Starting a Medical Practice: Getting Financed and the secret of OPM
Since cash flow is the lifeline of a business, you cannot start one without it. This is the single most deterrent which stops many physicians from opening their own practice. When you put your money out into the business aka medical practice, you risk losing it. Not only that you may end up owing more than you ever put into the endeavor. But that should not deter you from taking that risk –no pain , no gain. And if fear of losing money paralyses you then you need to go to Washington DC and read the words carved in stone at the Cherry Blossom Park. "The only thing we have to fear is fear itself".
From this fear of losing ones own money came the concept of OPM. My real estate agent told me to play with OPM. That is ‘Other People’s Money’ . Who are these other people who will let you play with their money? These are the sources you can use to get financed for your project:
1) BANKS: Banks loan money to business. They earn interest on the loan while they let you play with it. But remember, in the end THEY WANT IT ALL BACK!! So play responsibly.
2) INVESTORS: If you were opening a software company this could have been an option. I do not recommend using investors . And I won’t talk about anything that I don’t recommend. Investors take away the control of the company and can leave you high and dry.
3) HOSPITALS: Hospital administrations offer forgivable loans to doctors to start their practice in their feeding areas. These are usually the most beneficial if terms are negotiated right. All you have to do is set up a meeting with the CEO or the CFO of a hospital and ask them how they can help you. And do you think they won’t talk to you because you are just out of residency? You are wrong!!! You want me to prove it? Why don’t you prove it!
4) SAVINGS: This is really not OPM. If you are able to save enough cash you can use it for your practice. But you will be surprised that your accountant may advice you against putting your own cash into the medical practice. Again its all about OPM.
3 Responses to “Starting a Medical Practice: Getting Financed and the secret of OPM”
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Hi, why take loan? I prefer a line of credit. A line of credit means you take out as much money as you need at a time and you only pay interest on the money you actually need. Maybe you can do with less than the amount of the loan. Why pay interest on the full loan?
I agree with Matthias, line of credit is the way to go. Usually the bank will approve you a loan for equipment and other assets. However the interest is charged only on the portion of the loan you are using. So it works as a line of credit anyways. The bank won’t let you take the loan out without a bill to prove you bought an asset or equipment with it. Line of credit is also given to a medical practice by the bank for working capital or day to day expenses. The problem with a line of credit is that the interest rate fluctuates with the market rate. The loan amount for secured asset is fixed for a period of time.