A 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, including medical practice acquisition for a new practice, startup costs, practice expansion, equipment, and other operational costs that a small business owner may face.
From a lender’s perspective, medical practices are a great industry to lend to because of their high success rates, stable growing sector, and low default rate. Because of this fact, there are a variety of products available for financing medical offices.
When choosing the right medical practice financing, it’s essential to identify the use of the money you’ll receive. That often dictates what medical business loan may be best for your medical practice. Thus, step number one is always going to be identifying your needs.
How Do Medical Practice Loans Work?
Evaluate the best medical practice loan to fit your needs. Below is a list of the most common medical practice loans broken down by how they work, their loan terms, the best uses, and pros and cons for doctors and other healthcare professionals.
The 7 Best Medical Practice Loans
- Traditional Small Business Loans
- Business Lines of Credit
- SBA Loan Programs
- Short-Term Small Business Loans
- Equipment Term Loans & Leases
- Medical Practice Acquisition Loans
- Business Credit Cards
Traditional Medical Practice Business Loans
Some lenders exclusively provide medical practice business loans specifically catered 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, they can offer attractive terms and a straightforward, 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 over $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
Business Line of Credit
A business line of credit operates differently than a business loan because it is revolving financing, just like a credit card. You can get approved for a business line of credit up to a specific limit without drawing the funds upfront like a term business loan, where you take a lump sum upfront and repay under fixed terms.
With a business line of credit, you only pay the financing charge on your current balance, and you can draw at any time necessary. Business lines are a desirable option for a healthcare practice because they provide flexibility, are cost-effective, and can be great for unexpected expenses or emergencies when operating a medical office.
Qualifications
- Annual revenue above $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
SBA 7(a) Loan (Small Business Administration)
SBA loans are business loans administered by the Small Business Administration, an agency that sets guidelines and standards of underwriting for the loan program. The 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 has incredibly high standards and requirements, calling for a lot of paperwork and time. The process to apply for an SBA loan program can take 45 to 60 days for physician loans to be approved, 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 primate rate + 4.75%
- Monthly payments
- Low origination fees
Pros
- Great rates
- Low fees
- 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
Short-Term Medical Practice Business Loan
Short-term business loans are an excellent choice when you can’t get approved for traditional medical practice business financing types such as the traditional long-term business loan, business line of credit, or SBA loan. The requirements are a lot lower than those mentioned above and open the doors to getting capital when other lenders of medical practice loans say no. However, these products come with shorter terms and higher costs, so medical practices must consider the cost versus benefit of acquiring a short-term medical practice loan more closely.
Short-term medical practice financing evaluates credit and cash flow and relies less on financials like tax returns or other financial statements. Therefore, your lender is taking on greater risk and will charge more under shorter terms.
The costs are based on factor rates or fixed costs, which differ from principal and interest rates. These loans usually have weekly or sometimes even daily payments, with terms from 6 to 18 months. This product is not available through traditional banks and is not considered a conventional bank loan. Online lenders are the best source to obtain financing via short-term small business loans.
Qualifications
- Annual revenue in excess of $180,000
- Minimum credit score of 500 and above
- Over 6 months in business
- No tax returns or financial statements typically required
Use of Money
- Equipment
- Debt consolidation
- Business expansion
- Operating expenses and inventory
- Renovations or refurbishing
Terms
- Term loans from 6 to 18 months
- Factor rates from 1.18 to 1.45
- Weekly or daily (M-F) payments
- Origination fees
Pros
- High approval rates
- Low credit standards
- Low documentation requirements
- Speed of process (takes a day or two)
- Term loan
Cons
- Higher cost
- Shorter terms
- Frequent payments
Medical Equipment Loans
Medical equipment loans are obviously specific purpose loans or leases utilized to buy new medical equipment for a medical practice. The medical equipment purchased is used as collateral for this type of financing. Medical equipment loans and leasing terms are based on interest rates or lease factor rates depending on the product. Terms range from 2 to 10 years in duration. Therefore, these financing terms are more attractive than short-term business loans.
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 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
Medical Practice Loans for Acquisition: How Do You Finance a New Medical Practice?
Medical acquisition business loans are from specific lenders who specialize in evaluating medical practices and their purchases. 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%) depending on the strength of the borrower, with prime terms 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. Many larger banks have divisions specializing in this type of practice loans for dentists, doctors, and other medical professionals.
Qualifications
- Experience of the medical practitioner
- Minimum credit score of 680 and above
- Asset and 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 with strict financial statement standards
- Time in industry
- Approval rates lower than that of alternative business loans like short-term business loans and business credit cards
Medical Practice Business Credit Cards
Although they are often forgotten about, credit cards are the most common credit used for medical practices. This revolving credit option allows medical practices to both purchase products and pays for expenses. Although credit limits may be less than that of traditional financing and the rates are typically higher, the flexibility of a business credit card cannot be ignored and is always an excellent product to keep on hand for medical practices.
Qualifications
- Low revenue requirements
- Typical minimum credit score of 680 and above; Good credit history needed
- Based on 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, open-ended credit card
- Interest rates from 0% to 29.99%
- Monthly payments
- No origination fees, sometimes annual fees
Pros
- Decent rates
- Low fees
- Good 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
How Do I Select the Best Medical Practice Loan for My Business?
Like many small business owners, a medical professional should always start with the question: what is the use of the money for the medical business? Then, what is the return on the investment or use? Paying for cash flow shortage requirements or issues may give you a different answer than when purchasing equipment. The amount of time approval takes may also influence your choice of medical practice financing, so always ask yourself these questions first.
You must investigate which medical business financing products you qualify for based on your specific stats and qualifications. Although one product may be more beneficial than another, it won’t matter if you can’t qualify for the better product. You may not be approved for funding in those cases, so proper investigation and research are required before applying for multiple products to see what is best for you and your medical practice.
The Final Word on Medical Practice Loans
If you have the time, be deliberate and methodical with your search 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’s business lifespan, so it’s essential to get educated now. This way, you will benefit from this knowledge down the road when it’s genuinely needed.
