Question
I want to start my own private practice but will need some start up funding. As I do not own my own practice yet, I do not have any equity in a business to offer as collateral. What are my financing options?
Answer
There are many options and things to consider when it comes to practice financing. Most audiologists belong to the American Academy of Audiology (AAA), the Academy of Doctors of Audiology (ADA) or one of the other professional organizations, all of which have a code of ethics that all members agree to follow. AAA and ADA jointly published an advisory opinion in 2003 titled, "Ethical Practice Guidelines on Financial Incentives from Hearing Instrument Manufacturers", which is a must read for any audiologist considering financing. The paper is available at www.audiology.org or at www.audiologist.org/client_files/ethics/ethics_financial_incentives.pdf.
It is generally recognized that tying financing to hearing aid unit commitments or sales can be problematic from both an ethical and legal standpoint especially if one participates with federally funded third party payors. A legitimate "carve-out" could be possible;however, risks do exist and an audiologist must fully understand the associated potential risks before participating in such arrangements. Relying on a manufacturer or buying group that is providing the loan to also provide an audiologist's risk assessment is not in the audiologist's best interest. Seeking quality legal advice from an attorney who is familiar with all federal and applicable state regulations, including the Antikickback (AKS) statutes is advisable.
Securing financing from independent sources such as banks, credit unions, or the Small Business Administration (SBA) is more in line with AAA's and ADA's recommendations and federal regulations as they relate to the AKS in that the audiologist makes regular payments of principle plus interest at fair market value that are not tied to hearing aids or any federally covered service. A paper trail that proves the loan was fulfilled with money at fair market value and not with unit purchases is important. This can also offer certain tax advantages, which should be discussed with an accountant.
Audiologists rank very low on loan failure rate (less than 2%) making audiologists overall highly desirable candidates for financing. Like physicians, the typical young audiologist's profile includes high educational debt, an advanced professional degree (AuD), the title "Doctor", limited collateral, and high earning potential, especially for those in private practice. To help meet the growing need for independent financing options, AuDNet has identified outside lending institutions that are prepared to lend substantial sums of money at fair market value to qualified audiologists entering or already in private practice.
How can an audiologist know if he or she is qualified? Every audiologist must know his or her credit scores. Legally we are entitled to obtain our credit report from each of the three primary credit bureaus one time each year at no charge. An easy, reliable, and free resource is www.annualcreditreport.com. Each of the credit bureaus can differ in the scores they calculate and report;however, a consistent pattern will appear. Independent lenders do not always use credit scores, but they often do and the prudent audiologist will have his or her financial house in order before applying for a loan, since credit scores will impact the interest rate offered. To learn more about FICO scores, factors that impact credit scores, and how to improve the scores visit www.myFICO.com.
It is always in an audiologist's best interest to have legal counsel review all financing papers in addition to understanding the "fine print". Know the facts and consequences;for example if early pay-off or late payment penalties exist or what is at risk should you default on the loan. Lenders can require a personal guarantee, which means the signer is personally liable even if the loan is granted to a business entity.
Kathy Foltner, AuD, is CEO of AuDNet, Inc. She also teaches courses in Practice Management and Basic Business at Rush University Medical Center and PCO. Dr. Foltner can be reached at kfoltner@aud-net.com or 312-593-1787. Visit www.aud-net.com or www.NowiHear.com for more information. Dr. Foltner is not an attorney and nothing in this article should be construed as legal advice.