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

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  • Avatar mtj2020 
    Status: Resident
    Posts: 1
    Joined: 09/07/2019

    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!








    #244429 Reply
    jfoxcpacfp jfoxcpacfp 
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8113
    Joined: 01/09/2016

    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.

    Welcome to the forum!

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ ~ [email protected]

    #244452 Reply
    Liked by CordMcNally
    Zaphod Zaphod 
    Status: Physician, Small Business Owner
    Posts: 6177
    Joined: 01/12/2016

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

    Otherwise, yes pay off the credit cards.

    #244466 Reply
    Liked by CordMcNally
    Avatar nephron 
    Status: Physician
    Posts: 215
    Joined: 05/09/2019

    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.

    #244582 Reply
    Liked by jfoxcpacfp
    CordMcNally CordMcNally 
    Status: Physician
    Posts: 2805
    Joined: 01/03/2017

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

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #244587 Reply
    Liked by Tim
    Avatar jacoavlu 
    Status: Physician, Small Business Owner
    Posts: 2374
    Joined: 03/01/2018

    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.

    The Finance Buff's solo 401k contribution spreadsheet:

    #244590 Reply
    Avatar HandFellow 
    Status: Physician
    Posts: 198
    Joined: 01/18/2016

    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).

    #244618 Reply
    ENT Doc ENT Doc 
    Status: Physician
    Posts: 3500
    Joined: 01/14/2017

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

    #244620 Reply

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