5 Ways To Leverage Business Loans for Health and Wellness Clinics

The global wellness industry is estimated to be valued at just under $1.8 trillion and is projected to grow between 5 to 10 percent annually. Despite growing consumer demand, clinics struggle to identify sources of financing required to support the financial demands of an evolving patient care model. Lenders continue to treat healthcare businesses as high-risk within their portfolio of lending products, due to variable patient revenue cycles, insurance reimbursement challenges, and the high cost of operating an innovative practice.

According to a 2024 report commissioned by the British Business Bank, more than 45% of health and wellness clinics in the UK have difficulty obtaining funding. Cited reasons for not accessing credit include lack of collateral, bad credit histories, or inconsistent revenue. To assist with credit denial, it becomes paramount for clinic owners to develop sound approaches to obtain cash flow and favorable loan terms.

1. Leveraging Financial Metrics and Projections

Lenders ask for clear evidence of your clinic’s financial health and growth potential before approving a loan. Financial metrics and projections provide a data-backed foundation that reassures lenders about your ability to repay the loan.

Detailed Financial Projections

Creating comprehensive financial projections helps lenders understand the future profitability and sustainability of your clinic. Your projections should cover the following:

• Revenue Forecasts: Estimate of your expected monthly and yearly revenue based on patient volume, service mix, and market demand.
• Operating Expenses: A breakdown of fixed and variable costs.
• Profit Margins: Projected profit margins to demonstrate how effectively you can convert revenue into profit.
• Cash Flow Projections: Monthly cash flow statements to show how money will move in and out of the business.

Key Performance Indicators (KPIs)

Lenders assess business performance based on specific financial and operational metrics. Highlighting strong KPIs can strengthen the loan application:

• Patient Acquisition Cost (PAC): A low PAC shows that your marketing strategies are efficient and effective.
• Revenue Per Patient: More revenue per patient shows that your services are of value and generate enough revenue.
• Operating Margin: A healthy or improving operating margin shows that your clinic can contain costs effectively and boost profitability.

Why It Matters: Lenders are more willing to lend when they can envision a clear road to profitability and repayment. Presenting well-documented financial information instills confidence and enhances your bargaining leverage for improved loan terms.

2. Building Strong Relationships with Lenders

Building and fostering good relationships with lenders increases the probability of getting approved for a loan and getting a better deal. A lender familiar with and acquainted with your company is more inclined to consider your loan application favorably.

Networking with Financial Institutions

Developing relationships with credit unions, banks, and other alternative lenders builds credibility in the lending market. It is advisable to attend business networking events, finance seminars, and business meetings to meet possible lenders.

Constant interaction with financial institutions will allow you to establish a relationship and demonstrate the potential and reliability of your business. Even when your business may not require finance in the immediate future, such relationships guarantee access to funds whenever required.

Regular Financial Updates

Providing lenders with consistent financial reports and business updates helps build trust and transparency. Key updates can include:

• Quarterly financial statements
• Progress on business goals and strategic initiatives
• Patient volume and revenue trends
• Measures for cost-saving and operational improvements

Informing lenders of your business’s performance demonstrates you are proactive about maintaining financial well-being, thus building their trust in your debt management capabilities.

Why It Matters: Lenders are more apt to provide better terms and faster approvals when they have a good, continuous relationship with the borrower.

3. Utilising Collateral and Personal Guarantees

Although most lenders ask for collateral for business loans, knowing how to use your assets and personal guarantees to your advantage can enhance your approval prospects.

Collateral Options

Collateral reduces the lender’s risk by providing a tangible asset that can be claimed if the loan is not repaid. Common collateral options for health and wellness clinics include:

• Property: If you own the building housing your clinic, you may be able to pledge it as collateral.
• Medical Equipment: High-value medical equipment such as diagnostic machines and treatment beds can serve as collateral.
• Accounts Receivable: Outstanding patient invoices can be pledged as collateral to secure a loan.

Collateral serves as a security for the loan, which can increase the chances of loan approval and even lower the interest rate. Nevertheless, pledging collateral carries the risk of having your property taken if you do not fulfill the terms of repayment.

Personal Guarantees

In some cases, lenders would ask the borrowers for a personal guarantee. A personal guarantee means placing personal assets (e.g., savings or real property) as security for the loan. This is an indicator to lenders that you are confident in your business and prepared to assume personal liability to repay.

Why It Matters: Although personal guarantees increase your exposure, they may also cause lenders to feel more at ease approving more substantial loans or providing more favorable repayment conditions.

4. Exploring Alternative Financing Options

Conventional bank loans are not the sole source of funding. Alternative sources can be more accommodating and speedier in their approval, particularly for clinics with irregular cash flow or minimal collateral.

Non-Traditional Lenders

Online lenders, peer-to-peer websites, and private lenders tend to have more accommodating lending standards than conventional banks. They most often evaluate business operations and future prospects instead of merely collateral and credit history.

For Example: Nucleus provides custom business loans to health and wellness clinics without requesting collateral. This enables businesses to secure funding on the basis of revenue potential and performance of the business rather than asset worth.

Government Grants and Programs

Several government-backed loan schemes and grants are available in the UK, for health and wellness businesses, which include:

• Recovery Loan Scheme: Offers government-backed loans to small corporations or startups, who are affected by economic uncertainty.
• Start-Up Loans: Provides low-interest loans for startups with flexible repayment terms.
• Health and Wellbeing Innovation Grants: Supports businesses investing in innovative health and wellness solutions.

Why It Matters: Broadening funding alternatives can lead to better terms and conditions. Alternative lenders and government-supported programs can offer more flexibility than conventional banks.

5. Enhancing Creditworthiness

Strong business and personal credit profiles increase your loan approval chances and improve the terms offered by lenders.

Credit Score Improvement

Lenders assess your credit score to determine financial reliability. To improve your score:

• Pay bills and outstanding debts on time.
• Reduce credit card utilisation and outstanding balances.
• Avoid opening multiple new credit lines within a short period.
• Maintain a good debt-to-income ratio.

Credit History Documentation

Maintain detailed and accurate records of your business’s credit history, including:

• Loan repayment schedules
• Credit card usage and balances
• Supplier payment records
• Financial performance reports

Demonstrating a history of responsible credit management reassures lenders that your business is capable of managing debt effectively.

Why It Matters: A strong credit score and clean credit history not only increase loan approval chances but also improve your negotiating position for lower interest rates and better repayment terms.

Conclusion

Obtaining a business loan for a health and wellness clinic goes way beyond having a good business plan. It requires carefully navigating financial management, developing good relationships, and knowing your options for financing. With a solid financial forecast, building rapport with lenders, and working to increase credit, you can tip the scale from “no” to “yes”.

Nucleus specialises in helping clinics find funding through lending options designed specifically for the clinic without collateral. If you are ready to step up your health and wellness business, reach out to Nucleus today to learn how we can help you accomplish your business needs with helpful options and flexible loan solutions.