It’s one of those questions that keep you up at night:
How do I finance my private therapy practice?
Whether you’ve been in business for years, or you’re just starting out and excited about hanging your shingle, finances will always be among your top concerns.
Let’s take a look at how you can raise funds to start a practice or to keep your practice afloat in lean times.
Why Do You Need Funds?
The first question you should ask yourself is why you need extra funds in the first place. The answer may be obvious, but it’s still a good idea to clarify the reasons in your own thinking, especially if you’re getting money from outside sources. They’ll ask these questions too, and you must provide a clear answer.
Here are common reasons why you may need financing for your private therapy practice.
This covers the gamut, including: licensing fees, your office lease, technology equipment (such as computer, printer, copier, fax), furniture for the offices and waiting room, utility deposits, and more.
This covers everything you need to operate your business daily, including payroll, utilities, office supplies, repair and maintenance, etc.
Expand your business
This covers the financial responsibility of hiring more people, buying or leasing more office space, and the costs associated with offering more services to your clients.
Buy out a practice partner
Sometimes, you’ll start your journey with a partner and then realize it’s not going to work out. If you still want to keep the practice, you may wish to buy out the other owner.
Gather Your Documents
Generally speaking, if you wish to secure funding from an outside source, you’ll need to provide one or more of the following:
A Business Plan
A business plan is a map that shows where your business is headed. It should show exactly how your private therapy practice will make money and include financial projections.
In your business plan, hope for the best but prepare for the worse. How much will you bring in? How much will you spend? What will happen if your local economy takes a hit and business slows down? Will you be able to sustain your business if you receive 20% less clients than you’ve projected? How?
Tackle all scenarios in your business plan. The more thorough you can be, the better your business will look for lenders and investors.
Many lenders and investors want to see your personal tax returns from the previous three years.
Because you are your practice, you may need to attach a resume of your professional accomplishments to your loan applications.
Personal Financial Statements
To bolster your trustworthiness, you’ll need to provide financial statements, and may even need to use savings to provide collateral for your loan. You’ll also provide your practice’s financial statements, too, if you have them.
Now, let’s look at ways to raise capital for your private therapy practice.
1. Team Up With Another Therapist
Have you considered splitting the cost of your startup with another therapist? This can ease the financial burden, and it may even increase the amount of funding available to you. Of course, you’ll also have the added benefit of possibility expanding your service offerings and seeing more clients, too.
Pros: You’ll share the costs of startup and your partner may be able to qualify for better rates than you.
Cons: Depending on the type of partnership, you’re still individually liable for the private practice. If your partner doesn’t pay, you still will. For more information on the three types of partnerships, check out this article on LegalZoom.
2. Dig Into Your Savings
You can also tap into your savings to fund your private therapy practice on your own. Savings is not without risks, but if you aren’t willing to invest in yourself, how can you expect the same from others?
Additionally, you may be able to use certain retirement savings, such as 401(k), to finance your private therapy practice. Under a Rollover as a Business Startup (ROBS) agreement, you can access your retirement funds tax-free and apply them to your business needs. For more information about ROBS, check out Fit Small Business’ helpful guide here.
Pros: You owe no one and pay no interest.
Cons: If your business fails, you’ll lose your savings.
3. Refinance Your Home
Have you built up equity in your home? You may find that taking out a second mortgage on your home will provide you with enough cash to finance your private therapy practice.
As a general rule, you’ll need to have at least 25% equity in your home, and sport a credit score of 620 or higher.
With a home equity loan, you’ll receive a lump sum and be assigned a fixed period of time to repay, generally five to 15 years.
Pro: You’ll enjoy a lower interest rate than many other options on this list.
Con: You could lose your home if your practice fails.
4. Use Your Credit Cards
Personal credit cards can help in a pinch, especially in the beginning. Perhaps you need to pay for supplies or to cover daily expenses during a dry patch.
A personal credit card may be easy to get and use, but it’s not ideal for a long term financing strategy.
Pro: Easy to get approved for and may provide low interest rates.
Con: Lower credit limits means less funds are available to you. Also, credit cards have high interest rates: sometimes 20% APR or more.
5. Secure a Traditional Loan
When you’re starting a business, the odds are against you. It’s almost impossible to secure a traditional loan in the first year of your private practice. That’s because banks don’t love taking risks. They’re not investors– they’re lenders. They expect to receive their money back after an agreed upon time, and they need to see a solid path to that end.
One way to build trust with your bank is to establish your relationship with the bank ahead of time. Secure a small loan ($5000 or under), don’t touch the money, and then pay off the loan in full a few months down the road. This will help your bank know that you pay back your debts.
Pros: With a traditional lender, you may be able to apply for a higher loan amount than with other, alternate lenders.
Cons: It’s difficult to qualify, and you may need to put up collateral.
6. Open Up a Line of Credit
A line of credit may be the best way to fund your private therapy practice, especially if you need short term working capital.
Commonly known as “revolving”, a line of credit simply means that the lender extends a specific limit to you. When you pay back what you have borrowed, that same amount becomes available again to you. You never need to pay interest on unused funds.
The bad news is that the interest rate you do pay is variable, based on the current market. With a line of credit, your repayment rates will shift over time.
There are three types of lines of credit: home equity, personal, and business. Of the three, a home equity line of credit is easiest to secure.
You may receive a line of credit from a traditional lender, such as your bank, or from an alternative lender.
A line of credit from a traditional lender will often require collateral, such as business equipment, real estate, or a required amount in your savings account. This allows banks to charge lower interest rates (between 5 – 10%).
When you receive a line of credit from an alternative lender, you may not need to provide collateral, but they may place a lien on all of your business assets. You’ll pay substantially more in interest (between 20 – 40%).
Pros: Depending on the type of line of credit (such as a home equity), it’s easy to qualify for, and you may enjoy much lower interest rates.
Cons: Because you will need to provide personal guarantee, your credit will be damaged if you do not abide by the terms of your line of credit.
7. Try Crowdfunding
Ever heard of GoFundMe, Kickstarter, or Indiegogo? If you have, you’re probably familiar with the idea of crowdfunding. If not, here’s a rundown:
Crowdfunding is when you get money for your business, idea, or charity from a crowd of people. You may use a website like the ones mentioned above to connect with those who are willing to invest in your private practice. Set up a monetary goal, post an engaging video and story, and cross your fingers and hope you’ve compelled someone to donate to your cause.
In exchange for the donation, you’ll provide a token of your appreciation, which may be a certificate, a t-shirt, or even a complimentary service.
While crowdfunding is definitely risky because you may not reach your set financial goal, it may just pay off if you can convince enough people with your story.
Pros: Donation-based crowdfunding is similar to receiving a grant. It’s “free” money, although it is customary to incentivize donations with a return gift.
Cons: Most crowdfunding sites require that you hit the goal before releasing the funds. If you don’t reach that goal, you won’t receive the money.
8. Apply for a Grant
Starting a new project? Conducting research on a new, exciting therapy? Attending an important conference that may impact your private therapy practice? Purchasing new supplies?
There’s a grant for that.
In fact, as it stands now, there are close to 300 grants for mental health alone. Check out GrantWatch.com for a full list of available grants.
Don’t overlook grants as a way to fund your private therapy practice. There’s a common misconception that grants are only available for educational or nonprofit purposes, but many businesses and organizations, including government, provide grants to small businesses to stimulate local economic development. As a private practice working with the local community, you may qualify for more grants than you know.
This is especially true for minority or woman owned private practices.
If you’re interested in applying for a grant, consider hiring a professional grant writer. Not only will a grant writer be able to write a compelling proposal to help secure your grant, he or she may also provide you with a helpful critique on a proposal you’ve already written.
To find a qualified grant writer, check out Resource Associates or American Grant Writers’ Association.
Pros: It’s as close to “free” money as you can get.
Cons: Applying for a grant is a lengthy and complicated process.
Keep The Clients (and Revenue) Rolling In
Before you begin financing your private practice, I highly recommend that you consult with an accountant who will understand your unique needs. Additionally, it’s more important than ever to understand your high quality client referral source so you can work smarter, not harder. TheraNest’s practice management software offers advanced analytics to help you track referrals, and more. Start a free, 21-day trial of our therapy note software to see how it can help you keep the clients (and revenue) rolling in.