The Small Business Lending Ecosystem is getting crowded and more confusing by the day. If you’re scratching your head wondering which is right for you? You’re not alone. To help you out, all this week we will be talking about the small business lending world, and the ways in which you can learn more about the system for your own success. To conclude our series on the SBL system, we’d like to share a story about Dr. Acosta and his attempts to go about getting loans the traditional way.
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Dr. Acosta’s Story
Dr. Acosta ran a successful physical therapy practice. He serviced New York City, mainly in Manhattan. Dr. Acosta had been growing well. His rapid growth was causing some strain. He didn’t have enough PTs, equipment, and office space to take on any new clients. His growth was at risk of stalling if something wasn’t done.
What Did We Do for Dr. Acosta?
It was obvious for the start that Dr. Acosta needed to expand. Dr. Acosta’s business model was relatively simple. Dr. Acosta was in Orthopedics. His office and hospital clients provided a steady supply of post-visit/post-operative patients, who needed PT in order to regain or to improve their mobility and function. He knew and could forecast how much a PT an average client would need. Based on his current growth trends, it was easy to estimate how much additional capacity he would need. All we had to do was get it all down on paper in a formal that the loan underwriters and officers would understand and he would qualify. Dr. Acosta was a physician, not a banker so he wasn’t sure how best to proceed.
So, which lenders were right for Dr. Acosta? How did we choose? Well, Dr. Acosta had an established business, which was profitable and growing. He had collateral in terms of his current and future equipment. He had a good credit score, enough to ensure his eligibility.
Given these criteria, we decide to shop around the traditional bank and SBA route for the loan. Luckily, Dr. Acosta was aware of the expand before things became critical. This meant we had time to complete the SBA process. To ensure he obtained the best rates, we needed to do some comparison shopping. We chose to take to some local banks, his hospital credit union, and the lending platforms to see where we could find the best rates. His capital needs were high more $250K. Although they had the best rates, his hospital credit union couldn’t fund the full amount. A few of the lenders on the platform could fund the full amount, but the extra fees of using the platform negated the advance of their lower rates. Therefore, we decide to use a traditional large bank to secure the funding we needed, because alternative lenders could be too risky.
The Results of Traditional Lending
Dr. Acosta qualified and received the funding needed to expand. It took us a little over 3 months to close the deal, including our shopping time. We got the funding in time so that he was able to accept new patients before he hit capacity. Dr. Acosta was smart in not waiting until things became critical, which gave him the time needed to negotiate the best deal. He was able to get the lowest rate, which was roughly 4% over prime.