A physician's guide to medical practice loans
After spending countless hours locked away in the library studying for exams, fulfilling medical school requirements, and learning the ropes in residency, starting and running your own practice may seem like a breeze in comparison.
But, just like any other small business owner, you may find yourself in a situation where a lack of funds is preventing you from taking your practice to the next level.
Medical practice loans are one type of small business financing you can use to meet those needs.
If you have strong personal financials or you’re already running a booming practice, you could be a great candidate for a medical practice loan. Understanding the different options for funding and how you can use loans to advance your practice can help you decide if it’s right for you.
What are medical practice business loans?
A medical practice loan is designed to offer doctors and specialists the funding they need to operate and grow their business. The total dollar amount you can borrow with a medical practice loan depends largely on your use-case, and thus can vary greatly.
To provide some context, it is possible to find certain lenders who offer loans in the $25,000 range for your medical practice, while other lenders may provide as much as $5 million. Medical practice loans can be used by general and family physicians as well as doctors who specialize in specific areas, such as dermatology, pediatrics, plastic surgery or podiatry.
Most medical practice loans are designed for physicians who are already practicing or are licensed and preparing to start a practice. But there are some lenders who will make medical practice loans to doctors, dentists and other medical professionals while they’re still in residency and planning to open their first practice.
Physician loans may be secured or unsecured. At the very least, you will likely be expected to sign a personal guarantee, which would make you personally responsible for the loan.
Physician practice loans: what can they be used for?
Physician practice loans can be molded to a number of different needs. Some of the most common use cases for medical practice loans include:
Working capital refers to the funds used to run your business on a day-to-day basis. If you’re a business owner who needs money to cover your practice’s payroll or make your monthly lease payments while you’re waiting on your outstanding accounts receivable to be paid for example, medical practice loans can fill the gap.
Another use for medical practice loans is stocking up on inventory and other supplies necessary for treating patients. This form of business financing allows you to buy inventory as needed to meet demand, without putting any added pressure on your cash flow.
Equipment can be one of the largest expenses associated with running a medical practice. Medical practice loans give you a way to purchase or upgrade your equipment as needed. For example, you might use a loan to purchase everything from basic items like exam tables and computer software to more specialized equipment, such as x-ray imaging machines if you’re a dentist, or retinal scanners for your optometry practice.
Expanding or purchasing commercial real estate
If your medical business is growing steadily, you might need to expand your practice’s existing office. Or, you may be ready to open another location so you can accommodate more patients. Both can come with a laundry list of costs, including construction or renovation costs, hiring new staff and purchasing new equipment. Medical practice loans can cover all of those needs.
Starting a practice for the first time comes with an extensive list of expenses you have to account for. You’ll need to hire and train staff, outfit your offices with equipment and supplies, pay for marketing and advertising, as well as cover the initial costs of leasing or buying a space and paying utilities. A medical practice loan can help cover some of these initial expenditures.
Acquiring a medical practice
Acquiring an existing practice is an alternative to starting from scratch. If a physician you know is retiring, for example, they may be willing to sell their practice to you. Medical practice loans can help with financing the purchase of an existing medical practice business.
Refinancing business debt
If you already have loans associated with starting, growing or acquiring a medical practice, refinancing them could save you money and time. If you’re able to get a new physician loan at a lower rate, you could streamline your payments and reduce the overall cost of your debt.
Loans for medical practice: what are my options?
There’s more than one way to get funding for your medical practice. The path you choose depends largely on your needs and what type of financing you’re most likely to qualify for. With that in mind, here are five ways to fund a medical practice:
1. Medical practice loans
As already discussed, medical practice loans are specifically designed for doctors, dentists and other healthcare professionals. These types of specialized business loans are available at traditional banks like Bank of America or Wells Fargo as well as through online lenders (although loans for medical residents are largely limited to traditional banks). What tends to set them apart from other types of business loans is that they’re designed to account for the unique needs of doctors and their financial background.
For example, if you’re just starting your practice and you’re working on paying off medical school debt, a lender may be less likely to count that against you for approval assuming you have a high earning potential. Medical practice loans can also come with more generous borrowing limits compared to other business loan options.
2. Equipment financing
If you specifically need a loan to buy expensive equipment for your practice, you may consider equipment financing in place of a physician loan. With equipment financing, the equipment typically serves as collateral. Sometimes, a down payment is required with equipment financing, but it is possible to get 100% financing for equipment with certain lenders.
Equipment financing is designed to offer repayment terms that the fit the lifespan of the equipment. So if you’re buying a piece of medical equipment you expect to last 10 years, the repayment term could also be that long.
The one mistake you want to avoid with equipment financing is agreeing to a loan term that outlasts the equipment itself.
If you have to replace the equipment before the original loan is paid off, it’s possible you may have to get another loan to cover the replacement if you don’t have cash available. Then, you’d be carrying two loans until the first one is repaid.
3. Term loans
Term loans offer a lump sum of capital upfront, typically at a fixed interest rate. You can then use that money however you see fit in your practice.
Short term loans typically have a payoff period lasting 12 months or less; long term loans may give you five years or more to repay. Term loans can offer low interest rates to doctors with good to excellent credit scores, as well as predictable repayment schedule. One potential downside is that you may not be able to borrow as much with a term loan compared to a medical practice loan.
4. Small Business Administration Loans
The SBA doesn’t make small business loans loans directly. The organization works with lenders that do offer small business loans, guaranteeing a portion of the loan. This acts as an insurance policy for the lender, which encourages them to make loans available to eligible businesses.
Qualified borrowers can get up to $5 million in funding through the 7(a) loan program. Rates are competitive and similar to term loans, you can use the loan proceeds to meet virtually any need.
One thing to know about SBA 7(a) loans: they’re designed for established businesses. If you’re fresh out of medical school and planning to start a practice, a 7(a) most likely isn’t an option you’ll be able to pursue right away. However, there are other SBA loan programs that newer businesses can take advantage of. You can learn more about them here.
5. Business line of credit
A business line of credit is a revolving line, which means that instead of getting a lump sum of money, you have a credit limit you can draw against as needed. It’s almost like having a business credit card in that it’s a flexible way to spend, and you only pay interest on the amount of your credit you utilize.
Getting a business line of credit could be preferable to a loan if your practice has ongoing financial needs or you’re worried about borrowing more than is really necessary. Just keep in mind that a business line of credit often comes in at a higher interest rate than a traditional loan.
How to apply for medical practice financing
Applying for medical practice financing is similar to applying for any other type of business loan. The best thing you can do is prepare thoroughly beforehand. Here’s how:
- Check your credit report and scores. This can give you a sense of what a lender will see as they examine your financials.
- If you’re starting a new practice, develop a thorough business plan that details your startup costs and projections for profitability.
- If you’re expanding your practice or acquiring a new one, update your business plan to reflect your growth objectives and the steps you’ll take to meet them.
- Assess your practice’s financials if you’re already in business. Run key reports, such as a profit and loss statement and cash flow statement to gauge your business’s financial health.
- Consider what collateral you may offer for a physician loan if necessary. For example, do you have personal assets or business equipment you could pledge?
- Compare medical practice loan qualification requirements to determine which loans you may have the best odds of being approved for.
Once you decide on a lender, read the application thoroughly to make sure you’re providing all the information requested. Have copies of your personal and business tax returns and bank statements ready to go, since the lender will most likely ask to see these during underwriting.
And perhaps most importantly before you apply for medical practice financing, review the loan terms. Consider the annual percentage rate, loan fees and repayment terms to find a loan that best fits your practice’s ability to handle the debt.
Medical practice loans from Funding Circle
If you’re planning to use an online lender for medical practice financing, consider a loan from Funding Circle.
Funding Circle offers term loans ranging from $25,000 to $500,000, with repayment terms ranging from six months to five years. Interest rates start as low as 4.99% and it’s possible to get a decision on your loan within 24 hours of submitting your documentation.
Medical practice loans from Funding Circle can help with purchasing expensive equipment, hiring and training new staff, or moving your practice to a new location. Take a few minutes today to get your personalized loan quote!
Why should I get medical practice financing from Funding Circle as opposed to a bank or other lender?
With competitive rates, exceptional service and a quick and easy application process, we’re the ideal lender to help medical practitioners like you start, maintain and grow medical practices that provide quality patient care. The underwriting process at traditional banks can be lengthy, confusing, and opaque. At Funding Circle, we’ve taken the best parts of an SBA business term loan — like fixed and affordable once-monthly payments and no prepayment penalties — and created something faster and more flexible. Unlike traditional lenders, we also deliver a best-in-class and transparent experience to our business customers. You’ll work with a dedicated loan specialist who will guide you through the entire application process and remain focused on meeting your unique financing needs. It’s possible to receive loan funding in as little as five days, making it a quick and convenient funding solution.
Are your loans secured?
Yes, all of our loans are secured.
Do I need to have collateral, and if so, what would be acceptable collateral for a business loan?
We require a lien on your business assets and a personal guaranty from the primary business owners. Collateral can include, but is not limited to, equipment, vehicles, accounts receivable, and inventory.