Student Loans to help start private practice

[Optometrists]

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Hello,

I'm new to SDN and was wondering about saving extra student loans to hopefully help start a practice out of optometry school. I say this because I have heard family members say they are having trouble getting business loans in this economy. I have calculated my expenses and costs and will be able to save ~$8,000/year in optometry school (multiply by 4) so it will be ~$32,000. This will be $32,000 unsubsidized that I will have coming out of school at 6.8% interest rate. Since it is unsubsidized interest will be accumulating in school, of course this isn't great but do you feel this method has it's benefits? especially w/ higher interest rates for business loans plus the difficulty of getting one? Will i even be able to get a business loan out of school with no property, etc?? Please serious answers only. thank you

 

[optojake]

are you a first year OD student or pre-optometry?

i would advise against this because not only do you have the 6.8% interest that will be added on, but upon graduation all of the accumulated interest gets added to the principal in something called 'capitilization'. also, in the grand scheme of things $32,000 doesnt even come close to what you need to open your practice. when i was pre-optometry i was all about opening cold. 4 years later, i realize it is extremely more difficult than what i had previously expected.

you may get differing opinions, but i would avoid this.

 

[Optometrists]

are you a first year OD student or pre-optometry?

i would advise against this because not only do you have the 6.8% interest that will be added on, but upon graduation all of the accumulated interest gets added to the principal in something called 'capitilization'. also, in the grand scheme of things $32,000 doesnt even come close to what you need to open your practice. when i was pre-optometry i was all about opening cold. 4 years later, i realize it is extremely more difficult than what i had previously expected.

you may get differing opinions, but i would avoid this.

Thank you for your reply. I am a first year optometry student. Is this the way loans work? for ex: the first year i will have $8,000 extra. so $8,000*1.068 = $8,544. 2nd year $8,544(from first year)*1.068 + $8,000(newly borrowed from 2nd year)*1.068

You're right that $32,000 isn't enough, but do you think $32,000 that way is a good starting point to help get started faster.

 

[KHE]

Thank you for your reply. I am a first year optometry student. Is this the way loans work? for ex: the first year i will have $8,000 extra. so $8,000*1.068 = $8,544. 2nd year $8,544(from first year)*1.068 + $8,000(newly borrowed from 2nd year)*1.068

You're right that $32,000 isn't enough, but do you think $32,000 that way is a good starting point to help get started faster.

You would need to ammortize what that $32000 would actually end up costing you. With the interest accumulating unsubsidized you may find that that $32000 ends up being at 8.5 or even 9.0 percent. No good.

You would almost certainly do better to NOT accumulate so much debt and then obtain financing through one of the specialty lenders to start/purchase your practice. VSP also has some sort of practice loan program although now you are in bed with VSP which may or may not be a good thing.

 

[optojake]

VSP also has some sort of practice loan program although now you are in bed with VSP which may or may not be a good thing.

HAHA!

 

[Optometrists]

You would need to ammortize what that $32000 would actually end up costing you. With the interest accumulating unsubsidized you may find that that $32000 ends up being at 8.5 or even 9.0 percent. No good.

You would almost certainly do better to NOT accumulate so much debt and then obtain financing through one of the specialty lenders to start/purchase your practice. VSP also has some sort of practice loan program although now you are in bed with VSP which may or may not be a good thing.

Thank you for your reply KHE. I have noticed from other posts that you are very knowledgeable. I am just starting out so I do not understand why the $32k is 8.5 or even 9%?

I tried to looked up the VSP loan but couldn't find actual rates. It said that VSP is working w/ Vision One Credit Union and found this on their website. http://www.visionone.org/home/rates/loan
It talks about home and vehicle loans. What is wrong with being in bed w/ VSP, won't they just be a lender?

Would a regular bank lend to me? i read posts where you said to extend your loan periods over 30 years so you can have more cash flow in the beginning when money is tight. I see your reasoning and agree with this. Do you think lending the extra 32k would benefit also from the tight cash flow in the beginning.

If you were just newly starting out again how would you go about to obtaining the finances in order to open a practice?

thank you again KHE for your time

 

[KHE]

Thank you for your reply KHE. I have noticed from other posts that you are very knowledgeable. I am just starting out so I do not understand why the $32k is 8.5 or even 9%?

In essence, you are taking out 4 $8000 loans. One 4 year loan, one 3 year loan, one 2 year loan, and one one year loan.

At the end of the 4 years, your loan balance would be:

$10492.64 on the first loan you took
$9804.74 on the second loan you took
$9161.94 on the third loan you took.
$8561.28 on the last loan.

So at graduation, that $32000 would have a balance owing of $38020.60. You would have $32000, but it would actually be WORTH -6020.60. What good is that?

If you paid that off over ten years, it would cost you a total of: $52505.15.

If you just flat out borrowed the $32000 at the end of the 4th year, it would cost you $44190.74 to pay it off over 10 years. (Assuming the 6.8% interest rate)

However, if you were to borrow the $32000 at the end of the 4th year and your total payments WERE the $52505.15, then your effective interest rate is actually 10.2%.

So in essence, if you could get a loan at the end of your fourth year for $32000 with an interest rate of less than 10.2%, you would come out FURTHER ahead than if you implemented the plan you are thinking about.

I tried to looked up the VSP loan but couldn't find actual rates. It said that VSP is working w/ Vision One Credit Union and found this on their website. http://www.visionone.org/home/rates/loan
It talks about home and vehicle loans. What is wrong with being in bed w/ VSP, won't they just be a lender?

VSP is sort of like the mob. Once you're in, you can't get out.

Would a regular bank lend to me? i read posts where you said to extend your loan periods over 30 years so you can have more cash flow in the beginning when money is tight. I see your reasoning and agree with this. Do you think lending the extra 32k would benefit also from the tight cash flow in the beginning.

As a fresh grad if you had no assets, traditional bank lending with almost certainly have to be done via the SBA but happens all the time. You may do better again with one of the specialty lenders like Matsco. They understand the health care providers situation and will lend based on potential cashflow rather than assets.

If you were just newly starting out again how would you go about to obtaining the finances in order to open a practice?

thank you again KHE for your time

I would probably look for an owner looking to sell and try to have THEM do the financing.

If you are insistent on opening cold, I would go with Matsco.

 

[Meibomian SxN]

are you a first year OD student or pre-optometry?

i would advise against this because not only do you have the 6.8% interest that will be added on, but upon graduation all of the accumulated interest gets added to the principal in something called 'capitilization'. also, in the grand scheme of things $32,000 doesnt even come close to what you need to open your practice. when i was pre-optometry i was all about opening cold. 4 years later, i realize it is extremely more difficult than what i had previously expected.

you may get differing opinions, but i would avoid this.

Yeah I agree. If it were more than $32,000 I'd say go for it. Butyou will need to borrow on top of the $32,000 regardless. You would make out better by not borrowing the $32,000. You'll save by lowering your student debt amount. Good luck!

 

[Optometrists]

In essence, you are taking out 4 $8000 loans. One 4 year loan, one 3 year loan, one 2 year loan, and one one year loan.

At the end of the 4 years, your loan balance would be:

$10492.64 on the first loan you took
$9804.74 on the second loan you took
$9161.94 on the third loan you took.
$8561.28 on the last loan.

So at graduation, that $32000 would have a balance owing of $38020.60. You would have $32000, but it would actually be WORTH -6020.60. What good is that?

If you paid that off over ten years, it would cost you a total of: $52505.15.

If you just flat out borrowed the $32000 at the end of the 4th year, it would cost you $44190.74 to pay it off over 10 years. (Assuming the 6.8% interest rate)

However, if you were to borrow the $32000 at the end of the 4th year and your total payments WERE the $52505.15, then your effective interest rate is actually 10.2%.

So in essence, if you could get a loan at the end of your fourth year for $32000 with an interest rate of less than 10.2%, you would come out FURTHER ahead than if you implemented the plan you are thinking about.

Thank you for explaning it to me. I did calculations over 30 years instead of 10 years on the 32k and it ended up being ~8.6%. Is 8.5% approx the amount that lenders will give me? that's if they lend to me at all?
what I would really like to know is how likely are they to lend me money and and what %? My family makes it seem like it's hard to get business loans.

Thank you for refering Matsco because I would like to start up cold.

 

[Optometrists]

Yeah I agree. If it were more than $32,000 I'd say go for it. Butyou will need to borrow on top of the $32,000 regardless. You would make out better by not borrowing the $32,000. You'll save by lowering your student debt amount. Good luck!

thank you Meibomian for your reply. Do you know how difficult it would be for me to get a business loan and at what %? I know every area is different and quality of practice is different but approx how much do you think it takes to open a practice? I also figured it would be handy to have the 32k after graduation just incase i can't find a job right away, money is low, etc

thank you again.

 

[KHE]

Thank you for explaning it to me. I did calculations over 30 years instead of 10 years on the 32k and it ended up being ~8.6%. Is 8.5% approx the amount that lenders will give me? that's if they lend to me at all?
what I would really like to know is how likely are they to lend me money and and what %? My family makes it seem like it's hard to get business loans.

Thank you for refering Matsco because I would like to start up cold.

Well if you're going to pay the student loan off over 30 years, then yes, it may be a viable plan that you're considering. You just have to be massively disciplined to make sure that you can actually squirrel away that money.

As far as interest rates go, I don't know when you graduate but it's obviously not for a while so the interest rates 4 years from now? No one knows.

 

[Meibomian SxN]

thank you Meibomian for your reply. Do you know how difficult it would be for me to get a business loan and at what %? I know every area is different and quality of practice is different but approx how much do you think it takes to open a practice? I also figured it would be handy to have the 32k after graduation just incase i can't find a job right away, money is low, etc

thank you again.

I do not think you should have a terrible time getting a business loan. Grant it that banks and lenders will not be flocking to you, but with the 3-P's (a good business plan, persistence and patience) you should do just fine. Before you graduate, make sure you speak to your business career center.

If you are really itching to make good on the $8k/yr and assuming you are really good with money and a skillful planner, you could maybe do some calculations and compare CD & MMA prices. Maybe you could make some interest there. 😉

 

[JeffChou]

I would probably look for an owner looking to sell and try to have THEM do the financing.

If you are insistent on opening cold, I would go with Matsco.

KHE,
I'm interested in buying practice from a retiring owner when I graduate. What is a typical way of structuring owner financing in a practice acquisition?

Thanks,
Jeff

 

[optsuker]

KHE,
I'm interested in buying practice from a retiring owner when I graduate. What is a typical way of structuring owner financing in a practice acquisition?
Thanks,
Jeff

Owner financing is your best option:

• No credit approval, fees like a bank
• He has a vested interest in helping you succeed
• Can get more creative with financing options
• Can be to his advantage to not receive a lump sum in one year

I did what I'd consider a reasonable route. Owner financed 75% over 8 years. I borrowed the 25% from a bank and established a line of credit to cover initial cash flow. (I wound up paying him off in 5 years)

 

[KHE]

KHE,
I'm interested in buying practice from a retiring owner when I graduate. What is a typical way of structuring owner financing in a practice acquisition?

Thanks,
Jeff

There are many ways of doing it depending on whether the doctor stays on and works or just disappears. You just make it part of the negotiation....whatever works reasonably for both of you.

 

[Transition Consultants]

Seller financing can work out well for both parties if the expectation of price/terms and the transition timeline are well aligned. But it's rare to see a bulk of the transaction in seller carryback on a normal deal unless the practice isn't generating decent earnings or it's overpriced and bank financing can't be otherwise obtained. Unless there is some regional dynamic that limits the pool of potential buyers, most practices which generate decent earnings can expect to fetch fair market value....and a bulk of this to be received in cash at closing. Before many of the specialized healthcare practice financing programs were fully developed it was more common to see larger amounts of seller carryback.

 

[20DOC20]

It said that VSP is working w/ Vision One Credit Union

Vision One Credit Union does not finance cold-starts, or start-up loans. They only finance practice private practices being acquired or those already in existence.

 

[nc2tarheels]

VSP is sort of like the mob. Once you're in, you can't get out.

Could you elaborate on this please? Thank you.

 

[mintyjulep]

Is it even legal to be using student loan funds for such a purpose?

 

[Hoffy]

I'm glad I'm not the ONLY ONE THAT would be thinking this! Student loans = for student expenses. Pretty sure starting a business falls out of that realm, unless you're starting a "student project." haha

 

[nc2tarheels]

Is it even legal to be using student loan funds for such a purpose?

Does it really matter? People pay credit card debts with their student loan $.

 

[mintyjulep]

Does it really matter? People pay credit card debts with their student loan $.

Well, I guess you just *pray* the feds won't audit your private practice and lay the smackdown on you for improper use of educational loans.

 

[Shnurek]

Does it really matter? People pay credit card debts with their student loan $.

Paying off one loan with another loan is one of the stupidest things you can do in life. I'd sooner get food stamps than stoop to that level if I was so desperate. Some people just have no sensibility in their finances and they expect to have a private practice one day without changing their habits. It doesn't take a genius to not allow banks to make money off of you so you don't have to be a slave to them for decades. And yes yes you can rationalize it by saying that the educational investment is worth it but really it is way better to save first, then spend, not spend and then save to pay the debt at exorbitant interest.

 

[Commando303]

Paying off one loan with another loan is one of the stupidest things you can do in life. I'd sooner get food stamps than stoop to that level if I was so desperate.

That's reasonable, except you're referring to paying credit-card bills with student-loans — in this case, I don't see how your point possibly can be valid: of course one pays off one's credit card with student loans — the latter often is the sole source of income for a grad.-school student. (Food stamps are a fine idea, but students can have a difficult time qualifying for such programs.)

As for using student loans for "non-educational" purposes, we all do it: again, being one's sole means of income, one has little choice but to.

 

[mintyjulep]

Paying off one loan with another loan is one of the stupidest things you can do in life. I'd sooner get food stamps than stoop to that level if I was so desperate.QUOTE]

That's reasonable, except you're referring to paying credit-card bills with student-loans — in this case, I don't see how your point possibly can be valid: of course one pays off one's credit card with student loans — the latter often is the sole source of income for a grad.-school student. (Food stamps are a fine idea, but students can have a difficult time qualifying for such programs.)

As for using student loans for "non-educational" purposes, we all do it: again, being one's sole means of income, one has little choice but to.

Not true. Living expenses are included in student loan/education expenses. That means food, rent, transportation, clothing, etc. However, I think you'd have a pretty hard time explaining away a $30k start-up for a private practice.

 

[Shnurek]

(Food stamps are a fine idea, but students can have a difficult time qualifying for such programs.)

I guess it can be hard as I've never tried to get them. Since students aren't making any money working/investing then are student loans taxable income? Sure food stamps aren't the most romantic things but I'd rather get those and save $2000 a year or w/e it is for food than have to pay off larger loans later. I think this only applies if you claim you are not a dependent under your parents and therefore can claim larger financial stress.

SUNY told me that I have to provide parental information to qualify for health professions loans and for grants. Is this true?

We need some tax specialists!

 

[KHE]

I guess it can be hard as I've never tried to get them. Since students aren't making any money working/investing then are student loans taxable income? Sure food stamps aren't the most romantic things but I'd rather get those and save $2000 a year or w/e it is for food than have to pay off larger loans later. I think this only applies if you claim you are not a dependent under your parents and therefore can claim larger financial stress.

SUNY told me that I have to provide parental information to qualify for health professions loans and for grants. Is this true?

We need some tax specialists!

Student loans are not taxable income anymore than any other kind of loan is taxable income.

If you are enrolled full time at a school, you are not eligible for food stamps unless you meed other requirements such as having a child. If you do a google search, you will find various screening websites offered through New York State and New York City.

 

[KHE]

Could you elaborate on this please? Thank you.

VSP or other similar plans are very effective at one thing.....getting patients in your door.

However, they are generally low paying patients and the administrative headaches can be nightmares. So if you want to start out taking plans like that, it may or may not be a good idea but if you DO do it, it's very easy to end up with a practice with is a majority of these lowball plans and that's no good. But once you start relying on that income, paltry as it may be you can get yourself stuck. So be careful.

 

[JMU07]

SUNY told me that I have to provide parental information to qualify for health professions loans and for grants. Is this true?

We need some tax specialists!

Yes, you have to provide your parent's info if you want the health professions loan.

 

[nc2tarheels]

VSP or other similar plans are very effective at one thing.....getting patients in your door.

However, they are generally low paying patients and the administrative headaches can be nightmares. So if you want to start out taking plans like that, it may or may not be a good idea but if you DO do it, it's very easy to end up with a practice with is a majority of these lowball plans and that's no good. But once you start relying on that income, paltry as it may be you can get yourself stuck. So be careful.

Thank you!

 

[Commando303]

Not true. Living expenses are included in student loan/education expenses. That means food, rent, transportation, clothing, etc. However, I think you'd have a pretty hard time explaining away a $30k start-up for a private practice.

Yes, but "living expenses" likely is more restrictive an arena than in which most students use their loans: entertainment, for instance, probably would not fall into the category, at least not beyond a very minor degree. Altogether, student loans typically are used to pay for everything a student spends money on, not only for those that fall within the rather narrower conditions specified in the paperwork.

 

[Commando303]

SUNY told me that I have to provide parental information to qualify for health professions loans and for grants. Is this true?We need some tax specialists!

To apply for certain loans, you do have to provide your parents' financial information. Doing so will not harm your chances of receiving any money you otherwise would; it only will allow you to qualify for additional amounts.

 

[Shnurek]

To apply for certain loans, you do have to provide your parents' financial information. Doing so will not harm your chances of receiving any money you otherwise would; it only will allow you to qualify for additional amounts.

O ok. Thank you for clearing this up.