How to Get Business Loans for a Medical Practice

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.

Business Loans for Physicians

We have gathered a list of the seven best business loans available for medical practices in 2024, 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 Physician Business Loans for Medical Practices

There are some lenders who exclusively provide medical practice business loans that cater specifically to medical professionals. These lenders understand the practice loan qualification requirements and can offer flexible borrowing options catered to your needs. Such knowledge, combined with their history of lending, equips them with unique insights into the medical field. Due to these advantages, they can provide attractive terms and a streamlined process that can deposit funds to a medical practice within a week. These loans are typically offered by a consortium of banks or other traditional lenders meeting particular lending requirements.

Qualifications

• Achievement of Annual Revenue over $500,000
• Attainment of a Minimum Credit Score of 680 and above
• Presence of more than three years in Business with at least two tax returns filed
• Record of Profit of $75,000 or more on business tax returns (with depreciation taken into consideration)

Use of Money

• Purchase of Equipment for medical office
• Attending to Business Debt Consolidation
• Enabling Business Expansion
• Management of Operating Expenses and Inventory
• Funding for Renovations or refurbishing

Terms

• Accessibility to Loans up to 2 million
• Loan Terms range from 2 to 10 years
• Pricing Rates fluctuate from 5.995 to 15.99%
• Facility for Monthly Payments
• Permission for Low origination Fees

Pros

• Alluring rates, low fees, and overall terms
• Speed of the process (usually takes a week for funds deposit)

Cons

• Knowledge of High Credit Standards
• Necessity for Financial Statements with strict financial statement standards
• Maintenance of Time in business requirements
• Approval rates lower than that of alternative business loans such as short-term business loans and business credit cards.

2. Business Line of Credit for Doctors

A business line of credit operates differently than that of a business loan in that it is revolving financing, just like a credit card. Given its unique operation, understanding your borrowing needs—and budget—can lend credibility to your application and potentially improve your approval odds. With a business line of credit, you get approved up to a certain borrowing limit but don't have to draw the funds upfront like you would with a standard business loan. This presents an attractive option for healthcare practices that value both cost-effectiveness and flexibility for unforeseen expenses or emergencies. Dependable lending sources can range from credible online platforms to traditional banks depending on factors such as the physician's creditworthiness.

Qualifications

• Annual Revenue in excess of $250,000
• Minimum Credit Score of 620 and above, a reflection of your creditworthiness
• Over 2 years in Business with at least 1 business tax return 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, showcasing your borrowing needs

Terms

• Revolving credit line, underlining your borrowing limits
• Terms Renewed annually
• Pay interest rates from 5.99 to 15.99% depending on creditworthiness and other factors
• Monthly Payments
• Low origination and service fees

Pros

• Great rates, low fees, and Revolving terms
• Flexible, catering to unique borrowing needs
• Speed of process (days not weeks)

Cons

• High Credit Standards, necessitating a keen understanding of personal creditworthiness
• 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): Financing a Medical Practice

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, these lenders come with specific restrictions should be noted. The lender promises to pay up to 75% of the loan. The SBA 7(a) loan is a highly sought-after product due to its low rates and elongated loan timeline allowing years for repayment but it does come with high standards and meticulous requirements. They demand a lot of paperwork and the financing experience can be quite time-consuming. The loan approval process may take somewhere around 45 to 60 days for physician loans such as this, so be prepared.

Qualifications

• Annual Revenue in excess of $180,000
• Good credit, No minimum Minimum Credit Score but above 680 preferred
• At least four years in Business with a minimum of two tax returns filed

Use of Money

• Equipment
• Debt Consolidation
• Business Expansion
• Operating Expenses and Inventory
• Renovations or refurbishing
• Pay off medical school debt

Terms

• Term loans up to 5 million
• Term loan timelines range from 2 to 10 years (extendable 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 rigorous financial statement standards
• Time in business requirements
• Long processing times (SBA loan timeline can take months not just days)
• Approval rates lower than all other business funding options
• Commercial real estate might be required for collateral
• Require comprehensive business plan and use of funds.

4. A Quick Overview on Short-Term Medical Practice Loans

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. Indeed, the rise of alternative lending options has created alternatives for small business lending, especially for those in the medical practice. These are particularly helpful when traditional banks turn down the applications. These forms of financing usually require less stringent conditions than traditional long-term business loans, SBA loans, or business lines of credit. However, they come with shorter terms and potentially higher costs. Hence, medical practices should weigh the cost vs. benefit analysis before making decisions.

Short-term medical practice financing evaluates credit and cash flow and relies less on financials like tax returns and other financial statements. As it bears greater risk, it consequently charges more under shorter terms. The total dollar amount borrowed is usually dictated by the use case of the loan, hence can vary significantly. You are charged either an interest rate or a Factor rate (a flat cost of money), with a mostly monthly, semi-monthly, or sometimes even daily repayment schedule. The terms range from 3 months to 36 months.

Unlike traditional banks, online lenders, such as National, a leading online small business finance marketplace, are often the best source for these 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 provide 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 range from 1.15% up to 1.48%
• Set repayment schedule – 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 loans with predictable repayment schedules, particularly beneficial to doctors with good to excellent credit scores.

Cons

• Rates and fees are higher than traditional financing
• Term length is shorter than long-term loans or SBA
• Payment Frequency

5. Equipment Financing: A Favored Business Loan for Doctors

Medical equipment loans are obviously specific purpose loans or leases used to buy new medical equipment for a medical practice. This buying process might include essential items like exam tables, computer software, or specialized equipment such as x-ray machines, depending on your practice. Impressively, the medical equipment bought, like an x-ray machine, serves as collateral for this type of financing. This creates more attractive terms than with short-term medical practice loans. Lending institutions have designed these buying equipment terms around the lifespan of the equipment. Medical equipment loans and leasing terms then are based on interest rates or lease factor rates depending on the bought product, and can range from 2 to 10 years in duration.

Qualifications

• Minimum Credit Score of 680 and above
• Revenue above $180,000 annually

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 the buying 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. Understand Medical Acquisition Loans: A Form of Medical Practice Lending

Medical acquisition loans are specific lenders who specialize in evaluating medical practices and their purchase. Offered supremely by banking giants like the Bank of America and Wells Fargo, these products are testament to the understanding these banking institutions have developed around the medical industry and its complexities. They emphasize on profitability and offer specialty financing for health care practitioners, an initiative that has proven successful.

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. Moreover, many larger banks like Bank of America and Wells Fargo 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: An Alternate Medical Practice Funding

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 easily manage startup expenses. While the credit limits may be less than that of traditional loans—highlighting one potential downside— and the rates may be higher, the flexibility of a business credit card cannot be ignored. It's always a prudent measure to have as part of a well-planned startup funding strategy 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
• Might require business plan with financial projections, articles of incorporation where necessary.

Use of Money

• Equipment
• Startup expenses or operating costs even when successful
• Business Expansion
• Operating Expenses and Inventory
• Renovations or refurbishing
• 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
• Low approval rates compared to alternative loans like short-term business loans and business credit cards, another downside.

Potential Uses of Physician Practice Loans

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 could be challenging, particularly regarding the purchasing inventory or cutting-edge equipment to enhance the medical practice.
• Marketing & Advertising - Gaining patients often demands promoting and advertising your practice to build reputation and showcase your medical expertise.
• Employment and Payroll- Ensuring smooth cash flow for staff acquisition and payroll management is vital. One cannot afford shortfalls when it's time to cycle the payroll.
• Start up Capital- Launching or acquiring a medical practice is capital intensive. A medical practice loan can be beneficial in covering start-up costs, including office space, equipment and supporting staff.
• Building Acquisition - With an SBA loan, you can acquire commercial real estate for your medical practice, factoring in potential renovation costs.
• Medical Equipment Purchases- Medical equipment can be hefty on finances, hence equipment financing may serve as a relief to support necessary gear.
• Refinancing Debt- Debt might pile up on a medical practice but thankfully, multiple options to refinance or consolidate debt exist for payment relief.
• Expansion and renovations - For adding more services or opening new branches, you need additional funding to cover the costs of renovations and upgrades.
• Business Planning - For new practice, constructing a comprehensive business plan detailing startup costs, potential returns, and financial projections are critical. These details might be required by the lender too.

Revealing the Best Banks for 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. The application paperwork with these institutions is substantial, considering they are also SBA approved lenders offering loans backed by the promising rates and terms of the government.
• SBA Approved Lenders - Lenders supported by the Small Business Administration offer government-backed SBA loans with great rates and conditions. The process of securing a loan from these lenders involves a great deal of SBA loan application paperwork and is ideal for borrowers with organized financial records or, for that matter, any business loan.
• Online Business Lenders - Most online business lenders, such as Advancepoint Capital, a leading online small business financing marketplace, churn out personalized loans depending on your specific criteria and business needs. They mostly offer short-term business loans, a business line of credit, or merchant cash advances, which are excellent for tickling your working capital needs.
• Business Loan Brokers - Some business loan brokers have access to a multitude of business funding options such as business loans, a business line credit, and SBA loans, among others. Brokers can provide the best products in the market, thus not limiting a medical practice to loans offered by a specific lender.
• Invoice Factoring Companies - Invoice factoring companies offer purchases of issued invoice for an advance to the issuer of the invoice at an affordable fee to accelerate cash flow.
• Equipment Financing Companies - These companies lend or lease based on the equipment's collateral and the business's cash flow — a fitting solution for financing expensive equipment for 2 to 7 years.
• Merchant Cash Advance Funders - These funders consider purchasing future receivables from a medical practice for a current advance. Merchant Cash Advance Funders provide an additional option when other traditional business lenders decline, essentially prompting a medical practice to start thinking like a business.

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, including traditional bank loans, SBA loans, and alternative financing options like Advancepoint Capital, offer a variety of terms and conditions. You should consider your medical practice's near-term needs, financial health, and long-term growth objectives in your selection process.

The following factors should provide guidance when selecting the most beneficial loan for your business.

• Interest Rates- Identify the interest rate or factor rate for the business funding product you are considering. This means understanding whether you're getting a lump sum or a credit line offer with a limit you can draw against as needed.
• Fees- Rate is not the only cost you should look into. Check for hidden fees like origination fees, ACH fees, processing fees, closing fees, wire fees, and other charges which are part of the overall cost of financing, also referred to as Annual Percentage Rate or (APR).
• Terms- The terms of the loan can greatly impact your payments and financing costs. A business line of credit is a revolving line, lowering the risk for lenders, often meaning you rarely have to submit a down payment or involve collateral.
• Conditions - Examine specific conditions on financing options such as pre-payment penalties, balloon payments, adjustable rates, and terms along with personal guarantees and collateral to consider.
• Application Process - The time it takes to apply and receive funds, as well as the required documentation, can impact which product and terms you choose. Find out these details by either visiting the lender's website or reaching out to them via email.
• Unique Benefits and Features- Remember, business funding options vary considerably. Funding can be provide between $5,000 to $250,000 while the others range starting from $10,000 up to $500,000. Understand their unique features and pick the one that suits your situation best.

Process of Applying for Medical Practice Financing

1. Gathering Your Business's Financial Documents

Throughout the loan application process, it will be beneficial to have your financial documents gathered and ready for submission.

Here are the items lenders typically look for (not all these items are required and is dependent on the product you select to apply for):

• Personal and business tax returns for the past two years: Lenders will want to review both your personal and business tax returns to assess your taxable income and the profitability of your medical practice.
• Balance sheet: This provides a comprehensive snapshot of your practice's assets and liabilities. This information helps the lender gauge your financial standing and potential repayment capacity.
• Income statement: This document, also known as a profit and loss statement, will provide insights into your practice's revenues, costs, and operational expenses.
• Bank statements: Bank statements from the past few months will offer lenders a clear representation of your current cash flow situation.
• Current commercial lease agreements: If you're leasing your office space, lenders might want to have a look at your lease to determine whether you've been regularly making payments on time.
• Relevant business licenses: Showing proof of your medical license, certifications, and any other relevant licenses assures lenders that you're running a legitimate medical practice.
• Articles of incorporation: If your medical practice operates as a corporate entity, lenders may want to verify this with your articles of incorporation.
• Your Business plan and mission statement: This provides the lender with insight into your practice's goals, how you plan to achieve them, and how the loan will help in these plans.
• Resumes of all the officers and partners of the business: Lenders may want to assess the strength and qualifications of your team.
• Financial projections: By showing lenders how you expect your practice to grow financially, they can better understand your repayment capabilities.

Remember, the more organized and readily available your financial documents are, the smoother the financing process will likely be for your practice.

2. Determining How Much You Need to Borrow

It's crucial to establish precisely how much you need to borrow before launching into the application process. Starting with clear figures will offer credibility to your application, enhancing your chances of loan approval. Determine your loan needs by considering the following steps:

• Identify the Purpose: Categorize your needs, whether it’s to purchase new equipment, expand the business, or for funding operating expenses. This will help narrow down the amount you need to borrow.
• Understand Your Financial Capacity: Study your practice's financials. Analyze the fluctuations in your expenses and how your cash flow handles these changes. This will enable you to ascertain a safe level of debt to take on.
• Consider a Safety Margin: Always incorporate a safety margin into your calculations to accommodate any unexpected costs or economic shifts.
• Use Loan Calculators: Loan calculators can help you understand what you can afford based on potential monthly payments and interest over the loan term.

Remember, borrowing more than your requirement can lead to unnecessary financial strain, while borrowing less may not fully address your needs. So, carefully calculate the amount you need to borrow for optimum financial management.

3. Choosing a Lender and Submitting a Loan Application

Choosing the right lender for your medical practice loan involves analyzing various factors such as the loan options they provide, interest rates, repayment terms, and customer support. Once you've identified your ideal lender, follow these steps to submit your loan application.

• Research the Lender's Requirements: Before applying, ensure you meet the lender's minimum qualifications to avoid waste of time. This information can usually be found on the lender's website, or it can be acquired by contacting the lender directly.
• Gather Necessary Documents: Most lenders would need your business financial statements, tax returns, bank statements, and a copy of your relevant business licenses. Gather these documents in advance to ensure a smooth application process.
• Fill the Application: Every lender has a specific loan application form that should be filled accurately and honestly. Provide all the requested information to improve your chances of approval.
• Obtain a Credit Report: Your credit score plays a significant role in your loan's approval and interest rate. Therefore, obtaining a credit report to know your credit score is essential. If there are errors in the report, correct them before submitting the application.
• Draft a Business Plan: A well-drafted business plan that highlights your business model, competitors, market analysis, and financial projections can make your application more compelling to lenders.
• Submit Your Application: After filling out the application form and gathering all necessary documents, submit your application either online or in-person, based on your lender's submission process.

4. Awaiting Approval and What Comes Next

After submitting your loan application, a waiting period commences. This period may vary depending on the lender and type of loan applied for. Traditional banks generally take longer due to the depth of their underwriting process. Here's what you can expect as you wait for loan approval:

• Application Review: Your loan application goes through a review process where the lender assesses the information provided, including your credit history, financial documents, and business plan. This process allows lenders to determine your ability to meet repayments.
• Loan Decision: After careful review, lenders will decide whether to approve your loan application or not. The decision time can range between just one day for online lenders, to several weeks for traditional banks.

5. Post-Approval Process

• Review Loan Terms: If your application is approved, ensure you carefully read and understand the loan terms before signing any contracts. This includes details about the loan's interest rates, repayment schedule, and any penalties for late or early payments.
• Set Up Repayments: Most lenders will set up direct debit repayments from your business bank account. Make sure you understand the payment schedule and can meet each payment to avoid incurring late fees or negatively affecting your credit score.
• Receive Funds: The time it takes to receive the funds varies depending on the lender and can range from immediately after signing the loan contract to up to several weeks.

Remember, getting a loan declined doesn't mean the end of the road, there are numerous other lenders who might provide you funds based on different sets of eligibility criteria. Don't lose hope and explore other options if needed.

Frequently Asked Questions

What are the alternatives to banks for medical practice financing?

Apart from traditional banks, there also exist alternative financing options for medical practice loans that provide flexibility and rapid access to funds. These alternative lenders include:

• SBA Approved Lenders: These lenders offer loans backed by the Small Business Administration (SBA), an agency that provides support to small businesses. They offer competitive rates and terms, making them an excellent alternative for small to medium-sized medical practices that need financial support.
• Online Lenders: Online lenders are commonly known for their efficiency and speed. They may offer different forms of credit lines, short-term loans, or unsecured loans. However, they may also charge higher interest rates and shorter terms compared to traditional banks.
• Business Loan Brokers/Independent Sales Organizations: Brokers and iso's represent a large menu of business funding products that banks do not have access to and are a great alternative to banks or credit unions that lack flexibility.
• Equipment Financing Companies: If you need funds specifically for equipment, these specialized companies can help. They offer loans or leases based on the value of the collateral and your business's cash flow.
• Private Investors: Medical practices with a high potential for profitability may attract private investors or venture capital. However, they might require equity in your business in return for their investment.
• Crowdfunding: This approach has gained popularity over the years with platforms like GoFundMe, Kickstarter, and others providing a platform to raise business funds from the public.

It's important to analyze the pros and cons of each of these alternatives to determine the best fit for your practice. Each type carries its own lending standards, interest rates, repayment terms, and fees, making it vital to weigh all factors before picking an option.

Key Takeaways: Maximize Benefits from Your Doctor Business Loan

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.

Kick start Your Journey with Medical Practice Loans Today

Whether you are opening up a cutting-edge optometry practice or starting a podiatry practice, our editorial team assures you that our medical practice loans can be your backing support. You can use this loan to purchase everything from basic items like exam tables and computer software to more specialized machinery. Perhaps you're investing in an x-ray machine, a retinal scanner, or even an essential ambulatory vehicle for your practice. Whatever the case, we are here to support your business needs by not only helping you with acquisitions but also other needs, such as advertising your new venture.