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Updated: February 20th, 2024
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, a lack of funds can prevent medical professionals from taking their 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 finances 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.
Medical practice loans, or physician loans, are designed to offer medical professionals the funding to start their own practice or to operate and grow their businesses. 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 medical professionals who are already practicing or are licensed and preparing to start a practice. But there are some lenders who will approve medical practice loans to doctors, dentists, and other healthcare 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.
Medical Practice Loans can be molded to several 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.
If your medical business is growing steadily, you might need to expand your existing practice and bring in other medical professionals. 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 those needs.
Starting a practice for the first time comes with an extensive list of expenses you must 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 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 practice.
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.
There’s more than one way to get funding for medical practices. 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:
As already discussed, physician loans are specifically designed for medical 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 backgrounds.
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. A physician loan can also come with more generous borrowing limits compared to other business loan options.
If you specifically need a loan to buy expensive equipment for your practice, you may want to 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 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 must 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.
Business term loans offer a lump sum of capital upfront, typically at fixed interest rates. 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 a 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.
The SBA doesn’t make small business 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.
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 make monthly payments on the interest on the amount of 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 necessary. Just keep in mind that a business line of credit often comes with higher interest rates than traditional loans.
Applying for medical practice financing is like applying for any other type of business loan. The best thing you can do is prepare thoroughly beforehand. Here’s how:
Once you decide on a lender for your medical practice loan, 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, down payment, and repayment terms to find a loan that best fits your practice’s ability to handle the debt.
If you’re planning to use an online lender to help finance your medical practice, consider a loan through Funding Circle.
Funding Circle offers term loans with repayment terms ranging from six months to five years. We have competitive interest rates and it’s possible to get a decision on your loan within 24 hours of submitting your documentation.
A term loan to fund your medical practice through Funding Circle can help with purchasing inventory, hiring and training new staff, or moving your practice to a new location. Take a few minutes today to get your personalized loan quote!
With competitive rates, exceptional service, and a quick and easy application process, we’re the ideal lender to help medical practitioners start, maintain, and grow medical practices that provide quality patient care.
The underwriting process for a traditional loan 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.
Paige Smith is a content marketing writer who specializes in writing about the intersection of business, finance, and tech. Paige regularly writes for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.