A physician would never use a scalpel to take blood pressure or an ultrasound to draw blood. But recent research indicates when it comes to small business borrowing, owners are making just that kind of mistake.
68% of small to mid-sized physician’s practices use their bank working capital line of credit to finance long term fixed assets.
Working capital is for short term use. It’s the remedy for the cash flow gaps created by long reimbursement delays in the revenue cycle, valleys in revenues or one time consumable expenses. It helps you meet payroll, cover day-to-day operating expenses and generally effect smoother cash flows in your practice. But more and more, we see leasehold improvements, technology and equipment sitting on the bank revolving line of credit. Long term financing requirements sitting in a credit facility that is meant to handle finance needs paid off in less than 12 months. Or put another way, like using a scalpel to take blood pressure, you are using the wrong tool.
Long term fixed assets, like equipment, are assets generally used for more than a year that have some manner of depreciable life. A truck, office furnishings or even an iPad all meet this description. Accumulating assets like these on a bank line of credit actually lessens your total credit availability. So, while you are paying interest only for the eye laser on the bank line, it’s actually limiting the amount of money you can leverage to cover for the short term pain of a longer than expected insurance reimbursement cycle. Keeping fixed assets out of the bank line ensures maximum flexibility to run your practice.
Equipment financing actually helps you be proactive with more than just a cleaner line of credit. It allows a low to no down payment method of equipment acquisition. You preserve your capital and have manageable monthly payments to enhance cash flows. And at the end of that schedule of payments and the equipment life, you can simply re-invest in the newest technology replacing the old payment with a new one—with no interruption in your cash flows. This approach keeps your business on the cutting edge of technology while keeping your bank line free of the long term asset “clutter”.
Use the right tool. We can help. At American Financial Partners we offer businesses an easy, straightforward and uncomplicated way to clean up your bank lines and stay on the cutting edge of technology for an affordable monthly payment. Let’s talk.