If you are looking to buy or sell a chiropractic practice in the near future — or if you are looking to grow your practice now — the recent Federal Reserve rate cut 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.
Grammatically, I know that’s a lot of “interest” thrown around in a short sentence – but my grammar is intentional because practically speaking, those who are seeking to sell or buy a chiropractic practice should pay close attention.
Let’s quickly back up a bit to explain the Federal Interest Rate cut and then how it may impact your chiropractic practice financing interest rates – whether you are looking to borrow to buy or grow your practice — and how it will even affect you if you’re looking to sell.
The Federal Interest Rate Cut of August 2019
As you may have heard, the Federal Reserve announced that it will cut interest rates one-quarter of a point to the target rate of 2.0% – 2.25%. This reduction is the first of its kind in over a decade – since 2008 – so it warrants some attention.
Here is why this move is being welcomed by small business owners and why it will impact chiropractic practice financing interest rates for those looking to grow, sell or buy a chiropractic business.
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 down. This is obviously great news for buyers as the “cost” of borrowing money just got cheaper.
A lower interest rate is also good for Chiropractors looking to Sell their practice as well, because the decreased rates can actually increase the amount that a Buyer could qualify for through lower chiropractic practice financing interest rates. 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 Impact Will This Bring to Chiropractic Practice Financing Interest Rates?
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 $300,000 (which is in the mid-range of most chiropractic practice sale listings).
A buyer who is looking to put 5% down (which is the minimum that most of the banks we work with offer for the typical chiropractic practice financing scenarios) will need a downpayment of $15,000.
A loan with 8% interest for 7 years will feature payments of approximately $4442 per month for a total loan repayment of approximately $373,134.
Now, watch what happens if we move the loan rate up or down even just 0.25%
- The same $300k purchase loan at 8.25% now has monthly payments of $4478 and a total loan repayment of $376,123.
- Bump it up another 0.25% and the monthly loan payments go up to $4513 with a total loan repayment of $379,125.
- Go a full 1% upward and the monthly loan payments go up to $4585 with a total loan repayment of $385,173.
As you can see a slight increase or decrease of the Federal Rate can either save or cost you $12,000 or so on a $300,000 loan. Obviously, if your loan is bigger the potential savings (or expense) is even greater.
What if you are looking to GROW your Practice?
Even if you’re not looking to buy or sell, the Federal Interest Rate cut may have some good news for you as well. As stated previously, most business loans are tied to variable rates – which means that those looking to grow their practice can borrow money cheaper.
And for those who are looking to grow their practice by acquiring existing businesses (a super smart move that too many chiropractors ignore), this is your time to borrow some capital to play in the big leagues.
It amazes me that smart chiropractors will start satellite practices from scratch instead of imitating corporate giants like Amazon who grow through strategic acquisitions. Sure, you may not have that many zeroes in your business bank account but the good news is that the practices you are looking to acquire often don’t require a huge cash outlay to become a great return on your investment.
Better yet, there are strategies that you can employ, as an existing business owner, that put you offer you a distinct advantage over many buyers on the market to grow your chiropractic practice through practice strategic acquisitions. And now is a great time to do that with low chiropractic practice financing interest rates.
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.
But here’s a tangible example of why it is 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 Buy, Build or Break Up Webinar – 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 the newly revised version of our Sell, Switch or Slow Down Webinar to do just that.