Financial Preparedness, Loan Management

Five mistakes physicians make when borrowing money

July 21, 2014


Borrowing is increasingly common for medical practices. But some physicians mistakenly borrow in ways that end up backfiring or, at a minimum, keeping their practices from fully benefiting from the capital.

Experts differ on which kinds of mistakes are most important to avoid, but the most common fall into some broad categories:

1. Failing to shop for a banker

"Doctors need to interview banks, which is kind of a foreign concept sometimes," said David Shuffler, a longtime banker who has arranged hundreds of medical practice loans. Shuffler advises talking to at least three banks.

Dave Kaneda, vice president and regional sales manager for Wells Fargo Small Business Administration Lending,1 agreed that the choice of a banker is possibly the most important part of the process.

Said Kaneda, "Seek out a bank with as much experience as possible lending to medical practices, and if you are looking to take out an SBA-guaranteed loan, the banker should have experience handling the complexities of SBA lending."

2. Using the wrong borrowing tool

Every situation is best met with a specific borrowing tool, but experts say some physicians assume they should use just one – a line of credit or a credit card, for example.

"The best piece of advice I could give is to use long-term debt for long-term needs and short-term debt for short-term needs," Kaneda said. Long-term debt is generally defined as any loan or obligation lasting more than one year.

3. Borrowing to cover operating costs

"Borrowing money to make payroll – that’s a bad sign," said Matthew Parker, vice president of commercial lending for Coffman Capital in Oldsmar, Florida. "You probably need to cut payroll, so you’ve got a choice to make."

4. Not doing the math

No one is arguing that constantly evolving medical technology can’t enhance efficiency, and sometimes save money or create income while helping promote best outcomes. But it’s important to do the math and make sure a shiny new diagnostic or therapeutic device will pay for itself before it needs replacing.

5. Failing on financing paperwork

A physician leaving a practice should make sure he or she is not going to be liable if the practice defaults on a loan.

It’s normal for loan terms to include a "joint and several" clause, which makes each practice partner individually liable for a loan in the case of a default. The mistake is assuming that leaving the practice means you’re also free of that liability. Physicians should pay close attention to whose name is on the paperwork.

1 Wells Fargo offers discounted financial services to physicians through the American Medical Association (AMA) MVP Program.

Based on: www.amednews.com/article/20120409/business/304099975/4/, April 9, 2012. Used with permission.

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