Deciding when to pursue a business loan refinance is an important consideration for doctors. It's not to be taken lightly but here are steps to make the process easier to understand.
For doctor loan refinancing to make sense, it has to benefit the practice. Can a new loan with more advantageous terms save the doctors enough money so that they can reinvest in their practice? Will the doctors be able to acquire new medical equipment or provide different services to their patients? If the benefits are real, then refinancing is the right solution.
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In some refinancing situations, doctors can work with a lender who provides a suite of advisory services that can also add value to their medical practice. They may be able to enhance their financial profile and improve their credit. That could make a difference in the long run.
Here are two hypothetical scenarios to help doctors who are considering whether to pursue a business loan refinance for their practices:
In the first example, Miller Radiology is currently making $28,000 a month in net revenue. About $5,500 of it is earmarked for debt service, and $2,700 of that amount goes towards interest payments. The practice wants to reduce their debt level to around $4,500 a month, and their interest payments to $2,000. But within the next 60 days Miller will face a balloon payment of $20,000 and a potential increase of their interest rate, which threatens to put the practice in the red by the end of the year.
Because Miller Radiology is only two years old, the practice uses short-term financing for equipment purchasing and payroll, but it wants to establish a cash reserve and come up with a better way to manage their debt and improve their financial profile. Their current lender, ABC Financial, has not come up with a cost-effective and efficient way to reduce Miller’s debt expenditures and enable the practice to invest in new technology. The practice would like to acquire a new nano-machine-based system that involves digitally enhanced MRIs and the technology to repair certain types of cell damage.
But Miller Radiology has to come up with the financing in order to acquire this radical new treatment. Fortunately they turned to 123 Financial, which happened to be founded by a former research doctor who had gone into medical financing and understood the potential behind the new nano-machine treatment. 123 Financial not only renegotiated Miller Radiology's debt load to around $3,800 a month and $1,500 in interest payments, they also helped the medical practice avoid the pending balloon payment and kept their interest rate fixed for two years.
Thanks to 123 Financial, Miller Radiology was able to start offering the new nano-machine treatment at their offices. 123 Financial also restructured Miller Radiology’s financial affairs by advising the company to re-organize its incorporation status. Along with savings from the reduced debt service costs, Miller Radiology was able to establish a comfortable cash cushion to pay for both its veryday equipment needs and its payroll, instead of having to rely on short-term financing.
By working with 123 Financial, Miller Radiology reaped many benefits from refinancing its outstanding business loans. The practice was able to expand to several offices across the area and establish affiliations with the local university and other radiology-based companies in its field. It improved its finances and its overall financial profile, putting the medical practice on solid footing.
In this scenario, Seaside Pediatrics could count on a steady stream of sick kids throughout the school year. Since it is the only practice in close proximity to a few school districts and a local hospital, it has grown by leaps and bounds during its first year and now it must invest in new facilities and equipment to keep up with the overwhelming demand. But Seaside Pediatrics must also deal with the inherent seasonality of its practice.
But during the summer months, the traffic dries up as families in the area go away on vacation or send their children to camp. In July most of the remaining local population skews a lot older when a biker rally is held that is anything but family-friendly and those seeking medical attention are more likely to have fallen off a motorcyle than off a jungle gym. For Seaside Pediatrics, business can drop off as much as 70 percent.
The medical practice wants to open an office nearer the hospital, move to digital-based EMR and EMH recordkeeping, reorganize its operations, and allow its hardworking staff to enjoy the perk of taking two weeks of paid vacation. With that in mind, Seaside Pediatrics is considering a short-term financing option that will help them resolve their outstanding business loans and move forward.
Enter Turtle Capital, which stepped in to help the medical practice accomplish their expansion and improve their financial situation. Turtle enabled Seaside Pediatrics to secure a lease on a property two blocks from the hospital, and consolidate the payments from the lease on the new property and any existing principal into one. Interest from the outstanding loans were restructured into a separate line of debt and refinanced at a lower rate. As a result,the practice reduced its interest payments by 35 percent. What's more, Turtle Capital even allowed a moratorium on interest payments from June to September to account for the seasonal nature of the practice.
With Turtle Capital’s help, Seaside Pediatrics expanded its capabilities, digitized its practice, and let its staff enjoy some time off to come back refreshed. Best of all, it restructured its debt to get through the summer doldrums. Specialization is as important to medical lenders as it is to medical practitioners, so be sure to work with a lender who best understands the needs of your medical practice and your patients.