When the economy is strong, the retail industry experiences growth. However, that extra consumer cash does not always flow into the medical industry. That is because for most consumers, budgeting for healthcare is lower priority, and high deductibles put cost of care out of reach for many Americans. Consumers are more reserved when it comes to healthcare, often seeking the least expensive approach to care.
Medical offices with high overhead and income that falls short of expectations can quickly lead to tough decisions about the practice’s financial future. Debt consolidation has a negative connotation because of what happened in the mortgage industry. Balloon payments and variable rates have now left many in difficult situations because what had initially appeared to be a good deal later turned detrimental.
If your office is carrying a large amount of debt, I recommend talking to your banker about a complete business debt consolidation – rolling debt into a long-term note with prepayment options can decrease stress at the office, and lighten things up at home.
There is no cookie-cutter remedy. In my years of experience serving healthcare practices, I’ve seen many approaches to debt consolidation. For example, some practices invest in advanced technology or make tenant improvements. These loans may carry attractive interest rates but don’t take into consideration the practice’s overall cash flow.
Aggressive short-term loans with attractive incentives like low or zero-interest rates are attractive to some. But these types of loans can stack up over time and the payments quickly become too much to handle. This type of cash-flow management has a negative, compounding effect. When the hard costs begin to stack up, practice owners often tend to make minimum payments on flexible credit sources like credit cards and business lines. Business debt along with negative cash flow creates stress on the business and even more stress at home. Here is an example of how negative cash flow can affect debt consolidation:
Physician-owned practice with annual income of $227,000 and $750,000 in collections. The original debt consolidation agreement had payments of $14,427 mo. / $173,124 annually to pay off $424,500 in outstanding debt. The practice revenue could not support the monthly payments, cover the practice overhead, and provide enough profit for the physician’s own personal financial security.
Before agreeing to attractive interest rates, consider cash flow. Tight cash flow may warrant a complete refinance. If your bank does not have a plan that suits your practice needs, or if you just want to comparison shop with another lender, consider contacting Bank of America for structured practice loans and a suite of loans with longer terms.
Rodney Brand is a Business Development Officer for Bank of America Practice Solutions. He and his colleagues help physicians with new startups, acquisitions, expansions, relocation, and sales.