Practice Financing Part 1: Loans and Credit Cards

Physician’s Practice: In the next two episodes, we are going to be taking a look at different aspects of practice financing, particularly loans, practice credit cards, and even patient lending.

We’ll hear from two members of Bankers Healthcare Group, Chris Panebianco, CMO; and Keith Grubele, President of Patient Lending. This episode in particular will focus on our first discussion with Chris.

As we may well know from paying for education or purchasing a home or vehicle, loans are a way to acquire funds to purchase otherwise unaffordable assets in the present, and pay back the debt over time with added interest.

The same applies for physicians interested in starting their own practice.

Chris Panebianco says that there are a myriad of loan options available for physicians interested in starting their own practice.

Here’s what he says about particular loans that may be better suited to physicians starting a new practice.

Chris Panebianco: Yeah, and again, I think that's really going to depend on what the needs are. Your typical new practice startup for smaller practices costs anywhere from $75,000 to $150,000. That's going to cover your rent, payroll, insurance, equipment, marketing, any supplies.

The right loan would really be dependent upon what those needs are within the startup. So, if you are actually acquiring land, that's where you might lean towards the SBA if [the cost] is over 350 or up to a $1 million. There's big advantages of that, with up to 25 year repayment terms. [Repayment] takes a little bit longer and you're going to need your business plan, but it is a solid loan and with the SBA right now, through the end of September, you can get six months with no payments.

Typically, though, what we see at [Bankers Healthcare Group] are your short-term working capital loans that will cover these expenses. You want to keep that separate from your personal and consumer side. And you run that through the business. And again, those are typical loans that you can secure in a couple days. But those go up anywhere from $100,000, to $250,000, sometimes up to $500,000.

Physician’s Practice: However, loans are not limited to those looking to start a new practice. The pandemic has certainly proven that loans may assist in times of unparalleled uncertainty and provide a necessary financial support to existing practices.

Regarding loans that are better suited to existing practices, Chris had this to say…

Panebianco: That's actually it's a great question, Drew. And that's where we see the most the majority of our business in the medical space where healthcare practitioners—our average customer—has been licensed for about 18 years. They’ve had their business for well over a decade and they're coming to us because a lot of times, especially now, they don't have the time to go to your traditional lender go through a long drawn out application process. They also struggle a little bit when you go to your typical online lender, where it's “throw your information in, here's what we do for you, this is what you get”—it's very black and white.

That's where [Bankers Healthcare Group] has come in over the years and we really work and try to bring the best of both worlds into that service. You know, health care practitioners are under a lot of stress with all the new mandates, all the paperwork, the struggle of running a practice, as well as getting to their passion point, which is practicing medicine. When they're looking for that injection of capital, a lot of times they don’t want the speed of the online lender, but the relationship and the explanation that they get from their traditional lender. It's something that we've seen over the last 19 years—needs have changed, but at the end of the day, most healthcare practitioners want, and deserve, a better lending experience.

Physician’s Practice: As I briefly mentioned earlier, loans may come in handy in times of uncertainty.

During the pandemic, the U.S. government unveiled the Paycheck Protection Program. Up next, Chris Panebianco discusses how this and other loan options changed throughout the pandemic and what might come in the near future.

Chris Panebianco: Definitely. We are one of 14 non-bank lenders. One of our wholly owned subsidiaries is an SBA 7A lender, we participated in the PPP program. When that launched, the government went very fast and a lot of loose ends and unknowns were left out there.

The initial launch was a nightmare, not only for the lenders to figure out what we had to do, but for the recipients of the loans. As they went to the second round, what we found was a lot more information was being put out there; however, the physicians that we talked to, they had put in multiple applications with their bank with an online lender or an aggregator and they weren't being communicated to so when they came to us, a good portion of the $150 million dollars in loans we granted were actual health care practitioners that thought they had an application in somewhere else.

There’s still funds left in the PPP for this round. But as you said, Drew, we have no idea what's coming. For example, you've seen California pullback into an earlier phase. There may be another round, we have no idea how long those PPP funds are going to last for the established practices.

As a lender, we're preparing for the worst-case scenario of another round of PPP. And how can we make that a really good experience for the borrower? One of the areas that has been a constant struggle with PPP is the loan forgiveness. There's been talk about forgiveness for under $150,000. How do I submit my information? It’s something that ‘Fund-Ex Solutions Group’, our wholly owned subsidiary, has done a lot with our clients and borrowers to try to help them because it's very confusing.

Physician’s Practice: If you are looking to apply for new loans, Chris says that there are a few things worth considering…

Chris Panebianco: I think number one, you have to find a lender that's experienced with healthcare professionals. It’s a different animal than your typical loan in your general business.

Number two are the programs they are offering. Right now, cash is king—building your cash flow, your reserve cash fund is very important. You want to look at how long can you stretch out that payment that meets your needs on a monthly if your business has suffered or practices suffered, and if you do need the money, you don't want a loan that's only going to be one or 2123 years of a payback. You want to try and stretch that out as far as possible. A much more affordable monthly payment allows you to function within your business to keep your cash flow in emergency fund.

A lot of our clients have come in and said, “Look, I've had to redo my entire practice. I've had to take all the measures to make it safe under government guidelines.” So as you’re doing that, trying to get back on your feet or weather the storm, or even if you're doing very well, having that cash flow, and that liquidity, is very important for any practice.

Physician’s Practice: Another financial consideration for practices are credit cards for business purchases. Chris wrote an article on keeping credit healthy during the pandemic, but we wondered what these specific credit cards provide to a practice.

Chris Panebianco: Sure, and with each credit card, its unique. Small businesses and practices and the need for a business card have a few things in have in common.

Number one, you want to make it easy to separate your practice from personal expenses, especially for tax purposes. You want these credit cards to provide you liquidity and flexibility. It allows your business and practice to allocate your credit line towards the most pressing needs, you do get the great fraud protection.

Some business credit cards don't report to the personal credit report and won't impact a physician's FICO score. That's very important—it gives you more borrowing power, as we talked about earlier with some of your other needs.

Some cards, especially if you have a larger practice, will allow a program administrator. This is going to help you manage all aspects of the account from paying your bill to alerts to freezing your card in the event that something happens.

You can also set spending limits. If you have additional employees that you delegate the authority to use your credit line, you're able to monitor that report on it and then set your limits.

The biggest [benefit] that we found with our cards being specific to the healthcare community is the specific rewards. There's an MCC code for a lot of purchases that someone might make. Within that code, you can earn up to two sometimes three times your rewards dollars for specific purchases, whether it's metal, medical equipment, paying association dues. Those things will in turn reward you for everyday expenses that you have.

Physician’s Practice: Up next, Chris discusses when practices should consider adding credit cards to their business.

Chris Panebianco: I think it could be from the start, it could be an established practice, it really doesn't matter the stage.

I think it really makes sense to consider if you're going to open a new card that if you have large purchases on the horizon, or you find that your business is really not able to cash flow comfortably with existing financing options.

If you're having trouble securing a larger loan, this will allow you to run these expenses onto the business card where you can earn cash back as we just talked about, and you can really stretch out your payback period, especially when they’re trying to get up to speed.

And as we also mentioned in the context of today's environment, you really want to be able to retrofit your practice, get the new supplies, get back up on your feet. Credit cards will not only give you those rewards, but you can stretch out your payment as I mentioned,

Physician’s Practice: Another credit-card consideration regards access: Who in the practice should have access to these cards? 

Chris Panebianco: Right now, I would say obviously, your practice manager, any of your fulfillment team. If you do GPO, the group purchasing organizations, or anyone that is whether it's a partner or yourself, but you want to limit that.

Going back to the program card, the administrator card that we talked about, you'll hear the term ‘p card’. That's something very important that you monitor, because in this day and age, you can never trust that you know, whoever you're giving your card to, isn't being used fraudulently for business purposes. You want to keep an eye on that.

Physician’s Practice: Beyond deciding to acquire cards for your practice and managing employee access, Chris did offer some final advice on credit cards in practices.

Chris Panebianco: Yeah, I think right now, you know, credit cards have been influenced by the market and what's happening. If you are struggling with your card, the federal government has really pushed lenders and pushed credit card companies into working with the borrower. We all understand we're in this together. and we know that once this pandemic’s over and people get on their feet, that great paying customers will return to being that and it's a bump in the road.

I would say, really understand what your credit cards offering the repayment fees. Some late fees can be waived; credit card companies are experiencing much lower revenue now. And it's very important that they are working with your account with the customer with the practice owner.

You have to watch your spending, watch your available open credit line. What you don't want to do is max out your credit cards—we've experienced, and I personally have experienced a lowered limit on a card that I do not use as much.

Pay attention to what your statements are saying. Call your current credit card company and let them know how you're doing. Again, just start a two-way communication.

The other thing I would say is really identify which vendors you're working with that accept card payments, that's going to be very important because you can leverage the ability to earn rewards with those vendors. And it also gives you that freedom we spoke of earlier to stretch your payments out and also be able to keep your cash liquid and keep your cash flow able to be used for other expenses, unexpected expenses, or for forward thinking growth.

The pandemic has brought a lot of pain and struggle to the healthcare industry. But there are abilities to use financing tools to help you not only weather the storm, but also survive and build your practice back up and then hopefully thrive in the months to come.