Tag Archives: Loans for Doctors

Term vs Rate: Which has More of An Effect on Your Pharmacy or Healthcare Practice Cash Flow?

No matter if you operate an independent pharmacy, veterinary, dental, optometry, medical, or other healthcare practice, one question that many clients of US Medical Funding ask is “what is more important for my practice loan, the term, or the rate?” Like most things in pharmacy financing and practice financing, the answer is “it depends,” and it depends largely on what is most important to your specialty. A pressing issue for many pharmacists, veterinarians, dentists, optometrists, doctors, and healthcare practitioners these days is their cash flow. So, today we’ll talk about what has the greatest effect on the cash flows of your pharmacy or healthcare practice!

Define Your Terms: Term, Rate, and Cash Flow

Just to be clear what we are talking about… let’s have a quick review of some financing vocabulary. The term refers to the amortization of your loan, or the schedule that you make your payments on. Shorter terms are usually associated with higher monthly payments. The rate refers to the interest rate, or how much extra you will pay over the life of the loan. Many people think the interest rate is the most important thing, but there are many factors involved. Finally, your cash flow refers to the cash that moves in and out of your business.

A Delicate Balance

In general, longer terms go with higher interest rates. On the other hand, longer terms often go with lower monthly payments—meaning more cash in your business bank account each week. This is because your pharmacy or healthcare practice lender takes a bigger risk by not asking you to repay the debt as quickly. You will often end up paying more over the life of the loan but will have more cash on hand for your business when you need it most. After all, if you could pay cash for your business debt, you wouldn’t need to pay a lender at all! If you choose a loan with a shorter loan term, your rate is likely to be lower, but your monthly payments higher. You will be able to pay your debt off sooner and may save some money over time. However, you will be obligated to pay a higher payment each month, reducing your cash flow. So, with rates being as low as they are today, depending on what you are looking to accomplish, you may want to take advantage of the longest terms available and grow your business. Today money is “on sale” and cash flow is king!

Other Factors

Rate and term are not the only things that are important to consider! Some loans have “balloon” options, where the rates or terms may change, and others lock you into their terms with strict covenants and restrictions on extra principal payments. When your pharmacy or healthcare practice takes off and earns enough to pay the loan back in a year or two, you may still be held to the original interest amount, just like if you paid it back over many years. If you want the option to pay your loans off early without extra prepayment penalties, sometimes a loan with a slightly higher rate would be better.

Now that you have this information, how can you choose which is more important? The answer all depends on your unique needs. Consider what factors are most important and talk your decisions over with an expert in pharmacy or healthcare practice financing. US Medical Funding has helped so many pharmacists and healthcare professionals start or acquire their practice. We would love to help you find the best financing solutions as well!

Avoid These Mistakes and Realize Strong Returns with Your Pharmacy or Healthcare Practice Start-Up

If you are starting up a healthcare business, such as an independent pharmacy, veterinary hospital, dental or optometry practice, you probably have two main goals in mind: Providing skilled services to your patients and earning enough profits to enjoy a comfortable lifestyle. After all, your business is your income! So how can you ensure a strong return on your investment when starting-up? Avoid these pitfalls and you’ll be off to a great start!

Taking on More Debt Than Your Cash Flow Can Support

By far, the biggest challenge that pharmacy and practice financing experts run into is owners and practitioners who have taken on more debt than their revenue and cash flow can reasonably support. It takes time to build revenues. For example, after your first year of ramping up, if you forecast that your start-up will produce $500,000 in revenue year 2, don’t borrow $750,000+. In other words, do not over leverage yourself. Nobody wants to be pessimistic but be conservative with your projections. Depending on what type of practice you are starting-up, be prepared for a 12- 24 month breakeven period. Carefully analyze your demographics, the competition, and the costs of starting-up in the location you choose. Be certain to have a sufficient amount of financing available to reach your breakeven point.

Not Working With a Specialized Lender in Your Particular Field

If you’re a pharmacist, veterinarian, dentist, optometrist or a medical doctor in a specialized field, make sure to engage with a pharmacy or healthcare related lender experienced in your particular space. There are specialized lending programs and loans out there specifically for independent pharmacists and healthcare professionals. Working with a lender who is well-versed in this area can be a major benefit and can be the difference in your success.

Ignoring Key Parts of Your Start-Up Budget

While we cautioned earlier on the risks of taking out too much debt, make sure you have enough financing to cover important parts of your start-up pharmacy and healthcare practice budget. Do you have an adequate amount earmarked for marketing expenses, inventory, staff, etc.? While you need to build your patient base, not having enough working capital to reach breakeven can be the difference of success and failure. What about regulatory compliance and technology? Make sure your start-up is strategically planned in all areas. Good planning will reap major rewards!

Ignoring the Long-Term Plan for your Pharmacy or Healthcare Practice

Speaking of that strategic plan, what is the long-term goals for your pharmacy, veterinary, dental, optical, or medical practice start-up? How will you continue to finance your operation while you grow your business? What do you need to do, and how much do you need to borrow when your business starts rapidly filling scripts, seeing patients, and growing revenues quickly? How much additional inventory do you need on hand to keep up with demand? With a pharmacy or medical practice for example, it’s a critical balancing act with having enough cash flow to cover expenses while waiting for insurance reimbursements to come in. It may seem like a distant future when you are starting up, but prepayment restrictions, balloon payments, or penalties for early principal payments can catch up to you. Unless you are an expert in finance, consider working closely with a pharmacy or healthcare practice lending expert from the very start! When you choose the right lending partner, you will give yourself the best chance for success! Call US Medical Funding today to get the best assistance with your pharmacy or healthcare practice financing needs!