When
you are ready to expand or update your practice, or start one from the ground
up, you’ll most likely need to borrow money.
TMA’s
practice consultants have worked with many physicians to create a financial
proforma — a realistic projection of the practice’s start-up costs and finances
over a specific period — to take to the bank when applying for a loan. The
question arises: Which is better, a conventional bank loan or a Small Business
Administration (SBA) loan?
“We
typically advise our physician clients to pursue conventional loans first,”
said TMA Associate Vice President Heather Bettridge, a practice consultant.
“While an SBA loan’s interest rate may look favorable on the surface, there are
hidden costs in addition to a down payment.”
Conventional
or SBA, you will be applying for a commercial loan. SBA doesn’t lend money
directly to small business owners. Participating banks lend money to qualified
applicants under SBA guidelines. So when you
apply for an SBA loan, you are actually applying for a commercial loan.
The federal government partially guarantees SBA loans and sets interest rate
ceilings.
Here
are the drawbacks of an SBA loan, according to Ms. Bettridge:
Extra work: Because both SBA and the lending
institution have to approve the loans, applications involve an extraordinary
amount of detailed, time-consuming paperwork.
Extra wait: Because of the above, processing
the loan typically takes a long time — often several months before you have
cash in hand.
Extra fees: SBA loans are assessed a
guarantee fee of zero to 3.5 percent of the guaranteed portion of the loan. SBA
can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent
on loans of more than $150,000. So, for example, on a $150,000 loan to be paid
over 10 years, SBA could guarantee 85 percent, or $127,500, which is
subject to a 3-percent guarantee fee of $3,825. The fee amount generally is
added to the loan. Some physicians also incur additional legal and
documentation fees in submitting the required paperwork.
“When
applying for a loan, you should also factor in lost income due to wait time, in
addition to the extra fees,” Ms. Bettridge said. “We find that conventional
loans — or lines of credit for short-term working capital — are typically more
advantageous for physicians."
TMA PracticeConsulting
works with physician practices of all sizes and types to meet their practice
operations needs. Contact TMA Practice Consulting today for more
information at (800) 523-8776 or email practice.consulting[at]texmed[dot]org.
Published Feb. 28, 2017
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