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Future Partnership Buy In Loan - Pay Off Credit Cards or Build Savings?

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  • Future Partnership Buy In Loan - Pay Off Credit Cards or Build Savings?

    I'm in my last year of residency, and I have a signed contract for a 12 month associateship in a private practice to begin next July. According to the contract, after 9 months of being an associate the owner and I will discuss/decide if we will move forward with partnership. If we agree to move forward with the partnership, I will need a rather large loan (somewhere near $800,000-900,000 if collections prior to my arrival stay consistent).

    Here's my personal financial situation. I currently have $400,000 in student loans (in REPAYE) as well as $45,000 on credit cards (7 cards, recurring 12 month 0% balance transfers  with 3% transfer fee). The credit card balance is a function of financial ignorance prior to discovering WCI. We are no longer adding to the balance. My credit score is ranging between 670-710 over the last 6 months. I have minimal savings  ($3,000-4,000).

    My question relates to obtaining a loan for the purchase of a practice. Do you think a bank would give better rates if I have a significantly larger emergency fund and/or down payment, or would it be better to pay off the credit card balances ASAP?  I am currently planning on trying to do both aggressively as an associate, but anticipate I will not be able to completely pay off the $45,000 and save ~$40,000 for emergency fund and/or down payment.

    What do you value more?  I know one thing for sure - I'm tired of paying the 3% transfer fee.

    Thanks for your input!

     

     

     

     

     

     

     

  • #2
    I doubt you're going to get financing from a bank to purchase a practice in 1 yr with $400k of student loans unless at a very high rate. Of course, this is jmpo. Assuming you decide to move forward, perhaps you can work out a deal with current practice owner for partial sweat equity buy in and part owner-finance until you get into a stable enough financial position to go the bank?

    Regardless, move heaven and earth to pay off those credit cards. No way would I recommend financing an e-fund with cc's.

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    • #3
      You might be able to pay that with reduction in earnings initially going to the balance.

      Otherwise, yes pay off the credit cards.

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      • #4
        Doesn't the practice give you the loan?   That would be typical, giving you a loan for the buy in at a market rate and subtracting it from your earnings.  Your buy in is very high and I assume that there are physical assets involved in the buy in and that you have reviewed the buy in with a contract lawyer.    I would want to know that the buy in was actually worth that value before I signed a paper stating that i owed almost a million dollars.   Is your salary post buy in going to justify the buy in amount vs salary pre-buy in or salary from another practice with another practice where you never could become partner.  Shouldn't be too difficult to calculate a rate of return.  Also make certain that your contract stipulates how much they will pay you should you decide to leave.   It seems like a big decision to be making 1 year post residency and I may be inclined to stay an employee a bit longer before I sign any buy in contract which locks me in.

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        • #5
          Your best bet is probably going to be a loan from the practice. Also, get rid of that credit card debt ASAP.

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          • #6
            That’s a large buy in. Just make sure that you do your due diligence, have a competent professional analyze the deal when it comes time to make sure it’s fair.

            It is somewhat reassuring that you know the ballpark buy in number ahead of time. Better than being surprised.

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            • #7
              You will likely have an easier time getting a loan, if in fact you have to secure one yourself, if you don't have 45k in credit card debt outstanding.  Don't worry about the future buy-in mechanics if you have that much in student loans and credit card. The most important thing for your future will be how fast you pay off your debt; it will be a sign that you don't grow into your income too quickly, especially considering how poorly you did in the past (45k cc debt).

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              • #8
                Single owner and you’re going to be the second?

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