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This article is sponsored by Doc2Doc Lending. Find out more about personal loans for physicians from Doc2Doc Lending.
For the vast majority of us doctors, a career in medicine will also mean spending a significant portion of our adult lives carrying multiple forms of debt. Understanding student loans (the average medical school graduate in 2019 had $201,490 in student loans while the average dental school graduate had $292,159), credit card debt, home mortgages, car loans, and practice loans, becomes a worthy exercise given the potential impact – both positive and negative – these products can have on our personal and professional lives as we consume them.
We’d like to propose a methodology to understand and assess loan options, using a doctor-specific perspective, to better appreciate when the pros outweigh the cons or vice versa. This methodology is based on our experience in speaking with applicants through the Doc2Doc Lending platform (the platform facilitates personal loans exclusively to physicians and dentists, and as part of the application process offers each applicant a call with a doctor-member of our Doc2Doc team to speak through the product, application process, and the applicant’s goals) and it is by no means meant to be financial advice. Through these conversations, we have observed many similar themes that arise from applicant to applicant which has formed the basis for this construct.
In our experience, there are three common areas that will generally be the determining factors as to whether a loan may make sense:
- the immediate and future impact on cash flow
- the total cost of the money borrowed over the entire term of the loan
- the degree of flexibility built into the terms of the product
Calculating personal cash flow
Cash flow is the calculation of how much money comes in (usually calculated monthly) minus how much goes out. Taking on a loan can have either a negative (e.g., taking a mortgage for a second home) or positive (refinancing credit card debt to a lower rate) impact. For doctors, this calculation will usually change at discrete moments in time, so it has to be made for the current state and the predicted future state(s).
For example, a doctor who is joining a private group practice immediately after training may have the option to buy shares of that practice at the time they join. Possibly, she will not have the capital to buy the shares, even if it were in her financial interest to do so, and so she will explore financing an equity stake in the practice through a loan. To know if taking a loan for the buy-in is financially possible, she first must calculate her monthly cash flow as she begins working in the new practice. This will determine not only if the loan makes sense, but also how much she can afford to borrow (and thus how many of the shares offered she can purchase upfront).
Over time, as she establishes her practice and begins receiving bonus payments as an equity partner (or not), her cash flow position may change which may impact her decision-making with regards to borrowing initially. Therefore, the future, predicted cash flow should also be considered.
Cash flow is most sensitive to:
- the term (duration) of the loan
- the interest rate of the loans
- the fees built into the loan
- income
Understanding the cost of capital
The next important feature to understand with any loan is how much it will cost to borrow a specific amount of money. This is the amount that the institution will make from lending the money to a borrower.
By way of example, a 30-year, fixed-interest home mortgage for $500,000 at 4.0% annual percentage rate (APR) will cost approximately $359,347 in total interest over the entire term of the loan. Both cash flow and the total cost of capital can vary significantly between one loan product to the next.
Loan flexibility to meet your needs
This may be the most underappreciated component when evaluating whether a loan is the right option. As doctors, there are discrete milestones in our careers when our financial situation changes.
- When graduating from medical school to residency, most transition from taking loans to making a salary and making payments.
- When transitioning from training to the first practice position, a doctor’s salary will increase by several multiples. Ideally, a loan will have the capacity to accommodate the financial goals at each of these periods.
The most common hindrance to allowing this flexibility is in the form of pre-payment penalties. These may be referred to as an “interest-guarantee” or “lockout” in the terms of the loans and can be missed if not studied carefully.
The obvious benefit of avoiding a prepayment penalty is that, as our financial situations predictably change, so too can our approach to removing debt as minimal costs. In the example used above, as the doctor who bought in to her private practice begins seeing an increase in her monthly cash flow, she could choose to pay off the loan used for the initial buy-in more quickly than the term dictates. If there were no prepayment terms, paying this debt off early would also decrease the cost of capital associated with that loan.
As doctors, debt is a real and important part of our personal and professional lives. We hope this framework may serve as a starting point for better understanding when a loan is the right decision for you.
Kenton Allen and Zwade Marshall are anesthesiologists. They are cofounders, Doc2Doc Lending, a novel lending platform created for doctors, by doctors, with the aim of facilitating fast access to personal loans at rates that make sense. Doc2Doc Lending was founded on the belief that doctors are a unique group that are more responsible in repaying debt obligations than the general population. Doc2Doc Lending employs a proprietary underwriting algorithm that considers doctor-specific metrics to enable interest rates that are often more favorable than those found at traditional banks. Drs. Allen and Marshall are neither licensed financial nor investment advisors; they are not accountants or attorneys. Any opinions expressed above are solely their own. Learn more at www.doc2doclending.com.
Image credit: Doc2Doc Lending
Transcript
Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Today, we have a special sponsored episode. On the show, we have Dr. Zwade Marshall and Dr. Kenton Allen. They are both physicians, and they’re here to discuss a topic familiar to many of us, the financial challenge of being a young doctor, and the solution they have created that is disrupting the personal loan industry for doctors and dentists. It’s called Doc2Doc Lending. Zwade and Kenton, welcome to the show.
Zwade Marshall: Thank you for having us, Kevin. We’re both consumers of your content, and so we’re very thrilled to be here with you.
Kevin Pho: Thank you so much. So, I’m going to ask both of you to introduce yourselves and to really share your story and your experience with the financial challenges early in your careers. Kenton, why don’t you go first?
Kenton Allen: Kevin, thanks again for having us. Like Zwade said, we’re excited to be here. We are very familiar with KevinMD and have benefited from the content, so to be part of things today is exciting for both of us.
I’m a practicing anesthesiologist. I started my career training at Dartmouth, was part of an MD/MBA program there, and upon graduation went to Brigham and Women’s Hospital to train in anesthesiology. That’s where Zwade and I met; we were co-residents there in Boston. I went back to Dartmouth to specialize in regional anesthesia and acute pain and have since set up my practice in New Hampshire, where I’m the incoming president of the New Hampshire Medical Society.
My history and experience of needing access to capital early in my career came when I was a resident. When I left Dartmouth, I had $225,000 worth of debt. My salary in Boston was about $54,000 a year. I had two young kids. My wife was a nurse who supported me through all of my schooling and had some personal and professional goals of her own that she wanted to pursue, which would take her out of the workforce for that period of time. And so if we wanted to move forward on all cylinders, we needed to supplement my residency salary. We went to some financial institutions to see what that would look like, and we were surprised by the fact that I was viewed as high-risk. The reason for that was the debt I carried, and my salary was relatively depressed during those training years. My credit score was immature, not because I had any black marks against me, but just because I had a limited credit profile. And so it was frustrating, because by most measures it seemed as though I was on a successful career trajectory. I had some informal job offers even at that time. But to the banks, I looked like a high-risk borrower.
And it’s a pretty familiar scenario, as we started to share this frustration with people. We go into medicine expecting to have a rewarding career in medicine with financial stability. But what is less commonly realized is the mountain of student loan debt that it takes to get to that point, the three to eight years of relatively deferred salary during training, and having to move from coast to coast, and sometimes back again, during the training years, which comes with a cost. And for a lot of us, those are the times that we want to start a family, and that strains finances. And once you get out of training, you need to be able to evaluate business opportunities, employment contracts, and whether buying into practices is a good investment, and that comes with some financial savvy.
And so we started Doc2Doc Lending to help soften some of the financial stress around these predetermined pathways that we go through in order to have a career in medicine and in dentistry. And so my experience is not that unique from a lot of people that we speak to, and continue to speak to, today.
Kevin Pho: So Zwade, I want to ask you the same question. Can you just introduce yourself, share your story, and share your experience with financial challenges early in your career?
Zwade Marshall: Sure. Thank you. I’m a first-generation physician. I’m a trained anesthesiologist and did a subspecialization in interventional pain management. I’m currently in Atlanta, Georgia. I own my own interventional pain practice and was formerly a partner in a large private equity-backed group here in Atlanta as well. As Kenton referenced, we met at Harvard. We did our training together at Brigham and Women’s Hospital and forged a quick and durable friendship, since we were both MD/MBAs and had entrepreneurial spirits in common. Prior to Harvard, I went to medical school at Emory in Atlanta.
And in fact, the transition from medical school to residency was the critical experience for me to understand the need for our company. I was moving from Atlanta, in what used to be a low-cost-of-living city. It’s no longer that cheap anymore. I was going to Boston, one of the highest per capita rental markets in the country. I needed to borrow first and last month’s rent and a broker fee and did not have the 18,000 bucks to do so. My parents didn’t have it, so I needed to borrow the funds. At that time, similar to Kenton, I had significant student loan debt. It was north of $200,000. My income was 54,000 bucks as a resident, and my FICO score was sub-700. I borrowed the money from a private bank, and the rate was exorbitant, and it felt unfair, because I’d worked hard in my profession and incurred debt that I could not avoid to educate myself, and then I was being penalized for it. So Doc2Doc was created to better serve our peers and their financial needs than banks and big box lenders do.
Kevin Pho: So, I was going to ask you this question. Based on these experiences, you and Kenton created Doc2Doc Lending, and it makes personal loans using doctor-specific factors. Can you tell us a little bit more about Doc2Doc Lending, and what is it that makes it different from traditional banks?
Zwade Marshall: Sure. We created Doc2Doc with the intent of being different, because we are doctors, and we’ve lived through those experiences ourselves. So we intimately know the scenarios that lead our borrower base to access capital. We do consider credit scores and cash flow, but we also give our specific borrower base credit for being doctors by evaluating based on some proprietary physician-based factors. And if I told you what they are, Kevin, I’d have to kill you. But it’s important to note that our product is for personal loans only. So it’s unsecured, meaning there’s no collateral, unlike a mortgage or an auto loan. We also do not require school certification from your financial aid office, like other companies may require.
Many of our borrowers have been denied loans by traditional big box lenders or have had to go through the arduous process of credit approval that, quite frankly, feels as painful as some of our medical procedures. So our team of physicians engages with borrowers at times convenient for them. It’s nights, it’s weekends, it’s post-call, whenever. We’re there to speak and to engage. And finally, we are doctors, and our name is based upon our initial loans being funded from investments by other doctors. So we view doctors differently than all the other banks do.
Kevin Pho: And Kenton, is it common for doctors to have to borrow money outside of their student loans? And if so, what are some of those common reasons?
Kenton Allen: You know, Kevin, when we were first envisioning and considering starting Doc2Doc Lending, we were surprised in our market research how common it is for doctors to need consumer loans, and even more common to take on credit card debt that can’t be paid off in the foreseeable future. Our business to date has further supported that. We’ve made loans in over 20 states across 26 different specialties in medicine, representing well over 50 academic institutions. So among our borrowers, we count alumni, trainees, and faculty at places like LSU, Cornell, Penn State, UCLA, Harvard, Emory, Johns Hopkins, Dartmouth, Howard, and UMass. The list goes on. It’s not geography-specific. It’s really a universal phenomenon that this path to medicine and dentistry oftentimes requires consumer debt to get from point A to point B. And we’ve tried to meet that in a way that’s friendly.
Now, to your question as to what the specific reasons are that we see people borrowing, it tends to be around this predictable pathway in medicine and dentistry. One is with regard to transitions: transitions from residency to fellowship, and fellowship to your first job. Like Zwade, moving expenses, first and last month’s rent, is a very common reason. Another common theme is starting a family, whether it be weddings and engagements. These are things that tend to happen during the period where we have the deferred salaries of residency. Then there’s starting a family with regard to children, and child care expenses. And we’ve had people who want to take additional time off, more than their employer will support, and need the financial resources to do that. We’ve also seen applications for things such as oocyte cryopreservation and surrogacy, and these are families who don’t want to put their career on hold but also want to start their family at the same time, and those can be expensive.
We’ve assisted a lot of people who are working to get their financial house in order, so refinancing of credit card debt, for example. Not only did we improve the rate on that debt, but we also improved the credit profile by improving the used-to-available credit ratio. We see a lot of business opportunities. These are, as I mentioned earlier, people who want to buy into their practice, want to expand services within their practice, or even support a passive income stream, and these have ranged from things such as real estate to starting food trucks.
And then the last common theme I’ll mention there is the unexpected: the medical costs related to an unexpected illness within the family, natural disasters, things that you don’t budget for that come up and can be particularly stressful within the first decade or two of a career in medicine. And we continue to learn more each day, as we work with more and more doctors, about their reasons and where these stress points exist.
Kevin Pho: Zwade, having lived through these scenarios of having to borrow yourselves, and having spoken with so many other doctors who have been in similar situations, what would you say to physicians and dentists out there who may feel like a loan could be right for them?
Zwade Marshall: Sure. I think first and foremost, it’s important to know that you’re not alone. As a collective, I think physicians feel a sense of shame and embarrassment from needing to borrow money personally. Our team is here to help you do it thoughtfully, with full recognition of the consequences of debt. So reach out to us. There’s no cost to apply. We only do a soft credit pull, so you get the full benefit of our collective input on your precise borrowing need. Our website is doc, the number two, doclending.com. Applying for a loan takes about three minutes on our online platform, and you’ll receive a call from us within 24 to 48 hours. We’re happy to have conversations with our peers. I can provide conditional approvals very quickly and efficiently.
Kevin Pho: And Kenton, what do you think are the most common misconceptions about debt among doctors?
Kenton Allen: Yeah, it’s a good question, because we do speak to a lot of people about debt, and we categorize it into two common misconceptions. One is that all debt is the same. And then the second is common confusion between interest rate and APR.
With regard to the first point, debt being the same, I think most doctors are pretty familiar with student loans and home mortgages, which are different than consumer loans, which is a personal loan, which is what Doc2Doc offers. As for the difference between the two, first of all, student loans oftentimes are federally backed. And because they’re federally backed, regardless of your profile, you’re offered the same interest rate. So right now, it’s 4.5 percent. Those interest rates really are based on economic conditions as opposed to an individual borrower profile. Mortgages are different in the sense that they’re secured, and they’re secured by that asset. In this case, it’s the home. So in the event that the loan isn’t paid, the bank has access to that asset.
Now, the difference with a Doc2Doc personal loan, or any personal loan, is that it’s not federally backed and it’s not secured. And because of those reasons, the interest rates tend to be higher than those two types. And again, it’s kind of a common misconception between debt types. Now, the flip side, the advantage of consumer or personal loans, is that they can be used for almost any reason. We can offer that capital for whatever the stress happens to be.
The second point, the APR versus the interest rate, this is important. The difference between the two is that the annual percentage rate, or APR, also includes all of the fees associated with a loan. And so when you’re making an apples-to-apples comparison and shopping for what loan product might be best for you, really, it’s the APR you want to compare. Now, the trick is that a lot of times with these pre-approvals, you’re given the interest rate and not the APR initially. And so you can think that a loan is looking pretty good, but then when you get all the fees piled in, the effective interest rate, or the APR, is quite a bit higher. And we make this really transparent and open from the time you apply: the interest rate, the APR, and your monthly payment. So you have all the information to decide.
Kevin Pho: And Zwade, I imagine that you have learned quite a bit in speaking with so many doctors considering a loan. Are there any specific takeaways that you think would be worthwhile sharing with the medical community?
Zwade Marshall: Sure. I think we learn something from every conversation that we have. I know that personal circumstances differ, but the career trajectories follow a very similar pattern. Because there’s been so much engagement around financial literacy, particularly in light of COVID, we created a platform for these discussions. So in addition to speaking through the individual loan application and the personal circumstances of every borrower, we invite each into an invitation-only community that we created called DocSential. This is a doctor and dentist app-based platform developed to address the need for doctors to have a trusted source for financial information. Doctors can share their knowledge and experiences with peers, and our group of expert moderators provide resources for them. Anyone who applies for a loan, whether it is accepted or not, is given an invitation to join.
I’ll tell you about one of our earliest borrowers, and it’s kind of like the arc of what our loan process really does and why we’re so passionate about this. This was a young man who went to a prestigious New England, or Northeastern, Ivy League medical school and matched into a California residency program. He needed to cover relocation expenses, and he was a first-generation doctor who did not have the family resources to cover those costs. He applied for a loan from us and went through the application process. I’m not sure we’ve said this enough, but it’s a tailored process in which we speak with our borrowers as physicians. So every borrower that comes through speaks to a physician member of our team.
During the course of that consultation, we realized that not only was he moving, but he had his board exam scheduled for within two weeks after he got to California. Shortly after he arrived, we funded his loan and then sent him a welcome and thank-you package saying, “Welcome to the family.” And with that package, we sent over some board prep materials for him. Kevin, when he called us back to say that he got it, you could hear the emotion in his voice, because we fully understood the stress, the anxiety, and the pressure that he was feeling, moving to a new city with a new level of responsibilities as an intern and having board exams, but also being cash-strapped. We aim to provide that support and safety net for our borrower base, not just with the money, but also with an empathetic ear that’s been there already ourselves.
Kevin Pho: And Kenton, many medical practices and the personal finances of medical professionals have been significantly impacted by the COVID pandemic through 2020. How has Doc2Doc Lending been impacted by COVID-19 over the past several months?
Kenton Allen: I’ve yet to meet a doctor who hasn’t been impacted by COVID. And I can say personally, in my practice, we stopped any non-emergent surgical cases for about three months, and with that went the revenue that we typically make in our practice. From Doc2Doc’s perspective, we saw a significant increase in applications for our loan. And not surprisingly, that increase in demand was so much that we had to institute a waitlist to fund our loans. Now, fortunately, in conjunction with that increase in demand was an outpouring of support from individual investors. These were people who believed in our mission at Doc2Doc and wanted to help support these loans to doctors who either personally or professionally needed a bridge. And that outpouring of investor support was enough that we were able to fund all those loans, and today we have no waitlist and continue to fund loans as they come in.
Now, the additional point through this pandemic is that our business theory, that doctors are different than the general population, has been proven. And it’s been proven in that over the last 18 months, which has included this entire period during the COVID pandemic, we’ve not had one 30-day late payment. And that’s across our entire portfolio. For all of our borrowers, not one has been late. Now, that compares to the industry, where about 16 percent of personal loans are impaired currently. And that certainly has gotten attention and allowed us to get even additional funding so that we can continue to grow and continue to assist and partner with other doctors moving forward.
Kevin Pho: So when you shared that story about that doctor who previously got that loan from Doc2Doc, I was wondering, can you share any other common scenarios where physicians could benefit from your loans?
Zwade Marshall: I think Kenton alluded to this earlier, but one of the more exotic borrowing needs that we didn’t think of when we formed the company was the challenging sojourn for our female counterparts who are entering sometimes very, very long residency and fellowship programs and are concerned about their fertility. And so oocyte cryopreservation has been something that we didn’t predict would have the demand it does, but it certainly has been a reason. And I mention that because there’s some energy on the West Coast in specific, where there are movements now to try to have loans cover fertility, student loans, that is, fertility for in-training physicians, and that’s not gotten any energy legislatively yet. And so we’re happy to be a stand-in for female peers who are thinking about their fertility and their future.
Additionally, we have a lot of young doctors that are entering practices and looking to borrow to become partner or to expand practice lines within their medical practices. And so with Doc2Doc being able to help fund a larger loan offering from a traditional bank, our loan can help get their rates more competitive and get points reduced for a larger practice loan. So again, ours is a personal loan. It’s not a practice loan, but it helps to get practice loans more competitive. And so overall, our key and our philosophy here is that if it’s a personal reason, there’s no reason that we deny our loans. So we only ask why to provide guidance and advice, but not because it’s ever a reason to deny a loan for our borrower base.
Kevin Pho: And Zwade, it sounds like Doc2Doc is disrupting the personal loan industry for doctors. Did you expect to have this magnitude of impact when you first started?
Zwade Marshall: Hey, Kevin, this has been a tremendous ride, and I wish I could tell you that we knew it was going to be what it’s turned out to be, but we didn’t predict this. I think Kenton and I knew the idea was valid, because we approached this as academics, right? We’re physicians. We’re scientists. So we built a hypothesis and began to systematically test our assumptions. The enthusiasm in our base has been the biggest surprise. The fact that so many of our borrowers refer their friends to us has been amazing. And similarly, the investor base has been tremendously supportive. We’ve got faculty members and physicians across the country that tell their trainees about us as a course of just mentorship to them. And that tells us a lot. When you’re willing to put your reputation on the line and recommend a company, our company, to people that are putting their implicit trust in you, that really says we’re doing something right here.
Could we have predicted that a global pandemic would ensue and financial markets would stop giving loans? No. Could we have predicted that other lending companies would see the huge spike in defaults, as Kenton mentioned, at 60 percent? No. And then, could we have even imagined that a company of our size and scale and stage would have our borrowers have absolutely no defaults or delinquencies? Absolutely not. But we’re excited about all of this, and we look forward to providing an alternative way of financing for physicians compared to the status quo, which is thoughtless when it comes to our unique population, our unique challenges, and the onerous burden of the financial toll that becoming a physician takes.
I think we’re a tough group in general to be sympathetic toward, because folks presume that doctors are all financially well off. The reality, and part of the embarrassment, is that many of us struggle for a very long time just crawling out of debt, because it’s so expensive to get to the point where you’re finally a physician that can actually charge for your services.
Kevin Pho: Once again, this is a special sponsored episode of The Podcast by KevinMD. We’re talking to Kenton Allen and Zwade Marshall. They are both physicians, and they are co-founders of Doc2Doc Lending. Now, I’m going to ask both of you the same question. Kenton, what is your take-home message that you want to leave with the KevinMD audience?
Kenton Allen: Kevin, we just want to let people know that if they find themselves in a situation similar to the ones that Zwade and I have both lived through, and there’s a financial stressor that you need some assistance with to get yourself from point A to point B and help fuel your success, whether it’s professional or personal, Doc2Doc Lending was created to help you do that in a way that’s fair and recognizes that you are valuable by the fact that you’re a doctor. It takes that into account not only in the way that we designed our company and the process of applying for that loan, but also in how we underwrite and determine how much that loan costs. Basically, we take into account doctor-specific factors to determine an ultimate interest rate. And we do this in a way that’s as fair and transparent as possible for this specific niche population.
We don’t have any prepayment penalties, because we recognize that salaries change dramatically, and for those who want to get out of debt quickly, that option can be there at no penalty. We design our process with the demands of our career in mind. It’s a short, automated process online that can get you the information you need quickly, with no damage to your credit score, so you can decide on the spot whether you want to move forward or not. So again, this company was founded by doctors, with investments from doctors, to help other doctors, and Zwade, myself, and the rest of the company, we’re here to help when those instances arise.
Kevin Pho: And Zwade, what is your take-home message that you want to leave with the KevinMD audience?
Zwade Marshall: I think Kenton said it eloquently, and so I’m not going to go after that, but I’ll just emphasize the closing point here, which is that the company was conceived with physician needs in mind, with their schedule, with the burden of their financial obligations in mind, by other physicians. And they’re going to realize when they speak with us that we’re different, and we aim to be different by creating this product that’s tailor-made for doctors. And so if there’s any thought, if there’s any struggle around finances or need to access capital, don’t struggle with it. Just reach out. Doc2Doc, that’s doc, number two, doclending.com, and we’ll be happy to take your questions, process your applications, and get you a conditional approval quickly if you have that need.
Kevin Pho: All right. And Kenton, I know Zwade mentioned a website. Any other ways that we could reach you in case we want to find out more about Doc2Doc Lending?
Kenton Allen: Yep. Thanks, Kevin. That’s exactly it. So our website is doc, the number two, doclending.com, all one word. For anybody interested, the apply now button is right there on our homepage. It’s a fully automated system. It takes about three minutes to apply. Within 24 to 48 hours after that application, you’ll receive a call from Zwade, myself, or one of our physician members on our team. You’ll get your interest rate, your APR, and your monthly payment, all there to decide whether it’s something you’d like to move forward with, and like I said, we’re available to speak through all of those terms. There’s no impact on the credit score. It’s all done through a soft credit pull, so there’s no harm in applying and exploring. For anybody who’s interested in the company outside of applying for a loan, there’s also a request more information section on the homepage of our website. It’ll collect your contact information, and we’ll reach out to you shortly thereafter, and we’d be excited to speak about whatever questions you have.
Kevin Pho: Great. Kenton and Zwade, thank you so much for your time and insight, and thanks again for being on the show.
Kenton Allen: Thank you, Kevin.
Zwade Marshall: Thanks so much, Kevin.
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