Tips for borrowing money
When you are borrowing money or leasing new equipment, it is a good idea not to walk into a lender’s office empty handed. Betsy Green, senior vice president of the healthcare banking group in Kansas City for Commerce Bank, offered tips on what you should have prepared in advance.
- If you are new to a bank, have two to three years of the financial history of the practice prepared
- Information about the equipment you are going to borrow like its description and the benefit it will provide to the organization
- Preliminary cost invoices that include delivery and taxes
- Personal financial statements (Green recommends doing them annually as a matter of practice)
- An idea of the length of time you will use the equipment and the length of time you would like to finance it for
Most lenders welcome the business of physician practices, Tuttle said, and “it’s amazing how cheap you can borrow money these days.” Because of these two things, it is imperative to create competition when borrowing money.
Utley recommends talking with two or three banks and letting them know upfront they are all competing. This will allow you to get a better deal and save time from the outset. “Just be mindful of politics, saving money and relationships you have,” he said.
Drill down on every detail and look at things like points, interest rate, term, loan length, amortization schedule, closing costs and origination fees, Utley advised.
“These are all negotiable, and doctors never negotiate this,” he said. “You can get an attorney and have them look it over and negotiate it for you as well. Spending $400 to have an attorney review it to save $5,000 on the loan contract is worth it.”
One final thing to think about when getting a loan is how quickly you want to pay off the debt. Utley advises not to pay it off too quickly. If a practice is rushing to pay off a loan using the group’s cash reserves, they may have a problem if they need to dip into those reserves for emergencies.
It can also cause a tax quandary, Utley said. All of the net income is taxable, and if you are putting it directly toward debt, what will be used to pay taxes?
Tuttle recommends a simple formula: retire the loan at the same rate the equipment will depreciate. If the tax code allows a buyer to write off a piece of equipment for five years, then it should be paid off in 5 years.
“What that does is synchronizes cash flow and creates financial equilibrium,” Tuttle said.