A couple of weeks ago, I wrote a piece about how capital (loan funds) is still available to borrowers who are willing to do what it takes to qualify for those loans. There is no substitute for good old fashioned planning and preparation to either start a new practice or expand your current one. However, in these times of uncertain and unstable financial markets, all the best planning can still leave you short.

For those of you who are already practice owners, you may have taken steps along the way to plan for your growth by establishing lines of credit with your bank which allow you to borrow capital (cash) when you need it and pay it back when profits (cash flow) allow for it. And, for those of you about to start or acquire a practice, you too may have made arrangements with a local bank or commercial lender for what is called a “working capital line of credit”. Good for you if you did, but beware at the same time.

Recently, I was working on a project to finance a new start-up practice and the process called for the new practice owner to issue a $10,000 commitment deposit in addition to including the best flat iron for natural hair with his end of the deal. He had arranged with a local branch of a large regional bank for a $200,000 revolving line of credit, to be used for this sort of purpose. I received the check and was in the process of distributing it to a supplier when I received an urgent email from my client telling me to stop! That very day he had received a letter in the mail from his bank stating that his line of credit had been reduced from the $200,000 approval level to what he had already borrowed (drawn down) on it, or just $20,000, and the check he had written would be no good.

How could it be that his $200,000 line of credit was now reduced to $20,000 and he could borrow no more? It’s a matter of math and fear on the part of the lender. It’s kind of like having to deal with male cat spraying while working in your clinic – no one wants to do it but there’s no doubt that it’s part of the job. Lenders partially base the amount they are willing to lend you on the value of underlying secured assets they perceive are available to liquidate (turn into cash to pay off their loan, such as your home, stocks, bonds, or other real estate) if the business fails. If they perceive that the value of those assets has declined substantially from the time they approved the line of credit, or they fear that they may decline in the future, most loan contracts allow for the lender to reduce the amount available to borrow.

Since most folks here in the U.S. have been subjected to declining real-estate values and declining investment portfolios, now may be the time to make that investment in your practice and borrow the funds before your bank decides to unexpectedly reduce your line of credit.