Hello all, This will be my first post here at the MMM forum, so go easy on me. I have followed the lending club experiment over the years, and now I find myself in a position to make similar loans. I need advice from those with experience making such loans, as I will explain.
As a dentist my practice is always looking for ways to help our patients get the care they need. I was presented with a new option, Compassionate finance. They facilitate me making loans to pts for dental work that I will provide in my office. I set the rate and length of the loan, they handle the credit check and servicing.
I don't have a ton of details as I have not been allowed under the hood completely just yet as I am still finishing the onboarding paperwork, but I am trying to figure out how best to use the tool, and want to make sure it is a safe option for me.
Basically, my patients will make a down payment high enough to cover my hard costs. They will then make an auto payment arrangement with comp finance for the rest. If all goes as planned, they make monthly payments to me for the term of the loan, and in the end I get paid back plus interest.
All fine so far, but the fees have me concerned that the interest received net fees isn't enough to compensate for the risk of default. The company takes 4$/month per loan, plus 0.5% of the remaining balance out of each payment. They also have a $149 per month flat fee per practice. The fees seemed to average 7-9% and the max interest rate allowed in my state for such loans is 17.99%.
If we call my interest rate on the debt 8%, are these loans I should be making?
It gets more complicated of course, because the idea is that by having more flexible payment options, the practice is able to tap in to the vast amount of treatment planned procedures that are needed by patients, but that they aren't undertaking because they perceive them to be too costly. This also allows us to be significantly more productive per hour, and hence, with hard costs covered and variable costs relatively equal, I would be creating paper profits that would pay out each month. Even if there are some defaults, it is work and $$ that would otherwise never have been realized anyway, so it is OK to take on the risk. (The company line, but logical)
Even if folks don't have answers, any help guiding me on what questions I should be asking or what information would be useful would be greatly appreciated. I don't want to get in over my head on this, but it seems like a solid opportunity to help my patients and increase my practice revenues at the same time.