The decision to expand your practice may be the most significant choice you’ve made since you chose to go to medical school. And like medical school, it is both a financial and a career commitment. When it comes to financing your new location, the choice may not be as obvious as you think. One thing is for sure: don’t sign on the dotted line until you’ve done your homework.
Medicine is a science, and practicing medicine can sometimes be an art. But running a medical practice is a business. Hopefully, you’ve made the decision to expand your practice based on solid business considerations. You studied the market, evaluated your patient base, and defined your long-term plans when choosing a new location. Now it’s time to secure financing for that exciting new space.
You need to consider many factors when deciding how much to borrow and where to get the financing—and surprisingly few of them are strictly medical. “This is when you sit down with your practice attorney and accountant,” advises Kenneth Hertz, FACMPE, principle consultant at Medical Group Management Association (MGMA) Health Care Consulting Group.
First, be comfortable with how much debt you are willing to take on. “Spending a lot of money servicing debt may mean your pay goes down,” Hertz says. Be sure you plan for that possibility.
You also need to consider unexpected expenses that might arise. And unfunded mandates, such as electronic health records, can complicate even the best-laid plans. With all the uncertainly in the healthcare market these days, it’s best to be prepared for anything. If possible, try to also factor in what equipment purchases or other large expenses you’re anticipating in the next few years—and maybe a little extra for those unplanned expenses.
When it comes to finding a lender, the obvious first stop would be the bank you normally do business with. But before you commit, be sure you’ve considered all your options. “Medical practices are generally considered a good risk,” says Brennan Cantrell, commercial health insurance strategist for the American Academy of Family Physicians (AAFP). “You’ll probably find the best deal by shopping around.”
On the other hand, with so many changes and unknowns in healthcare these days, lending institutions must be careful. And so should you. That’s why you need to consult your attorney and accountant, and carefully weigh your options. Be sure to share all your planning and preparation with the lending institution, too. It will go a long way toward reassuring lenders that you are a good risk.
Seek out and heed good legal advice when it comes to structuring the loan. Depending on how your practice is set up, some loans may require that practice partners share in the liability if the practice defaults on the loan. However, lenders generally offer a variety of options and are happy to work with you. Just make sure you fully understand the terms before you agree to them.
If you haven’t done this already, this is the stage where you should consider hiring a consultant, Hertz says. The Small Business Administration is a good place to seek advice as well as backing for loans. Also check with any medical associations you belong to, such as the AAFP or the American Medical Association, for advice and recommendations.
Adding a new location to your practice exciting, but it is also serious business. “This is the time to do due diligence and be rigorous,” Hertz says. You won’t regret taking the time to get this right.