Written by: Bill Murray, National Sales Manager, Veterinary Division, Bank of America Practice Solutions!
Veterinarians play a crucial role in society, caring for the health and well-being of our beloved pets and animals. However, like professionals in any other field, veterinarians often require financial assistance to start or expand their practices. Interest rates are now a significant factor for veterinarians to consider when it comes to financing their education, clinic, or other professional needs. Let’s explore how interest rates affect loans for veterinarians and the broader implications for their careers and financial stability.
Interest Rates: A Primer
Interest rates are the cost of borrowing money and are typically expressed as a percentage of the loan amount. Several factors determine interest rates, including market conditions, inflation rates, and the creditworthiness of the borrower.
Professionals—in our case, veterinarians—must consider the implications of interest rates when exploring financing. The rising rate environment we find ourselves in today is in the news and widely discussed among professionals and colleagues.
About Rising Rates
Yes, rates have risen since the pandemic in response to many economic factors. The days of sub-3% interest rates are gone. Does that mean that business investment should leave too?
Some perspective here is helpful. Pre-pandemic, interest rates were at historic lows. Never before had the veterinary industry—or any other industry—benefited from such low rates. Those who borrowed during that time got great deals. That does not mean that today’s rates are bad; they are just higher. If you put off investment in yourself or your business until rates are back under 3%, you could wait forever. Making a sound investment in yourself and your hospital should never be determined by interest rates alone. Cash flow, affordability, and the why behind your investment should all be considered while exploring the need for financing.
Interest Rates and Loans
Veterinarians who aim to start or expand a practice or buy a clinic often require loans to cover the costs. While an interest rate is a major factor in the loan you choose, it should not be the only focus. Your focus should be cash flow. Cash flow takes into consideration your loan term and interest rate—the two things that make up your loan payment.
Ask yourself: can my business afford to make this payment and still provide me with the income I require for my lifestyle? This is when your loan term is just as important as the interest rate. You could make a poor choice if you go with a shorter loan term that restricts your cash flow (five, seven, or 10 years) just because the interest rate is a little lower. Choosing a loan with a term of 12, 15, or 20 years with a slightly higher rate may have advantages and allow you to more effectively manage your cash flow.
So, don’t consider the rate?
Now that we have determined that cash flow and debt payments are your primary focus when you consider professional loans, do we throw interest rates out the window? Absolutely not. Banks are not created equal and certainly do not offer the same interest rates. Banks place a value on the loans they want to provide, and some banks need to make more money off the loan than others. There could be economic reasons why some banks charge more than others—or factors of scale. So it’s essential to consider the interest rate offered as one of your determining factors.
How do rates affect my business?
Interest rates are an expense, some of which are tax-deductible—but in the end, they do cost you money. When you consider an investment in yourself or your business, focus on the why. Why am I completing this renovation? Why am I buying this building? Why am I buying my first practice?
In most cases, you will find that your investment leads to greater revenue opportunities, better patient care, and more pride in your business. All those factors normally outweigh the cost of the loan. Is now the time to spend frivolously on your business? No, but there is never a time to spend frivolously on your business. An investment in you and your business—made with careful planning, the right financing, and good partners helping you along the way—should pay off in the end, regardless of your interest rate.
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