commercial loans for small and medium-sized businesses. He has spent much of his career helping physicians and healthcare businesses with their lending needs. He can be reached at firstname.lastname@example.org or 321-249-7847.