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BEEF Vet: How To Choose The Best Lender For Your Practice

Smart financial decisions aren’t always about the lowest interest rate. Veterinarians should factor in relationships, community support and an understanding of agriculture.

August 30, 2013

13 Min Read
BEEF Vet: How To Choose The Best Lender For Your Practice

Debt can seem like a burden, but for veterinary practice owners it can also mean starting their own business, expanding the operation and obtaining critical equipment or facility upgrades.

At every stage of a veterinary career—from new graduates to established practices—acquiring and paying off debt is a constant companion. So why not choose a companion that can help build and grow the clinic?

Livestock veterinarians are at a rare crossroads between production agriculture and business. Partnering with institutions that know the unique challenges of both industries can help a practice start out strong and continue to flourish.

Choosing a Lender

Bruning State Bank in Bruning, NE, knows the importance of having a range of businesses to serve its communities, including veterinarians.

“We are seeing fewer veterinarians in the large animal business,” says Fred D. Bruning, president of the bank, which started in 1891 with his great grandfather. “More people are doing small animal focuses and moving to an urban area. It’s harder to get young people in the large animal business because of the wear and tear on the body and less livestock in the area. Then, specialization in hogs and dairy has eliminated lots of producers.”

Bruning sees this trend as a reason for new and established veterinarians to work with other business in their communities, helping each other grow and succeed beyond simply good interest rate terms and healthy credit lines.

“I view the veterinarian as part of that triage of mentors, along with a farmer or rancher’s banker and nutritionist,” he says. “When a veterinarian comes to an area to start a business, he needs to have a business plan or model that he wants to take to several bankers. He should ask himself: Who’s going to be there during the times when it’s not going to be good? Who’s going to refer his customers to me, who trusts, asks questions, gives me vision? Who are the community leaders that I need to see? Now, I can talk about the interest rate and terms, and you can compare that with all lenders, but which guy is going to help me get started relationship-wise? Is it worth saving $1,000 in interest to sacrifice $10,000 in advice, relationships and referrals?”

For one of Bruning State Bank’s customers, investing in the community he operates in was nearly as important as any other financial factor, says Larry L. Coleman, DVM, owner of Veterinary Care & Consultation in Broken Bow, NE.

smart financial decisions“My local bank is very connected in the community and is the bank for a number of my clients,” Dr. Coleman says. “It’s an ecosystem where everyone’s interrelated, if not financially, at least our lives intertwine in what we do.”

He attributes his success as a veterinarian and a small business owner to mentors in both areas.

“If you’re going to go into business, work to teach yourself the business basics or find a mentor,” Dr. Coleman says. “There’s a lot that could go wrong. I think it’s really important to be connected to an older person that has been through a lot of these things. They can shorten the time dramatically that it can take to get up to speed on how business cycles work.”

Growing up on a farm himself, buying and selling livestock helped Dr. Coleman earn the collateral to start his own practice more than 25 years ago. Later, the decision to take out an additional loan helped fuel his practice expansion and helped him provide jobs in the community.

“My banker is very knowledgeable,” he notes. “He’s involved personally in a lot of the things I do. When I go to conduct my business, we often have conversations that revolve around mutual challenges or opportunities. I value relationships highly. I suspect I could have cheaper interest rates, but that would require involving people that don’t know what I do, my reputation, and I don’t think I’d get the value out of it.”


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A partnership that can help make introductions to new customers and solve challenges collaboratively is what a veterinarian would expect of his own customers, says Bruning, who owns a herd of Hereford-Angus cross cattle.

As part of that partnership, Bruning recommends letting lenders in on the long-term business plan. It can help prepare both parties to make quicker decisions down the road when opportunities pop up.

“Even if you think about expanding a year from now, it’s good to think about it today because bankers don’t like surprises,” he says. “The worst thing you could do is call up your banker and say, ‘The sale is tomorrow, I need a loan tomorrow.’”

Newly Minted DVMs

For veterinary students, there’s no better time to think about starting up their own practice than while they’re still in college. Prior to graduation, students should make a list of communities where they would want to practice, develop a business plan and take it to different bankers in the community.

“That banker is going to start hustling to get you to come to his community,” Bruning says. “Find a banker with some tie to ag. Instead of just looking at rates—the best deal—ask how he could  help you get started in the community.”

One of the first financial challenges new graduates face is the mountain of debt acquired before their first post-graduate paycheck is cashed, and the burden is only increasing. In 2011, the average debt just from veterinary education loans was $118,772 according to the UC Davis School of Veterinary Medicine.

This is a trend across agribusinesses as well as production agriculture, says Kendal Kay, President and CEO of Stockgrowers State Bank in Ashland, KS.

“Student loans are high and growing all the time,” Kay says. “Small business owners should take it into account in their global cash flow and projections. When they have extra cash flow, look for opportunities to pay that debt down. But, you always need to keep a cushion and save money for situations like now with the drought. Part of that cushion may be to pay ahead on your debt.”

New graduates may not be able to build a cushion immediately, Kay cautions. The last few years of drought reduced cattle herds significantly and affected businesses across Main Street. More mature business learned the lessons of similar hard times. In this environment, joining an established practice may be a more reasonable goal than a brand-new start.

Joining an established practice that is willing to transition the ownership over a period of time can help all parties. New veterinarians can learn the business, establish themselves financially so both customers and lenders can grow to trust the new partner.

“We’ve seen that in several places around here, in southwest Kansas, where the veterinarian is in his 60s or older,” says Bill Neier, Senior Vice President at Stockgrowers State Bank. “When you have a feel of ownership, it makes all the daily business decisions easier. When times are tough, it exposes weakness faster. We are blessed with a lot of mature business. They’ve learned from their past experiences. We, as a bank, have to step up and work through the tough times just as they work through the good times.”

With personal roots in southwestern Kansas and the livestock industry, Kay and Neier note from their own experience that sweat equity is going to be required for any type of small business owner—but especially in agriculture.

“Production agriculture, when it’s in your blood, it’s hard to get away from that,” Kay says. “You can do very well, you just have to put in a lot of time and energy and sweat equity. Being on-call every weekend, that’s what it takes to start a small business.”

Starting Up

For new veterinarians with the goal of opening up their own practice, every dollar saved can be put toward a down payment, says Donald E. Sanders, DVM, Dipl. ACT, PAS, Associate Professor at The Ohio State University.

“I’ve been at Ohio State University for seven years, and it’s pretty routine for students to drive nice cars, take vacations, travel and generally not work to be penny pinchers,” he says. “There are some exceptions to that, but students need to get creative on ways to deal with that debt.”

That creativity can extend prior to veterinary school as well as afterward, notes Dr. Sanders, who started a practice with his wife just after both graduated. He recommends taking business courses during undergraduate education and looking into programs through the USDA and armed services.

A cautious approach to debt during college will help new graduates devote their cash to collateral that can be used to start a practice, but Dr. Sanders notes that doesn’t mean the austerity measures should stop there.

“During the first years of our practice, we worked hard, provided lots of service and would care for anything that crawled or walked through the door,” he says. “We operated on a shoestring budget and made ourselves available for emergency service regularly. We made more money weekends and at night than we did weekdays, because clients knew they could reach an emergency service.”

Dr. Sanders also cautions against taking out loans for all the latest and greatest equipment during the early years of a new practice.

“New vets think ‘I’ve got to have a new pickup truck,’ but if you were to buy it off the showroom floor it’s close to $60,000,” he says. “I recommend buying the basics. Even if you just own an SUV already and buy a veterinary storage insert for about $3,000. If you’re especially innovative, you can build your own to fit in the back of a full-size car. Cash flow is king. You don’t want to compromise the quality of your practice but there are ways to do it cheaper.”

Dr. Sanders recommends referring clients to other practices until you can afford to own more expensive equipment that can expand a clinic’s offerings.

That approach works to a point, says Randall Hobrock, DVM, owner of Tallgrass Veterinary Clinic in Concordia, KS, who started his practice in October 2006.

“I grew up on a farm, and before we could start the job, we always had to fix something,” Dr. Hobrock recalls. “When I started, I set out to have good equipment. When you spend 99 percent of your time fixing stuff, you’re not getting much veterinary work done. You have to weigh the cost of the time it takes to fix the equipment against the service you could be providing. At first you don’t have all the nice equipment, but it didn’t seem like it took us that long to acquire what we needed.”

Expanding Carefully

Most business owners start their own operation because of a specific skill or knowledge base in that area—not necessarily because they have general business skills or superb financial management, says Dennis Fike, Senior Vice President of Risk Management at Frontier Farm Credit in Manhattan, KS.

For agribusiness, one of the key concerns for a new practice should be managing the ups and downs of agricultural business. The cyclical nature of the industry must be addressed financially to be successful over the long term.

“Owners really need to manage liquidity,” Fike says. “It’s the most common piece of advice we give. A lot of times, they try to carry too much debt and don’t provide cushion for those times when there is a lower demand for services. You need to have cushion in the balance sheet to have cash on hand.”

Frontier Farm Credit recommends about three months minimum of cash on hand as a cushion for volatile times, or a current assets-to-liabilities ratio of 1.5 to 1 or better.

“Hand-in-hand with liquidity is making sure debt is properly structured,” he says. “When you’re buying vehicles or equipment, make sure it’s on a five- to seven-year term not a three-year term. Even when you anticipate strong cash flow, it’s important not to stretch yourself too thin.”

In addition, Fike recommends doing a cash flow projection at least annually and monitoring it throughout the year. It’s one of the ways business owners can be more aware of excess cash from month to month, which will help determine what type of financing they will need throughout the operating loan.

For agribusinesses, it’s important to manage financing of customers appropriately, he notes.

“For instance, carrying six to nine months in accounts receivable can change your cash flow considerably,” Fike says. “Veterinarians can manage financing customers through their own lender and develop a credit policy that would set a maximum amount to carry with any one customer.”

As with most agribusinesses, veterinarians should be aware of the dynamics within the community when setting credit terms. For instance, large or influential ranchers in the area may warrant a customized set of terms based on their business. Their reputation within the community for paying back accounts receivable should factor into the credit terms, he says.

With most of its customer base in production agriculture, Fike says Frontier Farm Credit has seen an increase in loans for farmers and ranchers that are expanding. However, that increase hasn’t translated to a greater number of new veterinary customers.

Just like production agriculture, the capital needed to start a new operation from scratch can be intensive.

“With farming, like you’ll see in a vet practice or any other business, it can be hard to start on your own without having family involved working on a part-time to full-time basis because it’s so capital intensive,” Fike says.

For both lender and veterinarian, the goal in taking on debt is the additional profit or efficiency gained from what is acquired. Veterinarians should not be afraid to discuss the cost versus the benefit.

“Sit down with your lender and really evaluate what they are looking at or why,” Fike recommends. “It’s hard to pencil out the profit potential from acquiring a new piece of equipment; how much efficiency is your operation going to gain from that? As lenders, we know agribusinesses have to keep up with technology if you want to be competitive. Maybe you can’t see a piece of equipment paying for itself, but it may help keep or add to your client base. Most lenders can help evaluate those needs and help set up financing terms that will not hurt their cash flow.”

Dr. Hobrock notes another important consideration in financial partnerships is the opportunity cost for the practice owner’s time. When he started his practice, the resulting loan required strenuous reporting requirements.

“Initially, I had to take what lending I could get,” Dr. Hobrock recalls. “As our business grew, I needed more time to be a vet and less time for financial reporting.”

After refinancing with Frontier Farm Credit, he says the process was much easier and took 11 years off his payment schedule. Focusing more of his time on his clients is critical to his current and future success.

“It’s important to focus on client care,” Dr. Hobrock says. “We’re very client focused. The reason we succeed is that we care for our clients. They know they’re our source of income.”


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