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Are you a doctor or other type of practitioner? Do you need money to open, buy, improve or expand a practice? Healthcare businesses often have unique financing needs. One option they sometimes choose is a medical practice business loan.
Is this a financing option that best suits your needs?
This article explains what you need to know to determine whether a medical practice loan makes sense for you and your healthcare operation.
What are medical practice business loans?
A medical practice loan provides doctors and other medical practitioners with the funding they need to open, run and expand their businesses.
The amount you can borrow with a medical practice loan — and the structure of the financing — depends on what you need the funding for. Loan amounts can range from a few thousand dollars to five million dollars or more to help cover the cash-flow issue of opening a new location.
Traditional banks and online lenders offer medical practice loans that can be used by general practitioners and family physicians, as well as specialists such as dermatologists, optometrists, pediatricians, plastic surgeons, podiatrists, sports medicine specialists, and others.
Most medical practice loans are reserved for physicians who have already been in business for a few years. Some may be available to those who hold a license and are preparing to start practicing. New doctors are more likely to be approved for financing from alternative lenders. This also applies to doctors, dentists and other medical professionals who are still in residency and planning to start their first practice.
Physician loans are usually secured. However, some may be unsafe. You may be required to sign a personal guarantee, which makes you personally responsible for the loan. You must also put up assets owned by the business, such as property, vehicles and equipment, as collateral.
use of physician practice loans
The money obtained from the doctor practice loan can be availed for a number of purposes. Some common ones include:
working capital
Working capital is money that you use to run your business on a day-to-day basis. For example, if you are a business owner who needs cash to make payroll or pay your rent while waiting for accounts receivables, money from a medical practice loan can provide the working capital you need.
Buying Supplies and Inventory
Another common use for medical practice loan proceeds is to stock up on inventory and supplies needed to treat patients, especially during unexpected regional medical crises. Leveraging financing for this purpose allows you to meet patient demand without negatively impacting cash flow.
equipment financing
For many medical operations, especially clinics, radiology practices and dentist offices, equipment is a significant expense. Medical practice loans make it possible to purchase new equipment or upgrade it as needed. The money from these loans can be used to purchase everything from essential items such as examination tables and computers to more specialized and expensive equipment, such as X-ray imaging machines, retinal scanners and surgical instruments.
buying or improving commercial real estate
Many types of medical practices require highly specialized locations to operate. Not any ordinary storefront will do. So real estate is a significant expense for many practitioners. With the constant advancements in healthcare, it is necessary to upgrade or reconfigure spaces. Medical practice loans for real estate are similar to your mortgage on your home and can cover all types of real estate purchase and improvement needs.
The initial cost
Starting a new practice typically costs a lot of money, more than most medical school graduates or their families can afford. You’ll need to obtain office space, hire and train staff, buy equipment and supplies, fund marketing and promotional activities, and more. A medical practice loan can help cover some of these common startup expenses.
buying an existing practice
Finding a successful medical practice is often a wiser, though costly, option than starting one from the ground up. If a physician you know is retiring, they may prefer to sell their practice to a trusted colleague rather than close it. Medical practice funding can help finance the purchase of an existing medical practice.
medical business loan refinance
If you already have loans associated with your medical practice, refinancing them can save you money in the long run. It can also simplify bookkeeping. If you’re able to get a new physician loan at a lower rate, you can streamline your payments and lower the total cost of your loan. Keep in mind that in today’s world of rapidly rising interest rates, it is unlikely that you will want to refinance older loans taken out over the past decade.
medical practice financing options
There are several loan options for securing medical practice financing, depending on your cash needs and what you need the financing for. With that in mind, here are popular funding options for medical practices:
medical practice loan
Medical practice loans are specifically developed to meet the unique needs of doctors, dentists and other healthcare professionals. These specialized business loans are available through traditional banks and financial institutions and through alternative and online lenders. What differentiates medical practice loans from other types of business financing is that they are designed to meet the unique needs of medical professionals and their financial realities.
For example, if you are starting a practice while paying off medical school loans, your higher earning potential may make the lender less likely to count that loan against you for loan approval purposes. In most cases, a small business owner will not receive the same consideration.
Medical practice loans generally have higher borrowing levels than other small business loan types.
equipment financing
If you need funds to purchase medical equipment for your practice, an equipment loan may be a wiser option than a physician loan. With equipment financing, the equipment usually serves as collateral to back the loan. Equipment financing typically comes with lower interest rates than other types of loans. The terms usually align with the expected life of the equipment. Sometimes, this type of loan requires a down payment, but it is possible to obtain full financing for equipment from some lenders. Often, financing is available through equipment suppliers.
Term loan
Term loans provide a one-time cash advance, usually at a fixed interest rate. You can then use that money to buy or operate any healthcare business.
Short-term loans generally come for a period of one year or less. Long-term loans usually give you five to thirty years to repay them. (The longest terms are typically for real estate loans.) Term loans to doctors with good to excellent credit scores come with relatively low interest rates and favorable repayment terms.
Be aware: You may not be able to borrow as much with a non-medical term loan as with a medical practice loan.
Small Business Administration (SBA) loan
In most cases, the SBA does not offer direct financing. loans are provided Through a network of approved small business lenders. The SBA guarantees a percentage of each loan. Think of it as an insurance policy that protects lenders from default. The guarantee encourages them to provide more financing to eligible small businesses.
Small business owners can access up to $5 million in funding through Popular SBA 7(a) Loan Programs, The interest rates are attractive, and you can access the loan for virtually any business need.
SBA loans are usually reserved for more established businesses. If you need funding for a medical startup, a Small Business Administration loan probably isn’t right for you.
business line of credit
A business line of credit is a revolving line. Instead of receiving a lump sum of cash when you are approved for it, you get a credit limit that you can draw from as and when required. You only pay interest on the money you borrow.
Getting a business line of credit can be a smart move. If your practice ever has an emergency financial need, you can rest assured knowing that you have a line of credit to borrow from. Business loan limits come with reasonable interest rates which are slightly higher than term loans.
Application process for medical practice funding
Completing a loan application for medical practice financing is similar to the process for other types of business loans, whether applying for traditional bank loans or through alternative lenders. Here are steps to make you more likely to be accepted.
- Review your credit report and score. This will give you an idea of what a lender will look for during their financial review. Take steps to correct any errors before applying for the loan.
- develop or update a full business plan, This will help lenders understand what you will be using the financing for and how you plan to repay it.
- Take stock of the financial status of your business. Review important reports, including your profit and loss and cash flow statements, to make sure everything is as healthy as can be.
- Consider what collateral you can put up to back the medical practice loan. Figure out what personal property or business equipment you can offer.
- Compare eligibility requirements. This will help you determine which loans and providers have the best chances for approval. Traditional lenders have more stringent requirements than online lenders.
After selecting the lender, read and complete the application thoroughly. Make sure you provide all the information requested. Include copies of your personal and business tax returns and bank statements, if required, as part of the loan underwriting.
Finally, review the loan terms before you agree to any financing. Consider the annual percentage rate, loan fees and repayment terms to make sure you can pay the money back.
How to get quick access to financing
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