Most veterinarians and investors wishing to purchase a veterinary practice will need to line up sufficient financing as a condition of completing the deal. These financing arrangements are typically the product of careful negotiations between the borrower and lender, memorialized in detailed contracts that often contain confusing legal jargon. Regardless of what type of financing you’ve arranged, it is imperative that you understand the terms of the agreement and what they mean for your practice.
Turn to Mahan Law. We can help you not only line up and negotiate your financing but better understand the terms of the agreement into which you are about to enter.
Potential Financing Options
There are multiple ways to finance the purchase of a veterinary practice, each with its own set of benefits. A few of the most common financing options are:
- Self-financing: Although the upfront costs of buying a practice usually foreclose the possibility of self-financing, it is still an option. If you have substantial savings or other means, such as investments that can be easily liquidated, you could finance the purchase yourself. A few benefits include no debt or interest payments, control over the money, and less financial risk.
- Small Business Administration (SBA) loan: The SBA offers loans which can help individuals purchase veterinary practices. The loan money can serve a number of purposes such as startup capital, business expansion, and even the purchase of equipment and assets. SBA loans usually have flexible terms, reasonable down payments, and competitive rates.
- Bank loan: Although a traditional loan from a bank tends to have a higher interest rate, the ultimate percentage may be based on various factors. If you have a strong relationship with your bank, for instance if you own several accounts and substantial collateral, you could bargain for a lower interest rate and better terms. These loans can often be customized to meet the exact needs of the veterinarian or investor who is purchasing the business.
- Partnership financing: Many buyers choose to form partnerships with other individuals to better combine their resources, and this is no less true with respect to financing. Technically, this is not a financing option, but it does allow multiple partners to pool their money. Some advantages include shared risk, ease of obtaining financing, and access to capital.
Legal Implications of Each Financing Option
Although the different financing strategies have their own advantages, there are important legal considerations with each one. You should discuss your financing options with an experienced attorney who assists with the purchase of veterinary practices. Your attorney can discuss the following legal matters:
- Self-financing: Although the risks are fairly low if you are financing your own purchase, you may be tempted to forego legal counsel and instead execute the transaction on your own. In doing so, you might risk making a poor investment decision. Also, if you decide to liquidate investments or other resources to provide the financing, you may incur tax consequences.
- SBA loan: Defaulting on an SBA loan could result in the administration initiating legal action against you, which may lead to asset seizure. Any collateral that was pledged to obtain the loan could be forfeited. You will also be personally liable for repaying the money even if the business fails.
- Bank loan: The legal and financial risks of defaulting on a bank loan are similar, including the forfeiture of any collateral and the risk of personal assets being taken to satisfy the terms of the loan. You can expect collections and legal action if you fail to make your payments, and late fees if you do not make them on time.
- Partnership financing: Any time you are working with a group of other individuals to finance a business, there is the risk of legal issues. You should form a partnership agreement to manage the financing, purchase, and operation of the practice, but a partner may still breach the contract. If you and the other partners are not on the same page about how to run the veterinary practice, you can expect legal disputes.
Count On Mahan Law For the Legal Guidance You Need
Lining up financing to purchase a veterinary practice may seem daunting, but having seasoned legal representation will make the process easier and less stressful. Let Mahan Law assist you with all aspects of financing. Give us a call or complete our online form to begin working with us.