You might have heard that Small Business Administration (SBA) loan interest rates went up effective 12/14/17. If you are like most chiropractors who are looking to sell or transition your practice in the near future — or even if you are on the other side of the fence considering whether you should buy a chiropractic practice, you might also be wondering what the latest interest rate increase can mean for your practice sale or transition.
Here are some thoughts:
SBA Interest Rate Increase Affect On Lending
As of the time of this writing (Dec 2017), The Wall Street Journal Prime is now 4.50% (up from 4.25%). The maximum Small Business Administration (SBA) loan rate is now 7.25% (WSJ Prime + 2.75%).
From a borrower’s perspective, this means that the payment on a $250,000 SBA loan with a 10 year term would increase approximately $34 per month (or $403 per year) at the low end of the interest rate spectrum and it would increase approximately $37 per month (or $442 per year) at the maximum SBA lending rate.
In the big picture, then, the loan rate increase is not likely to squash a potential sale because the increase is still relatively small.
SBA Interest Rate Increase Emotional Affect on Buyers
While it might be true that the math of the interest rate increase will not scare a potential buyer away from a loan, chiropractors who are looking to sell or transition their practice need to keep in mind one very important fact: buyers (of practices, and consumers in general) do not all make decisions based on pure mathematics. In fact, there is an old sales mantra that states that “Buyer’s buy based on emotion and justify their purchase based on logic.”
While the gist of this saying is likely true, there have been recent sales studies and some gurus too who have accurately noted that you can’t completely ignore the left-brained side of the buyer. In other words, while you certainly must appeal to the emotions of a buyer, a major transaction such as a chiropractic practice sale or transition is also going to need to satisfy the buyer’s analytical side as well. In fact, the same can be said on the other side of the fence too — the Seller must also resonate with both the emotional appeal to sell and a logical one. After all, just because the owner feels like retiring doesn’t mean that they will throw logic out the window and sell their $500k practice for $50k!
In this respect, it makes sense to look forward and see what potential affect the SBA interest rate can have in the future.
Future Thoughts on Interest Rate Increase Affect on Buyer
While many potential buyers and sellers of chiropractic practices may perceive the SBA interest rate increase negatively, banks may see it differently! And certainly it’s important for both sides of the equation (buyer and seller) to keep the banks in mind — as they are the ones providing the funding to make your chiropractic practice sale or transition happen.
Why are the banks positive on the SBA interest rate increase? Quite simply, banks view interest rates as a strong economic signal which is good for small business ownership. In addition, this rate increase should encourage banks to lend more — because they will earn more in the long run.
Could This Be An Ideal Time to Sell Or Buy?
Finally, we want to keep all of this in perspective and it’s actually a very positive one all around! Although the Fed anticipates further increases in 2018, interest rates are still historically low. For example, at the time of this writing (Dec 2017), we are at 4.5% compared to 2007 when rates were at 8.25%. So, this is still a great time for buyer’s to borrow money — which also makes it a great time for those looking to sell their chiropractic practice too. As we move into 2018, indications are that this may be a great time to sell OR buy!