Naturally, you will want the lowest interest rate you can get.Consider using the prime rate as your basis for making this judgment. A great loan would be 2 points above prime. Currently prime is 3.25%, so a loan at 5.25% would be very good. Most lenders will charge 2-3 points above prime. You can determine what the prime rate is by going to http://www.bankrate.com/rates/interest-rates/wall-street-prime-rate.aspx
There is a relationship between the term of the loan and the interest rate charged for the loan. Shorter term loans have lower interest rates. The standard business loan for a practice startup has a term of 5 to 10 years. Rates on ten year loans will be higher because there is more risk associated them. There is a longer period in which the business owner could default, and there’s the rate risk the bank assumes. Rate risk is higher for longer term loans. The sweet spot is a 7 year term. With a seven year term you will get a competitive rate and also have a payment that doesn’t jeopardize your new medical practice.
Know your worth
You will need to fill out a Personal Financial Statement (download the Word Document) All banks will require this form and it’s easy to fill out. This will help banks decide what type of a credit risk you are. The form will ask you to list assets such as your home and stocks you own along with liabilities you have such as mortgages and student loans. You will subtract you assets from your liabilities to determine your net worth. The more assets you have above your liabilities the better a credit risk you are. If you are better credit risk you will get a better interest rate.
Use your loan wisely
When you make your loan payments, a portion goes to pay the interest and the rest goes towards the principle. It is wise to ask for a period of interest only payments because when you start your medical practice you will be in what’s called a ramp-up period. You will gradually build up your patient panel. The payments you receive for seeing patients will grow as your patient volume increases. You will also not be paid from insurers right away. There will be a 30 to 90 day lag. During the first year it best to pay just the interest on the loan. You will have enough other operational expenses to cover. You should be fully ramped up at the end of the first year and at that point you can begin paying principle as well as interest.
Go to multiple banks simultaneously. There are a few reasons for this. You are shopping for a loan just like you would shop for other big ticket items like an automobile. You need to compare multiple offers to be certain you are getting the best deal. You also don’t want to waste time. If you go to just one bank and spend 4-6 weeks with them only to find out that they won’t offer you a loan or the loan offer isn’t acceptable to you, you now have to start this process all over again with another lender. Meanwhile, a few months has gone buy. Go to three banks simultaneously and get the best loan offer you can.
Always ask for a loan that doesn’t have prepayment penalties. Physician practice startups are good business risks. Chances are you will be able to pay your loan off early. Don’t take a loan that penalizes you for doing this.
Obtaining a medical practice loan is easy, just go in prepared and you will get a better loan!