Medical practices often require significant capital investments to purchase equipment, hire staff, and expand operations. However, securing the necessary financing can be daunting for small medical practices.
What Are Medical Practice Loans?
Medical practice loan is business financing for doctors, physicians, medical offices, and specialists within the medical field. This financing can be used for a variety of business purposes that include medical practice acquisition for a new practice, startup costs, existing practice business expansion, equipment, and other operational costs that a small business owner may face.
Medical practices, from a lenders perspective, are a great industry to lend to because of their high success rates, stable growing industry, and low default rate. Because of this fact, there are a variety of products available for financing medical offices and acquiring a medical business loan.
How do Medical Practice Loans work?
Below is a list of the most common medical practice loans and broken them down by how they work, loan terms, best uses and pros and cons for doctors and other healthcare professionals.
7 Best Medical Business Loans
We have gathered a list of the seven best business loans available for medical practices in 2023, including traditional bank loans, SBA loans, and alternative financing options.
We'll provide insights into each loan option's features, benefits, and eligibility requirements, helping medical practice owners make informed decisions about the financing solutions that best fit their needs. By taking advantage of these financing options, medical practices can achieve their growth objectives and continue providing high-quality patient care.
1. Traditional Medical Practice Business Loans
There are some lenders who exclusively provide medical practice business loans that cater specifically to medical professionals. These lenders have a deep knowledge of the medical business and a history of lending that gives them greater insights into lending to medical practices. Because of this fact, they can offer quite attractive terms and a streamlined process that can get funds to a medical practice within a week. Medical practice loans are typically offered by a consortium of Banks or a traditional lender.
Qualifications
- Annual Revenue in excess of $500,000
- Minimum Credit Score of 680 and above
- Over three years in Business with at least two tax returns filed
- Profit of $75,000 or more on business tax returns (with depreciation taken into consideration)
Use of Money
- Equipment for medical office
- Business Debt Consolidation
- Business Expansion
- Operating Expenses and Inventory
- Renovations or refurbishing
Terms
- Loans up to 2 million
- Loan Terms from 2 to 10 years
- Rates from 5.995 to 15.99%
- Monthly Payments
- Low origination Fees
Pros
- Great rates, low fees, and overall terms
- Speed of process (usually takes a week)
Cons
- High Credit Standards
- Financial Statements required with strict financial statement standards
- Time in business requirements
- Approval rates lower than that of alternative business loans like short-term business loans and business credit cards
2. Business Line of Credit
A business line of credit operates differently than that of a business loan in that it is revolving financing, just like a credit card. You can get approved for a business line of credit up to a certain limit and yet not draw the funds upfront like you would have to on a term business loan where you take a lumps sum upfront and repay under fixed terms.
You only pay the financing charge on the current balance and can draw at any time necessary with a business line of credit. Business lines are a highly attractive option for a healthcare practice because it provides flexibility and can be cost-effective as well as great for unexpected expenses or emergencies that can arise at operating a medical office.
Qualifications
- Annual Revenue in excess of $250,000
- Minimum Credit Score of 680 and above
- Over three years in Business with at least two tax returns filed
- Financial Statements in good standing and showing profits
Use of Money
- Equipment
- Debt Consolidation
- Business Expansion
- Operating Expenses and Inventory
- Renovations or refurbishing
- Emergency cash flow
Terms
- Revolving credit line
- Terms Renewed annually
- Pay interest rates from 5.99 to 15.99%
- Monthly Payments
- Low origination and service fees
Pros
- Great rates, low fees, and Revolving terms
- Flexible
- Speed of process (days not weeks)
Cons
- High Credit Standards
- Financial Statements required with strict financial statement standards
- Time in business requirements
- Approval rates lower than that of alternative business loans like short-term business loans and business credit cards
3. SBA 7 (a) Loan (Small Business Administration)
SBA loans are business loans that are administered by the Small Business Administration, which is the agency that sets the guidelines and standards of underwriting for the loan program. SBA is not the lender but guarantees SBA approved lenders up to 75% of the loan. This is a highly sought after product due to the low rates and long loan term but does have high standards and requirements and requires a lot of paperwork and time. The effort can take 45 to 60 days for physician loans such as this, so be ready.
Qualifications
- Annual Revenue in excess of $180,000
- Minimum Credit Score of 680 and above
- Over four years in Business with at least two tax returns filed
Use of Money
- Equipment
- Debt Consolidation
- Business Expansion
- Operating Expenses and Inventory
- Renovations or refurbishing
- Pay medical school debt
Terms
- Term loans up to 5 million
- Term loans from 2 to 10 years (up to 25 years with Commercial Real Estate)
- Fixed Interest rate that starts at Prime Rate + 2.75% to Prime Rate + 4.75%
- Monthly Payments
- Low origination Fees
Pros
- Great rates, low fees, and a term loan
Cons
- High Credit Standards and strong credit scores
- Financial Statements required with strict financial statement standards
- Time in business requirements
- Long processing times (can take months not days)
- Approval rates lower than all other business funding options
- Commercial real estate may be needed for collateral
- Require sufficient business plan and use of funds
4. Short-Term Medical Practice Business Loan
Short-term business loans are used when you can't approved for traditional medical practice business financing such as the traditional long-term business loan, business line of credit, or SBA loan. Requirements are much more lenient than the aforementioned, opening the doors to getting capital when the other medical practice loans say no. But the terms come with shorter terms and higher costs, so medical practices should way the cost vs. benefit analysis before making decisions.
Short Term medical practice financing evaluates credit and cash flow and is less reliant on financials like tax returns and other financial statements; therefore, it takes on greater risk and charges more under shorter terms.
You are charged either an interest rate or a Factor rate (flat cost of money, with monthly, semi-monthly, or sometimes daily payments. Terms range from 3 months to 36 months. Short-term business loans are not available from traditional banks or are considered traditional bank loans. Online lenders are the best source for financing via short-term small business loans.
Qualifications
- The annual Revenue of the business must exceed $125,000
- Credit scores must be greater than 600
- Business must be over 12 months
- You will need to supply at least 3 to 6 months of business bank statements
Use of Money
- Equipment
- Debt Consolidation
- Business Expansion
- Operating Expenses and Inventory
- Renovations or refurbishing
Terms
- 3 months to 36 months
- Interest rates start at 9% or Factor Rates that range from 1.15% up to 1.48%
- Monthly, Semi-annually, Weekly, or Monday-Friday Payments
- Origination Fees
Pros
- High Approval Rates
- Low credit standards
- Low Documentation requirements
- Speed of process (takes a day or two)
- Term loan
Cons
- Rates and fees are higher than traditional financing
- Terms are shorter than long-term loans or SBA
- Payment Frequency
5. Medical Equipment Loan
Medical equipment loans are obviously specific purpose loans or leases used to buy new medical equipment for a medical practice. The medical equipment purchased is used as collateral for this type of financing. Therefore, terms are more attractive than that of short-term medical practice loans. Medical equipment loans and leasing terms are based on interest rates or lease factor rates depending on the product and range from 2 to 10 years in duration.
Qualifications
- Minimum Credit Score of 680 and above
- Revenue above $180,000annually
Use of Money
- Equipment
Terms
- Loans up to 2 million
- Term loans from 2 to 10 years
- Rates vary
- Monthly Payments
- Low origination Fees
Pros
- Good rates, low fees, and overall terms
- Speed of process (takes days, not weeks)
- Term loan or lease
Cons
- High Credit Standards
- Time in business requirements
- Approval rates lower than that of alternative business loans like short-term business loans and business credit cards
6. Medical Acquisition Loans
Medical acquisition loans are specific lenders who specialize in evaluating medical practices and their purchase. This product is typically offered by a consortium of banks that understand the medical industry and its complexities.
The product usually offers low money down from 0 to 25% down, depending on the strength of the borrower, with terms that are prime or treasury plus 1% to 2%, with relatively low origination fees and terms usually up to 15/30 balloon of fixed terms. Not every bank offers medical practice loans to purchase a practice, but many larger banks have actual divisions that specialize in this type of practice loan for dentists, doctors, and other medical professionals.
Qualifications
- Experience of the Medical Practitioner
- Minimum Credit Score of 680 and above
- Asset & Collateral Requirements
Use of Money
- Equipment
- Debt Consolidation
- Business Expansion
- Operating Expenses and Inventory
- Renovations or refurbishing
Terms
- Loans up to 2 million
- Loan Terms from 2 to 10 years
- Rates from 5.995 to 15.99%
- Monthly Payments
- Low origination Fees
Pros
- Great rates, low fees, and overall terms
- Speed of process (usually takes a week)
Cons
- High Credit Standards
- Financial Statements required strict financial statement standards
- Time in Industry
- Approval rates are lower than that of alternative business loans like short-term business loans and business credit cards
7. Medical Practice Business Credit Cards
Often not thought about, credit cards are actually the most common form of credit used for medical practices. This revolving credit option allows medical practices to purchase products and pay for expenses. Although credit limits may be less than that of traditional financing and the rates may be higher, the flexibility of a business credit card cannot be ignored and is always a good product to keep in hand for medical practices.
Qualifications
- Low revenue requirements
- Typical Minimum Credit Score of 680 and above. Good credit history is needed.
- Based on the business owners' personal credit
Use of Money
- Equipment
- Debt Consolidation
- Business Expansion
- Operating Expenses and Inventory
- Renovations or refurbishing
- Expense
- Any other reason you can think of
Terms
- Revolving Credit card open-ended
- Interest Rates from 0% to 29.99%
- Monthly Payments
- No origination fees, sometimes annual fees
Pros
- OK rates, Low fees, and overall terms
- Flexible
- Speed of process (usually takes a day)
Cons
- High Credit Standards
- Higher rates than traditional loans and lines of credit
- Approval rates lower than that of alternative business loans like short-term business loans and business credit cards
What Can You Use a Medical Business Loan for?
The most common uses of capital from medical practice loans include, but not limited to the following:
- Working Capital - Cash flow is king as the saying goes. Balancing revenue and expenses can be challenging as well as the need to make purchases such as equipment or inventory to investment in the medical practice.
- Marketing & Advertising - Attracting patients may require the need to promote and advertise your practice as well to build reputation and experience.
- Employment and Payroll - Cash flow to acquire and maintain quality staff is a vital part of any practice. Having the capital; to support this need is a must and you can't be caught with short falls in capital to make payroll.
- Start up Capital - Starting or acquiring a medical practice can be capital intensive and a medical practice loan can be a necessity to cover office space, equipment needs and supporting the necessary staff needed to operate.
- Building Acquisition - With an SBA loan, you can acquire commercial real estate for your medical practice.
- Medical Equipment Purchases- Medical equipment can be very expensive and equipment financing can come in handy to support the necessary equipment needed to function.
- Refinancing Debt - Debt can mount on a medical practice and there are many options to refinance or consolidate debt to provide payment relief.
What lenders offer Medical Practice Loans?
- Banks & Credit Unions - Traditional lenders such as banks and credit unions offer products such as business loans, business lines of credit, real estate commercial loans and in some cases are approved SBA lenders as well.
- SBA Approved Lenders - SBA lenders offer government backed SBA loans with very attractive rates and terms.
- Online Business Lenders - Most online business lenders offer either short-term business loans, business line of credit or merchant cash advances which are excellent for working capital needs.
- Business Loan Brokers - Some business loan brokers have access to most business funding options such as business loans, business line of credit, merchant cash advance, SBA loans, equipment financing, invoice factoring, real estate commercial mortgages and other alternatives. Brokers can identify what the best products are out in the market place and not "pigeon hold" a Medical practice to only loans offered by a specific lender.
- Invoice Factoring Companies - Invoice factoring companies offer purchases of issued invoice for an advance to the issuer of invoice at an affordable fee to accelerate cash flow.
- Equipment Financing Companies - Equipment finance companies lend or lease based on the collateral of the equipment and cash flow of the business. A great resource for 2 to 7 year financing expensive equipment.
- Merchant Cash Advance Funders - Considered a purchase of future receivables from a medical practice for an advance now. merchant cash advance funders provide an alternative when other traditional business lenders say no.
How Do I Select the Best Medical Practice Loan for My Business?
Selecting the best medical practice loan for your business is a critical decision that requires careful consideration of several factors. Medical business loans come in various shapes and sizes, including traditional bank loans, SBA loans, and alternative financing options.
To select the best financing solution for your medical practice, you must evaluate your business's needs, financial situation, and growth objectives.
The following factors should be considered when selecting the best medical practice loan for your business.
- Interest Rates - Determine what is the interest rate or factor rate for the business funding product you are being offered.
- Fees - Rate is not the only cost of financing as many lenders and/or funders charge fees such as origination fees, processing fees, ACH fees, closing fees, wire fees and other types of charges. These fees contribute to the overall cost of financing commonly referred to as annual percentage rate or (APR).
- Terms - The term of the loan or length of time of repayment can and will impact payments as well as your considerations of cost of financing. It can be a balance between costs and payments which term definitely impacts decision making.
- Conditions - There may be unique conditions on business financing options such as pre-payment penalties, balloon payments, adjustable rates and terms as well as personal guarantees and collateral to consider.
- Application Process - The time it takes to apply and fund as well as what is required documentation wise can impact what product and terms you will choose.
- Unique Benefits and Features - Business funding options are not created equal, Business lines of credit have draw feature and a credit limit , whereas a business term loan offers a lump sum upfront with a fixed term without access to additional capital unless paid off or refinanced.
Key Takeaways: Medical Business Loans
If you have the time, be deliberate and methodical in searching for the best medical practice financing product for your needs. You most likely will need more than one of the medical practice loan products mentioned in this article throughout your medical practice business life, so get educated now so you benefit from the knowledge down the road when you really need it.
