Choosing a practice lender and banking partner for your acquisition, startup or any other practice-related transaction is a very important decision. More than just rate, the relationship you are creating with your lending bank, the support and services they provide, and how their structure allows you to focus on what you do best — patient care — rather than worrying about business operations are incredibly important factors that should be considered.
Finding a lender that has the best program AND will provide you the best support is likely the best course of action as you make this important business decision. Rate is important, but understanding the big picture will help you make the best choice for your needs.
The most important factor to consider when choosing a practice lender and bank is your personal, professional and practice needs. Before diving into the search for your lender, we recommend considering these questions:
The answers to these questions will guide you throughout this decision.
Many individuals in search of a loan will focus solely on rate, but knowing other aspects of the loan and lender is incredibly important.
The five primary components of a loan we recommend considering include: term, amount borrowed, monthly payment, structure (balloon versus fully amortized/variable versus fixed rates, etc.), and rate.
Another important factor is the impact of the prepayment plan, which essentially marries you to your lender or bank with a penalty should you choose to want to move banks. Many practice lenders lock you into their program for up to five years with a prepayment penalty to recoup the interest they need to earn on their initial low-rate loan.
The last thing you want to do is choose a loan today based on rate, when that lender may not be equipped to fulfill your next need, causing you to get hit with a prepayment penalty because you are forced to change lenders to handle your new need.
This series of events could negate your rate-based decision and may cost you even more money than what you saved in the first place with the lower rate.
Picture buying a house and wanting to get the lowest rate on your home loan. Then, that home loan lender also requires you to sign up for all your utilities (electrical, gas, garbage, etc.) with them, as well.
Would you just worry about the rate on the loan without understanding the other costs, fees and servicing of the rest of your household first? Chances are, the lower rate of the loan is being balanced out with potentially more expensive utilities, negating your initial savings all together.
Practice lenders and banks don’t just support you with a loan. They are also partners that assist you thereafter with successful practice operation and future growth through additional banking products and services.
Here are some areas of the loan or lender you should consider before obtaining a loan for your practice:
Choosing a loan term can have a significant impact on your rate. Most practice lenders offer 10-year terms, but it is common to also see 12- and 15-year terms as needed, depending on the situation.
When considering home ownership, 30-year mortgages are largely impacted by rate because you take longer to pay that loan back, meaning the total interest paid is significant. But the shorter the term of the loan, the less rate becomes a factor, because you are amortizing the principal balance much more quickly. This is the same principle for practice loans.
For example, every .25% on a $500,000 loan on a 10-year term means an extra ~$62 per month in your payment if you keep it for the full 10 years. This is even less if you pay the loan off early. For many, this extra ~$62 per month is inconsequential.
Taking a slightly higher monthly rate, but getting yourself into a better overall program could be a smarter financial decision in the long run.
A practice loan is about more than just rate because there are many other factors that will affect you financially and even operationally.
Here are some aspects you should consider:
Keep in mind that a lender and bank’s structure and servicing can help you save time and improve efficiency. What is that worth to you and your practice?
How you are serviced, how unexpected needs are dealt with, and ease of contact are important. Time is money — you will have an issue at some point, but knowing your lending partner is ready to help you with those issues is extremely valuable.
An essential part of owning a practice is accepting any form of payment from your patients, including credit cards. This is known as credit card processing or merchant services.
These services are often accompanied by fees that are not always transparent. Some lenders draw customers in with low rates on loans but require the use of their merchant services. Through high fees, these lenders can easily make up for the lower rate, preventing you from reaping the benefits of that low rate.
Consider how a practice lender will support you with future loans. Look ahead before you make a decision to ensure you don’t pick a lender that can’t support your practice with future needs.
Support you may want to consider:
Learn whether your lender is a SBA or conventional lender, as this can affect your term and rates when or if you buy a building.
Another component to understand is a lender’s loan-to-value (LTV) guidelines. These determine how much you would need to put down or finance further in your practice. This assessment of risk can also affect your interest rate, but more importantly, the future cost of this transaction when it’s time for you to purchase a building.
Keep in mind that you will more than likely have to use your practice lender that you chose originally, if you want to finance your down payment because of the prepayment penalties associated with that original loan.
If or when your practice grows, you will want a lender who is able to help you expand your existing practice, build a new building, or buy or start an additional location. Some lenders have loan limits or lack the programs or policies needed to allow growth, restricting your ability to own multiple practices or finance an expansion.
Ask your lender if they can explain what your financials need to look like to open office number one, two, three, four or more. A great practice lender should be easily able to walk you through numbers, goals and what they would want to see and when, in order for an expansion/new office loan approval.
Both expected and unexpected equipment needs may arise, and having a lender ready to address these needs can be incredibly helpful. Understanding the options and terms for these loans can help you know what to expect when the time comes for new equipment and help you choose the best long-term lending partner.
Ultimately, we recommend you don’t just choose a practice lender and bank solely on rate. There are so many other components and factors to review, and every practice owner has a different set of needs.
When deciding on a loan, it is important to work with a true lending and banking partner that can support you today and be able to better support you tomorrow. In borrowing the large sums of money necessary for practice needs, you deserve to leverage that commitment and have a true partner throughout the rest of your time as a practice owner.
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