Tips for selecting a practice lender and bank
By FMA preferred vendor Panacea Financial | Dec. 7, 2023
Selecting a lender and banking partner for your acquisition, startup, or any practice-related transaction is a crucial decision. Beyond just the interest rate, it's essential to consider the relationship you're establishing with your lending bank, the level of support and services they offer, and how their structure allows you to concentrate on your core expertise — patient care — without the burden of worrying about business operations.

You want to find a lender that not only offers the best program but also provides the best support. While the interest rate is a significant factor, comprehending the broader context will empower you to make the most informed choice for your requirements.

Understanding the needs of your practice
In the initial stages, be sure to assess your practice's specific needs. Prior to embarking on your quest for a lender, we recommend contemplating the following questions:

  1. What do you value most in a financial partner?
  2. What are your future plans for your practice?
  3. How do you envision the operational aspects of your practice, both presently and in the future?

The answers to these questions will serve as your guiding light throughout this decision-making process.

What factors other than rate are important when choosing a lender?
It's important to note that there's more to a practice loan than just the interest rate. There are five primary components of a loan: term, loan amount, monthly payment, loan structure (balloon payment vs. fully amortized/variable vs. fixed rates, etc.), and the interest rate itself.

Another factor to bear in mind is the prepayment plan. Many practice lenders lock borrowers into their programs for up to five years with a prepayment penalty designed to recoup the interest they would have earned on their initial low-rate loan.

Selecting a loan solely based on the interest rate without considering the lender's ability to meet your future needs could lead to unforeseen prepayment penalties and offset the initial savings.

Why does this matter?
To illustrate the point, think of it as buying a house and seeking the lowest interest rate on your home loan. However, the home loan lender requires you to bundle all your utilities (electricity, gas, garbage collection, etc.) with them. Would you solely focus on the loan interest rate without first understanding the additional costs, fees, and servicing requirements for your household? Chances are, the lower loan rate would be counterbalanced by potentially pricier utilities, nullifying your initial savings.

Making the decision
When choosing your practice lender, remember that they are not just providers of a loan; they are partners who offer ongoing support for your practice's success and future growth through additional banking products and services. Here are some aspects of the loan and lender to consider before securing a practice loan:
  1. Terms and Rates:
    Selecting a loan term can significantly impact your interest rate. While most practice lenders offer 10-year terms, 12- and 15-year terms are also available as needed. The length of the loan term affects the rate, with longer terms incurring more interest. However, shorter terms minimize the rate's influence, as you repay the principal balance more rapidly.

    For instance, a 0.25% difference on a $500,000 loan over a 10-year term translates to an additional monthly payment of approximately $62 if the loan is held for the full 10 years. This difference may be inconsequential to many, and opting for a slightly higher monthly rate to secure a better overall program could be a wiser financial decision in the long run.

  2. Structure and Servicing:
    A practice loan involves more than just the interest rate, as several other factors impact your finances and operations. Key considerations include whether the lender charges for or restricts deposits or items, additional equipment costs for banking, and charges for extra services like ACH transactions and wire transfers. The lender's structure and servicing can save you time and enhance efficiency, factors that hold monetary value for your practice.

    You're likely to encounter issues at some point, and knowing that your lending partner is readily available to assist can ensure your peace of mind. Efficient servicing, handling of unexpected needs, and ease of contact are all considerations.

  3. Merchant Services:
    Accepting various forms of payment, including credit cards, is essential for any practice. These services come with associated fees, which may not always be transparent. Some lenders may lure borrowers with low loan rates but require the use of their merchant services, potentially offsetting the savings from the lower interest rate.

  4. Future Support:
    Consider how your practice lender will support you with future loans. Look ahead and ensure that your chosen lender can meet your practice's future needs. Areas to evaluate include real estate programs for practice building purchase, whether the lender is an SBA or conventional lender (which affects terms and rates for building purchases), and the lender's loan-to-value (LTV) guidelines, which influence the down payment and future transaction costs.

    Keep in mind that you're likely to have to use your original practice lender for financing your down payment due to prepayment penalties associated with the initial loan.

  5. Equipment Loans:
    Both expected and unexpected equipment needs may arise in your practice, and having a lender prepared to address these requirements can be highly advantageous. Understanding the options and terms for equipment loans allows you to anticipate and choose the best long-term lending partner.

Final thoughts
When selecting your practice lender and bank, don’t base your decision solely on the interest rate. Numerous other components and factors require evaluation, and each practice owner has unique needs.

Be sure to find a true lending and banking partner who can support you today and in the future.

Panacea Financial, the bank built for doctors, by doctors, has lending and banking services designed specifically for you. If you are ready for practice ownership, we are ready to help. Learn more about our loans here.