5 Mistakes Physicians Make When Choosing a Loan

Medical practice borrowing is on the rise following the emergence of new medical technology and increasing practice demands, according to an American Medical News report. While physicians do not have trouble qualifying for loans, they often do not seek the most beneficial terms and service, the report said.

Experts identified common, avoidable mistakes physicians make when borrowing money:

  • Too many physicians go to the nearest bank for a loan without shopping around. David Shuffler, a consultant and former banker based in Asheville, N.C., suggested talking to at least three banks.
  • Physicians use the wrong borrowing tool and assume that they have the best possible terms on their debt, said Mike LaPenna, principal at the LaPenna Healthcare Group in Grand Rapids, Mich. For example, they may use lines of credit to purchase equipment when it would be wiser to pay on an installment loan or lease the equipment.
  • Physicians borrow money to cover operating costs. "Borrowing money to make payroll ¬— ¬that's a bad sign," said Matthew Parker, vice president of commercial lending for Coffman Capital, a health care lender based in Oldsmar, Fla. "You probably need to cut payroll, so you've got a choice to make."
  • Physicians must "do the math" to make sure that any new technology is going to pay for itself before it needs replacing, said Mr. LaPenna. Or, if a physician borrows to purchase a new diagnostic device, the practice should calculate how much income it will generate.
  • If a physician leaves a practice, he should ensure that he will not be liable if the practice defaults on a loan. "Some debt instruments offered by the bank hold the physician to a level of responsibility for repayment that is way overboard," said Mr. LaPenna.

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