Do you need better Cash Flow in your Medical or Dental Practice? Look to a specialized practice loan to help!
As the economy continues to work its way back, we are beginning to feel the tightening up of the American consumer, and ultimately your practice. Although the patient may still be coming to your practice, they may or may not be taking the more costly approach to care. In business, cash flow is paramount. When patient visits become less frequent and procedure mix is not what was anticipated we can begin to feel the crunch between living expenses and business cash flow. Fortunately, some banks are willing to offer specialized lending for medical practice financing, especially in the less impacted and more resilient spaces. 100% financing might be possible and specialized repayment schedules can really help a physician or dentist to get their practice off of the ground.
We have all heard the term “debt consolidation” before and many of us may have associated negative feelings toward the process because of what happened in the mortgage industry. Balloon payments and variable rates left many in difficult situations and what initially appeared to be a good deal later was found to be detrimental.
Cash flow is the amount of income available to pay all debts at your medical or dental practice along with the service of all of your personal needs at home. What we have found in many practices is that at times money is spent to advance the practice’s technology or to improve the office. When this is done, cash flow is commonly not taken into consideration as much as the interest rate that is being offered on the debt. We have found that many doctors decide to take shorter term notes, lease specials or zero interest programs that only last for 12 to 24 months. Over time these types of loans begin to stack up and the payments can become too much to handle. The compounding effect of this type of cash flow management is that when the higher payments kick in the physician or dentist commonly ends up using other flexible lines of credit like credit cards and business – then these only get paid as minimums on a monthly basis. The result of this is the perfect storm of business debt and negative cash flow – this will create stress on the business and even more stress at home.
The solution to this type of problem is to talk to your banker about a complete business debt consolidation through a medical practice financing program. Consolidating all of your debt into one longer term note with friendly prepayment policies is the decision that could not only change the perspective at your office but also lighten things up at home. There are banks that offer medical practice financing solutions that can help to resolve this real life example and our company helps to source physicians and dentists to these programs. We work with all of the banks that offer specialty financing that people just might otherwise miss.
Current debt structure including original loan amount, term, rate, balance and monthly payment:
|Type||Original Loan Amount||Term (in months)||Interest Rate||Loan Balance||Monthly Payment|
|Equipment Lease #1||$75,000||36||9.5%||$42,000||$2,402|
|Equipment Lease #2||$45,000||48||8.7%||$15,000||$1,113|
|0% Interest Loan #1||$15,000||12||0.0%||$12,500||$1,250|
|0% Interest Loan #2||$9,000||12||0.0%||$6,000||$750|
|Credit Card #1||$15,000||Revolving||12.9%||$9,500||$240|
|Credit Card #2||$35,000||Revolving||8.9%||$22,500||$450|
The total of all outstanding debt in the scenario above is $424,500 with a monthly payment of $14,427. This is real life and real life comes with stress, not only on a business, but also personally; this client has to feel overwhelmed. The practice was a really nice operation with collections over $750,000 and income of $227,000 but the debt payment totaling $173,124 a year was smothering the doctor and could be felt throughout his life.
In this case we were able to match him with a bank where he then was able to pay off all of the listed debt and produced a single 15 year term loan at 6.49%. The monthly payment and monthly savings are listed below. I do not think we need to go into detail on how this helped.
|Type||Loan Amount||Term (in months)||Interest Rate||Monthly Payment||Annual Savings|
|Bank of America Practice Solutions Debt Consolidation Loan||$424,500||18||6.49%||$3,696||$128,777|
Let’s take a step back and realize that the best prevention and solution for this type of scenario is to consider cash flow before moving forward with any purchase. Look at cash flow effects. Think about how a 24 month note could become an issue later.
If for some reason you have moved your practice into this position please reach out to us at doctorpracticefinancing.com and discuss a complete refinance with the banks that we work with. We can put you in touch with the bank or banks that we believe will give you the best overall deal.
Many local banks will of course create a solution for you. Most banks will not have access to a 15 year term. Even if you use your local bank they might have a 10 year loan – this could still reduce your monthly expenses dramatically and increase your practice cash flow. If your bank is unable to produce the result that you want or you just want to comparison shop with another lender please feel free to contact us today to learn more about medical and dental practice financing.