Q. What are the terms of a loan?
A. Loans have 5-year terms with principal amortization schedules of 3-8 years, depending upon how quickly the physician wants to repay the loan.
Q. What happens after five years?
A. The final amount due or balloon payment can be paid off in cash or refinanced. If the loan was amortized over 5 years (or less), there will be no balloon payment at the end.
Q. Can I accelerate loan payments?
A. Yes. Loans can be prepaid, and there is no penalty.
Q. Am I required to put up any collateral to get a loan?
A. Yes. We request that the physician pledge his/her ownership interest in the ASC and associated distributions. Occasionally, additional collateral is requested.
Q. What is the interest rate?
A. The interest rate is the Prime Rate plus a modest spread.
Q. Why is the interest rate higher on your loans than a bank?
A. We request minimal collateral on our loans, usually exclusive of any personal assets.
Q. Do you make loan decisions based exclusively on my personal credit history?
A. No. Physicians Capital makes loans based on the financial strength of the ASC and your future cash flow from that ownership interest. However, It is important for an individual’s personal credit history to be normal.
Q. If my personal credit is bad, but the center is financially strong, can I be turned down?
A. Yes. If a physician has filed bankruptcy, does not pay bills in a timely manner, or has a history of dodging creditors, then Physicians Capital may choose to decline a loan request.
Q. Can I borrow 100% of the proposed buy-in amount?
A. Generally, Physicians Capital wants to finance 100%. Sometimes the buy-in price to a center results in a multiple which exceeds three (3) times the expected distribution. In these instances, we may request that a physician pledge personal assets or contribute cash to the purchase price to compensate for the added risk exposure.
Q. Why is the buy-in multiple important?
A. When the buy-in multiple approaches 4 times the expected distribution, much more of the distribution is needed to service debt and very little is left for taxes and the physician’s personal use. In these cases, an unexpected drop in distributions from the ASC may result in the physician having to come out of pocket to pay the note to Physicians Capital.
Q. Why not just get the loan at a bank and pay a lower interest rate?
A. Banks always get as much collateral as possible to secure loans and usually assign little or no value to the ownership of an ASC interest. As such, a bank will want a pledge of any unencumbered personal assets, including a second mortgage on the home, marketable securities and a spouse’s guaranty. Not only is pledging these assets unsavory, it can also be expensive and severely limit financial flexibility for the future.
Q. Is there a maximum funding limit per individual ASC?
A. In relatively new centers and “turn-around” centers, Physicians Capital has to balance risk exposure with center performance. In these situations, we will maintain an ongoing dialogue with the ASC so that no surprises are created.
Q. What information is needed to apply for a loan?
A. The ASC sends us information on the ASC, including financials on the center, the number of shares being purchased, the buy-in amount, and the percentage of ownership. The physician needs to send us a current personal financial statement, the latest tax return, a legible copy of his/her driver’s license, and a curriculum vitae.
Q. How much “red tape” is involved with getting a loan?
A. Very little. After we receive the required information and review it, we do a background check and consumer credit check.
Q. How long does it take to get my loan?
A. Generally, as soon as you provide the needed information, we can fund your loan in less than 10 business days. Often, physicians are slow to respond to our inquiries and information requests. Good communication between Physicians Capital and the ASC should facilitate transaction closings.
Q. How do I repay the loan?
A. The ASC will send the physician’s distribution check directly to Physicians Capital. We will pay the debt service and send the balance to the physician. Some physicians elect to apply the total distribution to the debt service, resulting in a quicker loan repayment.
Q. How do I apply?
A. Contact Doug Lewis or Laura McFadden directly at 615-342-0824
