Jacques Famy Jr What Are Medical Practice Loans?
A Medical Practice loan is business financing for doctors, physicians, medical practices, and specialists within the medical field. This financing can be used for a variety of business purposes that include medical practice acquisition, business expansion, equipment, and other operational costs.
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 a medical practice.
When choosing the right medical practice financing, it’s important to identify first what the use of the money is for. Often times that will dictate what medical business loan may be best for the medical practice. So, step number one is identifying a need, then evaluate the best medical practice loan to fit that need. Below is a list of the most common medical practice loans and broken them down by their terms, best uses and pros and cons.
7 Types of Medical Practice Loans
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- Traditional Business Term Loans
- Business Lines of credit
- SBA 7(a) Loans
- Short-Term Business Loans
- Equipment Loans
- Medical Practice Acquisition Loans
- Business Credit Cards
Medical Practice Traditional Business Term Loans
There are some lenders who exclusively provide a medical practice business loan that caters specifically to the medical practice industry. These lenders have a deep knowledge of the industry 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. This product is typically offered by a consortium of Banks.
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
- 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 Lines 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. This is a highly attractive option for medical practice financing because it provides flexibility and can be cost-effective as well as great for unexpected expenses or emergencies.
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
- Rates from 5.995 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 that are administered by the Small Business Administration, which is the agency that sets the guidelines and standards of underwriting for approval. 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 terms but does have high standards and requirements and requires a lot of paperwork and time. The effort can take months.
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
Terms
- Loans up to 5 million
- Loan Terms from 2 to 10 years (up to 25 years with Commercial Real Estate)
- Interest rates Prime Rate + 2.75% to Prime Rate + 4.75%
- Monthly Payments
- Low origination Fees
Pros
- Great rates, low fees, and overall terms
Cons
- High Credit Standards
- 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
Medical Practice Short-Term Business Loans
Short-term business loans are an excellent choice when you can’t get approved for traditional medical practice financings such as the traditional long term business loan, business line of credit, or SBA loan. The requirements are a lot lower than the aforementioned and open the doors to getting capital when the other products say no. But the terms come with shorter terms and higher costs, so medical practices must take into consideration more closely the cost versus benefit of acquiring a short term business loan product.
Short Term, medical practice financing, evaluates credit and cash flow and is less reliant on financials like tax returns and other financial statements; therefore, take on greater risk and therefore charge more under shorter terms.
The costs are based on Factor rates or fixed costs, which are different than that of principal and interest rates and usually weekly and sometimes daily payments, with terms from 6 to 18 months.
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
- Terms 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)
Cons
- Higher cost
- Shorter terms
- Frequent payments
Medical Practice Equipment Loans
Medical practice equipment loans are obviously specific purpose loans or leases that are used to buy new medical equipment for a medical practice. The equipment purchased is used as collateral for this type of financing. Therefore, terms are more attractive than that of short term business loans. 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
- Loan Terms 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)
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 Acquisition Business Term Loans
Medical acquisition business loans are specific lenders who specialize in the evaluation of 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 purchase financing, but many of the larger banks have actual divisions that specialize in this type of financing.
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 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
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 both purchase products and pays 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
- 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 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
How Do I Select the Best Medical Practice Loan for My Business?
When trying to determine which medical financing product, you should always start with the question, what is the use of the money? And what is the return on the investment or use? Paying for cash flow shortage requirements or issues may give you a different answer than an equipment purchase. Always the amount of time you have may also influence your decision on your choice of medical practice financing, so always ask these questions of yourself first.
Then you must investigate which product or products you qualify for based on your specific stats and qualifications. Although one product may be more beneficial than another, it doesn’t really matter if you don’t qualify for the better product because you may not be approved for it so proper investigation and research may require you to apply for multiple products to see what is best for you and your medical practice.
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 products mentioned in this article throughout your medical practice business life, so getting educated now will most likely benefit you down the road.
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