Debt Consolidation for Physicians

November 28, 2012

As the economy continues 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, banks are beginning to lend again, especially in the less impacted and more resilient spaces.

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 have now 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 practice along with the service of all of your personal needs at home. What I have found in many practices is that at times money is spent to advance the practice’s technology or tenant improvements that cash flow is not taken into consideration as much as the interest rate offered. After years of financing healthcare practices, I 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 affect to this type of cash flow management is that when the hard payments begin to stack the flexible lines like credit cards and business lines only get paid to minimums. The result is the perfect storm of business debt and negative cash flow that 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. 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. Bank of America Practice Solutions offers this type of solution and the following is a real life example of how we changed someone’s life.

Current debt structure including original loan amount, term, rate, balance and monthly payment:

Type
Original Loan
Term (in Months)
Rate
Loan Balance
Monthly Payment
Bank loan
355,000
60
7.90%
$280,000 
$7,181 
Equip Lease #1
75,000
36
9.50%
$42,000 
$2,402 
Equip Lease #2
$45,000 
48
8.70%
$15,000 
$1,113 
0% Interest Loan #1
$15,000 
12
0.00%
$12,500 
$1,250 
0% Interest Loan #2
$9,000 
12
0.00%
$6,000 
$750 
Business Line
$52,000 
revolving
7.90%
$37,000 
$1,040 
Credit Card #1
$12,000 
revolving
12.90%
$9,500 
$240 
Credit Card #2
$35,000 
revolving
8.90%
$22,500 
$450 
TOTALS
$424,500 
$14,427 

The total of all outstanding debt in the scenario 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 and helpless. 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 pay off every debt that this existing and produced a 15 year term at 6.49%. The monthly payment and monthly savings are listed below. I do not think I need to go into detail on how this helped.

 

Type
Loan Amount
Term (in months)
Rate
Monthly Payment
Annual Savings
Bank of America
Debt Consolidation
$424,500
180
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. If for some reason you have moved your practice into this position please contact me and discuss a complete refinance. Many local banks will create a solution for you. Most banks will not have access to a 15 year term but even a shorter term would very likely reduce your monthly expenses and increase your practice cash flow.

Steve Hipson, Bank of America Physician Practice Solutions

steven.hipson@bankofamerica.com

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