Business Loans for Behavioral Services
The behavioral health market has boomed during the pandemic, growing 11.3% in 2020. Total market size is $68.8 billion, projected to grow to $99.4 billion by 2028. The market has benefited from the switch to telecare, which has reduced costs for some.
The elderly and disasbled services industry had projected growth of 3.7% in 2021 to $61.9 billion. There are 139,784 businesses providing these services, which range from home health care to drop-in centers. While the industry isn’t concentrated – most businesses have less than 20 employees – it faces more geographic restrictions on growth than behavioral health.
With strong growth predicted for both segments, now may be the time to start your own home healthcare service for the elderly, expand a business, or open a counseling practice. There are many factors to consider when taking a step out on your own or expanding an existing business, but one of the most important is funding. How will you pay for your business plans?
For many small business owners, borrowing capital helps them realize their dreams. But before you apply for a loan, here’s what you need to know.
Questions to Ask Before Borrowing
Lenders and banks often specialize in certain borrower types, industries, and loan sizes. Knowing the answers to these questions can guide you to the best lender and loan for your business needs.
Why do you need to borrow?
Small business owners borrow for a variety of reasons – whether it’s because they need to pay their employees but don’t have the cash on hand, or to invest in marketing a new business. Sit down and make a plan for any funds you borrow.
Putting together a complete business plan – from licenses to rent on a daycare center – helps you fully think through your project. You can identify any areas where you might need extra cash. And it can lead to the next question.
How much money do you plan on borrowing?
When borrowing for a specific purpose it’s important to borrow the full amount. If you run out of funds during renovation, it could delay the opening of your new senior center. Failing to make payroll one week could lead one of your best home aides to look for work elsewhere.
After you know why you plan on borrowing, add up all your projected expenses to get the total amount to apply for in a loan. Lenders offer loan products with set lending ranges – anywhere from $10,000 to $2 million. If you need a loan for $50,000, spend your time wisely and apply with a lender that you know works in that range.
How long do you need to use the funds?
A general rule of thumb when borrowing for a small business is that your loan’s term should match how long you’ll receive benefit from the borrowed capital. If you’re taking out a working capital loan to pay rent and utilities for three months, you don’t want to still be making payments on it in two years.
Banks and traditional lenders prefer to lend for longer periods of time – think several years versus several months. This allows them to maximize their profits. If you only plan on using the funds for a short period, look to an alternative lender to fill your funding needs.
What can you afford to borrow?
If you don’t have one already, now is the time to put together a budget. Make reasonable predictions about growth in both revenues and expenses, and then calculate a potential loan payment. Can your business’ cash flows extend to make on-time payments?
A loan’s payment consists of interest on the borrowed capital, a portion of the capital, and any fees. If you have a shorter repayment term, you have less time to repay the loan and will have a higher monthly payment. If the predicted loan payment on the capital you plan on borrowing would hurt your business’ cash flows, you have a few choices.
For some businesses, a large, monthly payment can be difficult. This is particularly true if the payment date coincides with another large expense, such as rent. Traditional lenders prefer a one day a month lump sum payment, but alternative lenders offer daily, weekly, and bi-weekly payment options. Consider how this might positively impact your cash flows.
You can also borrow less, which reduces the amount you have to repay and thus your loan’s payment. Take another look at your plans and identify areas where you could scale back.
How long have you been in business?
Traditional lenders prefer a safe bet – a business that has a long history of success. When you apply for a loan at a bank they could ask to see several years of tax returns and bank statements. Without a long business history, it’s hard to have a loan approved.
Alternative lenders look at other factors when approving loans, however. They will extend credit to a business with just two months of history as long as you have sufficient revenues.
Do you have good credit?
Credit bureaus calculate a credit score based on your current debt, debt to income ratios, and past payment history. If you’ve declared bankruptcy in the past, made late payments on a credit card, or defaulted on a loan it will drag down your score. Before applying for loans, find out if you have good credit.
Banks prefer to work with borrowers who have credit scores of 720 and above. Alternative lenders will fund loans for borrowers with scores as low as 530. If you have bad credit, it will impact where you can get funding.
The Best Business Loans for a Behavioral Consulting or Special Services Business
Working capital loans
There can be a lag between when your business renders services and when insurance companies, Medicare, or Medicaid, reimburse you. Even with direct pay clients, it can take weeks to receive funds. In the meantime, your bills come due.
Working capital loans pay daily operating expenses such as rent, utilities, and payroll. Meant to help business owners out in a pinch, working capital loans have a shorter repayment term. Working capital lenders know that you likely need the money to smooth over a temporary cash flow issue and will be able to repay the loan quickly.
A working capital lender can process your application and fund the loan in as few as 24 hours, making them the perfect choice for emergency needs. To qualify, small business owners need a credit score above 650 and the business must have minimum monthly revenues of $10,000.
A short term loan is best to fund a smaller project – such as investing in new scheduling software or a training seminar – which will be completed within a year. The repayment periods for short term business loans are between one to three years.
To qualify for a short-term loan you need to have been in business for a year and have a minimum credit score of at least 650. Your business’s minimum monthly revenues must exceed $10,000, so consider applying after several good months of on-time payments. You can borrow as little as $15,000 up to $750,000, and there are no prepayment penalties.
Fast Business Loan
A fast business loan can fund almost any size project – such as buying a handicapped accessible van or remodeling and opening a new adult daycare center. Lenders can fund immediate business loans in amounts between $10,000 to $2 million. Because these loans are meant to fund any project they can have repayment periods up to three years or more.
While borrowing a larger amount leads to a higher monthly payment, the longer repayment term can ease some of this pain. It’s easier to manage cash flow while you wait for the project to begin generating revenues. Interest rates range from 12% to 45%, depending on your credit score. You can qualify if you have a credit score above 530 and minimum monthly revenues of $10,000.
Bad Credit Business Loan
Small business owners with a credit score below 720 still have options – apply with lenders who offer bad credit business loans. Alternative lenders extend credit to businesses who might find it difficult to work with banks. You will pay a higher interest rate than on a bank loan because you represent more risk to the lender. With a low credit score, they have less assurance that you’ll repay the loan and charging more for the loan helps mitigate that risk.
If you have a credit score at or above 500, but minimum monthly revenues of $8,000, you can still receive funding with an alternative lender. Repayment terms are anywhere from 2 to 18 months and loans have interest rates of 12% to 45%.
Borrowing money can be a wise business decision if it helps you take advantage of industry growth and positions your business for success. If it’s time to apply for a loan, reach out to a loan specialist at Shield Funding. We can help you find the best loan product, rates, and terms for your behavioral consulting or special needs business.