man drawing interest rates on white board

Rising Interest Rates…How Will They Impact Your Ability to Buy or Sell an Optometry Practice in 2017?

We've had a good run over the past years with interest rates at all-time lows.  It's made practice acquisitions financially attractive to buyers, resulting in a high level of activity in the marketplace.  But, are these "good times" coming to end?

Most experts that I have spoken with expect interest rates to increase between 150 and 200 basis points over the next 18 to 24 months.  This translates to an interest rate hike of between 1.5% to 2%.  To put that in context, an increase of 1% in interest rates translates to roughly $50/ month or $600/year for every $100,000 borrowed.  So, if you borrow $400,000 to buy a practice and the interest rate goes up by 2% by time you finally make that purchase, your annual interest payments will increase by $4,800 versus borrowing at today's rates.  That's nearly $50,000 over the course of a 10 year loan.

But there very well may be other ways increased interest rates will limit your options when it comes to purchasing a practice.  If you have existing loans (such as student loans or a home mortgage) or credit card debt that has variable interest rates, the interest payments on those loans will continue to rise.  This will leave you with less and less money to apply to a practice acquisition loan.

With that said, now is obviously a good time to buy a practice if you want to keep your loan payments to an absolute minimum.   However, if you are a few years away from entering practice ownership, now is a great time to meet with a banker to see if you can consolidate your debt or refinance existing loans at today's low rates.   This may put you in a much better position to be able to afford a practice down the road.

On the flip side, if you are planning to sell a practice, keep in mind that as interest rates rise, the purchase price for your practice will likely decrease.   As a buyer is required to devote more and more of their cash flow to debt service, they will be unable to pay as much for a practice.

The good news is that interest rates are not expected to increase significantly in 2017.   If that holds true, 2017 will remain a historically good time to buy or sell a practice.   But as we approach 2018 and beyond, I suspect rising interest rates will start to take their toll on the market.  Keep that in mind as you think about your future practice ownership plans.

This piece  provided by: Vision Advisor - Sunbelt Business Brokers

Randy Krivo, CMSBB, MBA, Licensed Business Broker | Sunbelt Business Brokers
1300 Godward St. NE, Suite 6000 | Minneapolis, MN 55413
Direct: 612.843.0075 | Mobile: 612.210-6442 | Fax: 612.455.0887

 The Minnesota Optometric Association has approximately 400 member doctors of optometry around the state. The MOA is committed to furthering awareness of optometrists as primary eye care or family eye doctors and to bringing about change that positively impacts the MOA member doctors and their patients.

February 17, 2017