Paving the way to private practice financing
Five key steps to help physicians secure a beneficial banking relationship:
Health care, finance and brewing are among the fastest growing industries in the metro Denver area, helping to foster the strong, local economy. Of the three, health care posted an impressive 22.6 percent growth rate during the past five years.
Given the rapid growth, many doctors are considering starting a private practice. One of the most challenging tasks in opening a practice is obtaining proper financing, but the below five key steps can help physicians secure a business loan and a beneficial banking relationship:
1. Demonstrate financial stability. Lenders assess an applicant’s financial strength by evaluating credit-handling experience, a personal credit score and determining if they are living within their means. Knowledgeable lenders understand a healthcare professional’s credit score may be adversely impacted by student loan burdens, but a history of timely payments should help alleviate concerns. Most banks will require a personal guaranty, in addition to taking a lien position on all practice assets as collateral.
2. Develop a sound business plan. Most healthcare professionals gain valuable experience working for a practice before venturing out on their own. That experience should translate to a comprehensive business plan. The plan helps instill confidence in an applicant’s commitment and capabilities and should detail products and services, demographics, competitors, marketing strategies and a budget. Financial projections should demonstrate the business can support all financial obligations including the new loan payment.
3. Cultivate a team of experts. Start-up medical practices require expertise from multiple disciplines including accounting, tax and legal, human resources, technology support and insurance credentialing. Lenders will want to know reputable industry experts are involved, and great financial partners can help make introductions to fill any gaps.
4. Ensure lenders have proven healthcare industry experience. Healthcare practices have unique financial demands and evolving regulatory requirements, which means a one-size-fits-all approach may not fully address a practice’s needs. Just as lenders investigate applicants, physicians should evaluate the experience of potential lenders in supporting healthcare practices. Lenders should provide relevant examples of how they have assisted similar clients and physicians may want to focus on institutions that offer loan and deposit products specifically tailored to the healthcare industry.
5. Choose a long-term financial partner. Although a practice needs capital infusion to open its doors, it’s important for a physician to ensure a lender’s commitment to the practice’s long-term success. While the business plan is a good starting point for a lender’s proposal, the loan terms should match the physician’s goals. In addition, physicians should understand how a lender can help with longer-term needs such as future equipment purchases, real estate or expansion plans.
The thriving health care industry in the Denver-metro offers medical practitioners compelling reasons for striking out on their own. However, starting a practice can be a tremendous financial risk, and it’s important to have a solid foundation in place before embarking on an entrepreneurial effort. Getting financial affairs in order, preparing a solid business plan, and identifying strong, local financial and professional partners can help physicians achieve the goal of a viable private practice.
Anne Barnhart is vice president at First National Denver and specializes in healthcare banking. She offers more than a decade of experience in assisting doctors, dentists, optometrists and veterinarians with their business banking needs, and she draws upon nearly 30 years of banking expertise overall.
Jim Holland is vice president at First National Denver, where he helps clients develop financial solutions for their business needs. He has more than 30 years of experience in the banking industry, with 25 devoted to healthcare.