How To Find Money To Start A Practice? Start With Your Credit Rating.

Here’s a question we get asked time after time: “Where do I find the money to start a practice?” 

It’s a reasonable question. After all, it does take some money to start a practice.

  • You need money to lease or buy space and furnish it.
  • It takes money to turn on the utilities: heat, A/C, internet, phone, and so on.
  • You’ll need to pay for an EHR, bookkeeping, billing, legal advice, and the like.
  • And it takes cash to hire and pay your first employee and to pay yourself.

By all means, this is not a complete list of everything you need; there is lots more that goes into starting a practice.

How Much Money Do You Need?

Luckily, it’s up to you to decide how much money you need to start your practice.

Will you start small and grow your practice over time, or will you start on a bigger scale from the get-go? Depending on your answer, the amount of money you need at startup varies.

But regardless, if your start small or big, you need some cash, and you have a few options to choose from.

  • You could finance your practice by leveraging your home equity.
  • You could use personal credit cards to finance your practice.
  • You could get help from your family.
  • Or you could turn to your bank for a  loan.

Let’s assume you decide to go for a loan.

Worried you won’t be able to borrow money from your bank?

Is There A Shortage Of Money?

No! Of course not.

Understand there is plenty of money available to be loaned out. The question is, how much are you willing to pay to get your hands on that money?

What am I talking about?

I’m talking about the cost of borrowing money; interest.

The rate you get charged and agree to pay when borrowing money, typically listed as the APR, the annual percentage rate.

Many factors determine the interest rate a borrower will pay; amongst them is the credit score. The quality of the credit score directly impacts how much one is charged to borrow money.

The person with a high credit score presents less risk to the lender than those with a low credit score.

Hence, it’s no surprise that a good score equals more favorable loan terms, while a poor score translates into higher interest rates, assuming the lender approves the loan in the first place.

The good news: you have a good amount of control over your credit score. Suppose you are happy with your score; good for you. But if your numbers need improving, there are steps you can take to turn things around.

Know Your Credit Score

First off, pay attention to your credit score. If you don’t know your current credit score, find out what that number is.

A quick note here…

Often, you find the terms FICA and credit score used interchangeably, but technically they are not the same thing.

The FICA score utilizes a particular scoring model based on the information tracked in credit reports; in other words, your FICA score is a compilation of data from multiple sources.  

Typically, your credit score/rating will vary with the issuing credit bureau, notably Experian, TransUnion, or Equifax.

Did you know you are entitled to a free credit report from all three credit reporting bureaus every 12 months? Visit the site AnnualCreditReport.com to start the process.

How To Improve Your Score

So what’s a good credit or FICA score?

Overall, scores range from 300 to 850. As you can imagine, the higher your FICA score, the better your credit.

Based on information from the Experian website, numbers above 660 and up are considered good to excellent, while numbers ranging from 330 to 660 are considered very poor, poor, and fair.

Keep in mind, scores and their interpretation depend on the reporting credit bureau. But knowing your score is one thing;  understanding what goes into it to improve it is another thing entirely.

The Components Of A Credit Score

While many pieces of data comprise a credit score, there are five main categories used to compile scores. They are, in order of importance:

  • Payment history
  • Amount of money owed overall
  • Length of credit history: short, long, or none
  • Credit mix, and
  • New credit opened

Because credit scores are unique to a person and not written in stone, they can be complicated.

Scoring models consider individual financial behavior and make adjustments. So, if you don’t have a long credit history or haven’t opened new credit in a while, it doesn’t have to count against you.

Also, scores adapt to changes in your credit report. Hence, the information in your report and your scores change with your financial activity, and scores are somewhat fluid.

Pay All Bills On Time!

But there is one thing that will always work against you: not paying your bills and not paying them on time.

Therefore, if you need to improve your credit score, focus on paying all your bills on time.

Reduce Debt

But depending on your level of debt, that may be easier said than done.  You may deal with old debt from student loans, credit cards, or other sources.

So if you feel like your debt is insurmountable, here are some simple steps to tackle your debt and shrink it down.

  1. Only buy what you can afford. The best way to keep debt from becoming a problem is to avoid the issue altogether from now on. I know, easier said than done, and not always possible. However, the next time you want to buy something, ask yourself if the purchase is truly necessary or simply nice to have.

Alternatively, ask yourself if the item you want to buy will help you generate income or just increase your debt. For example, taking a class to learn a new skill should help you generate revenue in the long run.

However, if the item or thing doesn’t help you generate revenue, consider delaying the purchase until you have the cash to pay for it.

  • Prioritize bills by interest rate. Instead of paying a little extra on all your credit cards and bills, focus on paying the most toward your highest interest rate bill first and only pay minimums toward lower interest rate bills.

In the case of credit cards, once the highest interest card is paid off, rotate toward the next highest interest rate card and pay what you can toward that balance until it is paid off. Then rinse and repeat until all your credit card debt is wiped out.

In the long run, paying off the higher interest bills first will save you the most money. It’s usually the interest that keeps knocking you back. By taking out the higher interest rate bills, you’ll feel a greater sense of progress when paying your bills every month.

  • Convert to cash and debit only. One of the best ways to keep yourself in debt is to keep using credit cards. They can be a blessing or a curse, and they’re convenient, and it’s easy to justify their occasional use by saying that it’s only a soda or a tank of gas.
  • But small charges add up quickly. A dollar here, a few more there, and you’ll negate the payments you’re making in a short amount of time.
  • Paying with cash will help you develop new spending habits. By the time you get your debts paid down, you’ll have disciplined yourself to the point where you no longer put yourself in that situation.

Debt is a problem that happens to nearly everyone at some point. And even if you’re working with a shoestring budget, you can pull yourself out of debt, so you can get the cash to start your practice.

We all know how stressful personal debt can be (regardless of the reason for it). But starting a business can also be stressful.

A business will also incur debt, especially in the early phases as it is getting off the ground. However, most business debt is “good debt” because it helps you generate revenue, rather than just saddling you with money to repay.

Focus on managing personal debt now before you start a business. It will reduce your stress, improve your credit rating, and allow you to give more focus to your business.  Work on establishing new financial habits so that the financial management of the business and personal life will be healthier.

In Summary…

Don’t let credit rating, personal or student loan debt stop you from starting your practice. Work toward doing everything you can to improve your credit score and work to eliminating your debts until they are gone!

Tell us what you think and join the conversation! Be sure to leave your comment or question below!

By Johanna Hofmann, MBA, LAc; regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.”

"The greatest mistake you can make in life is continually fearing that you'll make one."
~ Elbert Hubbard ~

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