Business loans for medical professionals

Running your own medical practice requires sound financial knowledge and management skills, no matter if you’re just starting out or have years of experience as a doctor. And knowing what your financing options are will help you make the best financial decisions for your practice every step of the way.

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6 types of loans to consider for medical practices

What business loan does your medical practice need? We’ve narrowed the list down to six financing options that match how medical practices bring in revenue and their common expenses.

Term business loan

• Funding amount: $2,000 to $5 million

With a fixed term business loan, you can borrow a large lump sum and pay it back over the course of several years. These can have fixed or variable interest rates.

If your business qualifies, you may be able to take out a Small Business Administration (SBA) loan. SBA loans come with a government backing — which means you could have an easier time qualifying for one than you would for a bank loan on your own. But they’re only available if you’ve exhausted other avenues of financing.

Line of credit

• Funding amount: $5,000 to $1 million

Business lines of credit give your medical practice ongoing access to funding when you need it. Use the funds on any business expense that comes up, and you only pay interest on the amount you borrow.

Repayments usually work in one of two ways: Either there’s a minimum monthly repayment amount with no set term, or each draw you make is treated as a term loan with a set amount of repayments over a defined number of months. The first acts more like a credit card, while the other is more akin to a term loan.

On top of interest, your medical practice may be charged a draw fee each time you pull from the line. Or the line of credit might come with a service fee that’s monthly or annual.

Equipment loan

• Funding amount: Cost of equipment

From a suite of office furniture for your lobby to a new X-ray machine, an equipment loan can finance nearly any expensive equipment. The equipment acts as collateral, giving you access to lower rates.

But by backing the loan with the purchase, you risk losing it. If you default on your equipment loan, the lender can collect the collateral in order to make up the lost repayments.

Invoice financing

• Funding amount: Up to 80% of the invoice

Just because your practice has regular patients doesn’t mean you get paid when you need it. Invoice financing is an advance on the amount you’ll be paid by the patient.

Once your patient pays you back, the amount you were advanced becomes due. You’ll also be charged a fee based on the amount of the invoice — usually around 5%.

As a short-term solution, invoice financing can help you free up some working capital. But you’re charged by the invoice, so if you want to advance several at once you’ll still have to pay a fee on each of them. And more fees can pop up based on how long it takes for you to repay the advance.

Invoice factoring

• Funding amount: Up to 90% of the invoice

Invoice factoring works similarly to invoice financing, but rather than receiving an advance on your invoices, you sell your invoice to a third-party. A factor rate is applied — often determined by how long it takes for your patient to pay the invoice.

However, some factoring companies directly state that they don’t work with patient billing, so check if your invoices will even qualify before you apply. And while factoring can get your cash flow going a bit smoother, it usually requires turning over collections efforts to the factoring company which could potentially damage your relationship with your patients.

Short-term business loan

• Funding amount: $2,000 to $250,000

If you don’t need as much in the way of funding these lump-sum loans with short terms ranging from three to 12 months may be a solution. They’re typically used for unexpected expenses or seasonal cash flow shortages, and tend to come with short applications that only take around 10 minutes to fill out.

But the APRs can get painfully high — some rocketing over 50%. And repayments can be daily or weekly instead of monthly. Unless you’re in desperate need and have exhausted all other options, it’s probably best to stay away from these shorter-term solutions.

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What can I use a medical practice business loan for?

Business loans typically aren’t for propping up a failing practice. Instead, they’re an option for medical practices that need to expand.

They’re also a suitable option for doctors who want to buy out another practice or start an independent one. A business loan can cover those crucial starting expenses that can make the difference between success and failure.

A business loan can be helpful for:

What should I consider when comparing business loans?

Taking the time to analyze your loan options will benefit your business and save you money in the long run. Here are some of the top features you should compare in different loans.

• Interest rates. You’ll need to choose what sort of monthly or quarterly payment your practice can handle. A lower interest rate results in a smaller loan, overall. But fees and loan terms may not align with your business needs.
• Loan fees. Most business loans have an origination, service and other fees that your lender will discuss with you during the application process.
• Loan amounts. Most lenders have maximum loan amounts that they offer borrowers. Choose a lender that will fully cover your financial needs.
• Loan terms. Some loans, like lines of credit, have short terms that last only a year or two. Other larger loans can last for many years. Longer terms often mean lower monthly payments — but more money paid in interest.
• Timing. Not every loan type is available immediately. SBA loans can take months to fund, whereas invoice financing can turnaround in five days or less.

What do I need to have my application approved?

Criteria for approval varies between lenders. Though, there are a few simple things you can do to improve the chances of your application being approved.

• Check the criteria. Read the fine print to make sure you satisfy all of the loan eligibility criteria.
• Prepare your financial documents. Make sure your balance sheets are in order. Have a detailed and realistic business plan in place that outlines how your business will grow in the future.
• Get expert advice if needed. An independent accountant can crunch the numbers and help you make an informed decision about your practice’s financing options.

Costs to consider when starting a new practice

For many medical professionals, the opportunity to build your own practice from the ground up is an exciting one. If you’re thinking of starting your own medical practice from scratch, consider the following expenses to factor into your budget:

Many of these are upfront costs you’ll need pay before you even open your doors. A business loan can help get things set up so your first few months run smoothly.

Costs to consider when purchasing an existing practice

If you’ve decided that purchasing an existing medical practice is a better option, there are still several costs to consider. Your financing options will vary depending on if you’re buying only the business or the property too.

With both purchases, the office space will likely already be furnished and suited to many nonspecialized medical practices. Lenders may be willing to extend between 60% to 80% of the business’s value if you’re buying without property — or 100% of the business if you’re buying the business and the property.

Apart from the actual cost of purchasing the business, other costs to consider when buying an existing practice include:

Bottom line

Frequently asked questions

How long will it take to get funding?

It depends on the loan. Some lenders may be able to process and fund your application within a few days. Others, like the SBA, may take many months.

How does my personal debt affect my ability to get a business loan?

If you need to take out a large loan or your lender requires a personal guarantee, your personal debt may prevent you from taking out higher loan amounts.