Need to know more about medical practice financing? This guide should help! Whether you are a physician with a well-established medical office, or you’ve just completed your residency and are starting out, obtaining funding for a medical practice is different from applying for a standard business or personal loan. While the differences do not mean that the process is more difficult, they do mean that you need to carefully assess your needs and identify the approach that fits them best. To help, we’ve assembled the following list of must-know items specifically designed to facilitate medical practice financing.
Medical practice financing – where to start:
There are special Medical Practice Loans, especially designed for healthcare professionals.
Doctors, dentists, and other healthcare professionals can always apply for standard loans. However the specialized medical practice loans available online and through big brand banks were created around the realities of running a medical practice. Meaning, these loans offer additional funds often required to build a healthcare practice. Also they consider items like medical school debts. In addition, they are aware that your practice is likely to earn significant revenue as it becomes more established.
Consider equipment financing instead of a Medical Practice Loan
Though your first instinct may be to apply for a more typical loan, if you’re planning on buying medical equipment then equipment financing may make more sense. Though these loans may require a down payment, they enable 100% financing of the acquisition. They are also structured so repayment is completed when the asset reaches its end of life. This is a superior outcome to having a loan that will continue long after you’ve replaced the equipment. Especially if you will need to purchase something to replace it and take out an additional loan. Paying two loans at once (with one being for an asset that you no longer have) is undesirable.
A Small Business Administration Loan offers options
The Small Business Administration has relationships with lenders that can offer up to $5 million in funding. This is through the 7(a) loan program. The SBA also guarantees a portion of the loan for the lender. This additional protection makes lenders more likely to approve a loan, and at a competitive rate. Note that the SBA will not extend a 7(a) loan to an unestablished business – which eliminates this option for those who have just graduated – but they do have other loan products available for newer businesses
Lump sum funding through term loans
If you need a specific amount of money and need a fixed low interest rate, term loans are a good option. Especially if you have good credit. You can use the money for anything and pay it off over a predictable term. Terms range from 12 months to 5 years or more. However, compared to medical practice loans or SBA loans, the amount of funding may be limited.
Business line of credit
An alternative to taking out a loan for a specified amount of money is applying for a business line of credit. Specifically one that allows you to access as much of your total revolving line as you need and leaves the balance available. This is a particularly good option for managing continuous expenses or those that have financial needs that arise intermittently. The downside of a line of credit is that the rates may be higher than that of other loans. But that aspect is offset by the ability to only use what you really need.
Application Process for Medical Practice Financing
Once you’ve decided on the right loan product, all that’s left is the application process. This process is not all that different from applying for any other type of loan. However, as financing a medical practice is so critical to success, it’s best to do your homework and be prepared.
Here are some key tips regarding preparation for financing:
- Know what your lenders are going to see when you apply by checking your own credit report and score.
- Prepare an updated set of financial statements that include current profit and loss statements. Include an assessment of your practice’s financial health, including cash flow.
- Be prepared to put business equipment or personal assets up for collateral on loans.
- Those just starting out should compile details about what they will need to purchase and what they expect to make. They will also need a comprehensive business plan.
- Those who have been in practice for a while and who plan to expand need to detail their growth objectives. Having a plan for new acquisitions or changes will demonstrate that you are working towards a specific, attainable goal.
And last, tips for documenting financing
- Know what each type of loan requires to meet eligibility requirements to optimize your ability to be approved.
- Understand exactly what your chosen lender expects to see in terms of documentation. Make sure you have copies of each in order to expedite the underwriting process. These may include income tax returns, bank statements, and more.
- Take time to read through the terms of any loan that you’re applying for to ensure that you can comply.
Knowing that a loan is right for you goes well beyond the interest rate and loan fees. Read the small print to make sure that there are no surprises and that you’re choosing the loan product most suitable for your medical practice’s needs.
If you have questions about the financial aspects of your medical practice, please contact our office.
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