The recent raise in the Federal Prime Interest Rate will affect your chiropractic practice sale (or purchase) -- but fortunately, the conditions are still excellent for BOTH Buyers and Sellers. Here's why:
If you are looking to buy or sell a chiropractic practice in the near future, the recent Federal Reserve rate increase should definitely interest you because it likely will impact the chiropractic practice financing interest rates for the business you are interested in buying or selling. In case you were not aware, on March 16, 2022 the Federal Reserve Officials approved a vote to increase the Prime Interest Rate by 0.25% - which is the first time since 2018 that the Federal Reserve raised the benchmark federal-funds rate by a quarter percentage point.
Let’s quickly back up a bit to explain how it may impact your chiropractic practice financing interest rates - whether you are looking to borrow to buy a practice -- and how it will even affect you if you're looking to sell.
The Federal Interest Rate Increase of March 2022
Here is why the increase in the Federal Prime Interest Rates Will Affect Your Chiropractic Practice Sale or Purchase and why this move is getting the attention of small business owners in general.
Since most small business loans typically offered by the Small Business Administration (SBA) and/or private banks are variable loans with interest rates tied to the federal rates, the first impact felt on chiropractic practice financing is that interest rates will go up slightly. While this sounds like bad news for buyers as the “cost” of borrowing money just got more expensive, we need to put things into historical context. When you do that, you realize that the pre-March Interest rates were historically among the LOWEST interest rates ever -- and so a 0.25% increase does not make much of a difference over the life of a loan. Interest rates are STILL super low and borrowers will still be getting great rates compared to years past.
This low interest rate will keep the market good for Chiropractors looking to Sell their practice as well, because the lower rates can actually increase the amount that a Buyer could qualify for to purchase a chiropractic practice. Therefore, Sellers are potentially able to maximize the value of their chiropractic practice sale rather than have to decrease their asking price to fit with lending parameters.
How Much (In Terms of $$) Will the Prime Interest Rates Will Affect Your Chiropractic Practice Sale or Purchase?
Let’s look at an example to see what type of impact this may bring to a chiropractic practice sale or purchase scenario.
For our example, we will assume a practice purchase price of $250,000 (which is in the mid-range of many chiropractic practice sale listings).
A buyer who is looking to put 10% down (which is typical of an SBA loan to purchase a practice) will need a cash equity injection (downpayment) of $25,000.
Prior to this March interest rate change, it was not uncommon for banks to offer SBA 7(a) loans at + 2.75% + 3.25% (Prime Interest Rate) which resulted in a loan with 6% interest for 10 years. This $225,000 loan to purchase a $250,000 practice featured payments of approximately $2498 per month for a total loan repayment of approximately $299,755.
Now, watch what happens if we move the loan rate up the 0.25% that the Federal Reserve increased the rates:
- The same $250k purchase with $25k downpayment results in the same $225k loan - but now at 6.25% and featuring monthly payments of $2526 and a total loan repayment of $303,156.
As you can see a slight increase in the Federal Rate would cost you $28 more per month and only $3,400 over the lifetime of the loan (presuming you took the entire 10 year term to pay it off). Obviously, if you payoff your loan quicker, the impact of the interest rate increase is even smaller.
NEXT STEPS
Each week, I receive a call or an email from a chiropractor who asks “is this a good time to buy (or sell) a chiropractic practice?” I’ve written previously why conditions are great right now for chiropractic practice sales – regardless of which side of the fence you are on. And since the March interest rate increase, we've received quite a few inquiries from concerned chiropractors who are wondering if the new increase would negatively impact their sale or purchase.
As you can see from our simple example - the increase in the Federal Prime Interest Rates Will Affect Your Chiropractic Practice Sale or Purchase -- but the impact is minimal.
So, instead of sparking fear or concern about your potential sale or purchase, this should be a tangible example of why it is STILL an absolutely a great time to buy or sell a chiropractic practice – and why this is a good time to utilize chiropractic practice financing and the Federal Reserve Interest rates to capitalize on that!
If you are looking to Buy a Chiropractic Practice (or on the fence trying to decide if that’s the right move for you), check out our FREE WEBINARS FOR BUYERS – where we’ll walk you through some critical steps for making your best and next move smarter. Or, if you already know that you want to buy – check out our current chiropractic practices for sale.
If you are If you’re at the other end, looking to sell, we’d love to help you maximize the value of chiropractic practice and sell smart. Check out our FREE WEBINARS FOR SELLERS to do just that!
