Lending to an associate

November 5, 2010

How to weigh whether to finance a loan for an associate.

Q: My associate couldn't get a loan to buy into half my practice. Should I finance it for her?

A: Financing the purchase can be an excellent idea. Many lenders won't lend on just a percentage of a business, and many other lenders have pulled out altogether in this economy. Talk to your accountant about the tax impact of various methods of financing, and to your attorney about the restrictions on terms. Often it can be better for both parties to use seller financing. With bank loans at 7% to 8% interest and T-bills paying less than 1%, lending the money on an asset you control might be financially advantageous to you.

Your associate might alternatively talk to one of the medical-specialty lenders for a loan, instead of to the local mega-bank branch.

Answers to readers' questions were provided by Judy Bee, Performance Practice Group, La Jolla, California; Mark Scroggins, CPA, Clayton L. Scroggins Associates Inc., Cincinnati, Ohio; and Keith Borglum, CHBC, Professional Management and Marketing, Santa Rosa, California. Send your practice management questions to medec@advanstar.com