Medical Practice Financing

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What are Medical Practice Loans?

Medical practice loans allow doctors and other medical practitioners to obtain the funds they can use in running their private practice. Many lenders can provide different types of medical financing to address every unique need of the company.

When physicians decide to build their practice, aside from treating patients, they become responsible for the survival of their business, as well. They have to make sure that their business operations are not compromised. To do just that, they have to secure financing to stabilize their cash flow in the following months and keep their payables at bay.

Medical practice financing gives them just that and more. When they tap into their financial resources, they give their company a chance to grow and expand. Lenders are more than happy to invest in these businesses as long as they see that the venture is profitable.

Why Medical Practices Need Additional Funding

Like other entrepreneurs, medical specialists also face business challenges as they run their private practice. Medical practice loans is the best way to keep your company competitive and striving. Here are some of the most common uses of medical practice financing:

Hiring New Employees

You need staff to keep the status quo in your private practice. However, the hiring process is expensive. For one, if you’re making use of a staffing agency, you have to pay for the fees. Aside from that, you have to pay for the employee’s insurance, uniform, and training. All of these can cost quite a lot. With medical practice loans, you can have the funds that you need to cover these expenses.

Additional Working Capital

Every business needs to have enough working capital to keep their business operations going. You need cash to cover the rent or your employee’s payroll. While the entrepreneurs are waiting for the cash to come in, they make use of their working capital to cover some of the business’ costs. Medical practice loans ensure that they won’t fall short on this aspect.

Cover Cash Flow Gaps

Cash flow gaps can happen often in businesses and if left unaddressed, it can lead to irreparable cash flow issues. With medical practice loans, however, you can prevent these problems from interfering with your growth.

Obtain Equipment

Medical specialists need equipment to ensure that their patients receive the best quality of care. However, the costs of medical equipment can come steep. They also have to upgrade their equipment often to keep up with the latest developments and stay competitive. The combined costs can create a huge gap in the working capital. With equipment loans, the business owners can obtain the equipment they need without having to worry about where they will get the funds.

Business Expansion

Another important use for medical practice loans for medical practitioners is for funding their expansion. Medical practices that are growing rapidly need an additional injection of cash to keep up with their growing expenses. Whether they’re adding more services or opening a new location, they need additional funding to cover the costs for renovations and upgrades.

Office Improvements

The appearance of the medical specialists’ office has a big impact on your patient’s first impression of your practice. With that, it’s important to have an office that looks clean, new, and relaxing. Medical practice loans can give the funds needed to revamp and improve the appearance of their establishment.

Different Financing Solutions for Medical Practices

Whether you’re a dentist, an optometrist, or a medical doctor looking to open your private practice, you’ll surely find the best financing option suited to your needs. Since lenders typically find medical businesses as a profitable venture, they won’t have any problems qualifying for medical practice loans.

Here are some of the best business loans available for medical professionals:

Bridge Loans

Bridge loans are best used when medical practices need access to immediate funding. It’s also known as gap loan, swing loan, or interim financing. Medical practitioners usually use this financing plan to obtain funding until they get a bigger and more comprehensive business loan. However, the most common use of bridge loans is for new business acquisition or purchasing real estate.

Other uses for bridge loans include:

  • Bulk medical supply discounts
  • Transitional financing
  • Leasehold improvements
  • Hiring Employees
  • Repairing or Replacing Equipment

Payment terms for bridge loans can last anywhere from a few weeks to one year. Other than that, lenders may need to ask for collateral to secure the loan. This way, in case the borrower defaults, the lending company won’t experience too much loss.

Equipment Financing for Doctors

From routine procedures to operations, the medical industry heavily relies on equipment. It’s no wonder why the majority, if not all, medical professionals apply for equipment financing. You can use the funds you obtain to purchase or lease any type of technical (MRI, X-Ray, Ultrasound) or basic office equipment (computers, phones, tablets, etc.).

Here are other reasons why a medical practice would use equipment financing:

  • Refinance existing equipment
  • Replace computers and phone systems
  • Upgrade customer management systems
  • Update outdated equipment

What makes equipment financing a suitable choice for medical entrepreneurs is that the equipment itself serves as the collateral. This means they won’t have to pledge other personal or company assets to secure the loan. This lets them obtain funding without putting other assets at risk.

SBA Loans

SBA loans are among the best loans medical practitioners apply for. The SBA guarantees up to 85% of the business loan. It’s important to note though that the intermediary lenders provide the loan, not the SBA. The most popular, the SBA 7(a), is usually what medical specialists apply for because of its low rates, flexible term, and low monthly payments.

Because SBA 7(a) is the most sought-after type of SBA loan, entrepreneurs have to make sure that they have a great credit background before applying. This means that for them to qualify, they must have a strong credit score, stable cash flow, and steady income. Medical specialists, considering how profitable and financially stable they are, most of the time, they won’t have a problem getting their applications approved.

Here’s a list of how health professionals can use SBA loans:

  • Consolidate existing debt
  • Purchase new equipment
  • Business acquisition
  • Partner buyout
  • Debt refinance
  • Purchase commercial real estate
  • Refinance existing real estate mortgage
  • Leasehold improvement
  • Business expansion
  • Upgrade technical equipment

The only downside of SBA 7(a) loans is that the approval process can be long and tedious. The applicants will have to go through a lot of back and forth, especially if they haven’t organized their business financials yet. So, if a medical practice needs access to immediate funding, this isn’t the best loan option to apply for.

Business Lines of Credit

A revolving line of credit is another financing option that every business should have, including medical practices. It works like a business credit card. The lender grants the borrowers with a specific amount where they can withdraw funds anytime they need it. Since it’s a revolving credit, the borrowers can withdraw the funds again if and when they need it. With this type of loan, you only have to pay for the money you’ve used, plus the interest.

Whether you need to bridge cash flow gaps from slow-paying insurance companies or seize a new business opportunity, a business line of credit can help. Your practice can use a business line of credit to:

Here’s a list of how health professionals can use SBA loans:

  • Purchase medical supplies
  • Advertising and marketing
  • Day to day operating cashflow
  • Purchase equipment
  • Leasehold improvements
  • Standby Capital

You can also use a business line of credit to pay for unexpected costs. This is extremely common among medical businesses. If their equipment breaks down, they can use the funds from their line of credit to get it fixed. The funds are easily accessible. Even if you don’t use it for a few months, your balance will remain as it is and will stay there until you use the funds again.

Asset-Based Loans

The medical industry often takes advantage of high-valued company assets to apply for asset-based loans. Medical practices usually have cash tied up in medical equipment, inventory, and accounts receivables. An asset-based loan can free up capital so you can reinvest it in other aspects of your medical practice.

Asset-based financing is a great alternative if the medical practice has stretched its limit on bank loans or other financing options. It gives them a chance to pledge their assets to obtain cash up-front. It’s also best for companies that are experiencing rapid growth and need additional capital to keep up with the costs.

Here are some of the ways on how to use asset-based loans:

  • Increase operating cashflow
  • Accelerate payments on insurance receivables
  • Lower monthly loan payments
  • Purchase new equipment
  • Hire new employees
  • Refinance medical equipment

The borrowing base for asset-based financing depends on the value of the collateral the business owners pledge. For instance, companies that pledge their accounts receivables can get up to 75%-85% of the total value of their invoices. However, if a business uses equipment as collateral, they can only get up to 50% of its value funded.

Term Loans

Medical practice term loans have repayment terms of one to five years, depending on the agreement you and the lender have come up with. This type of financing has an affordable monthly payment which is perfect for medical practice. Using the funds from a medical practice term loan is typically better than using your practice’s cash on hand.

Medical professionals can use term loans to:

  • Purchase new equipment
  • Leasehold improvements
  • Refinance existing equipment loans
  • Consolidate debt
  • Hire new employees
  • Working capital injection

Medical specialists usually apply for a term loan because of its accessibility and flexibility. While banks typically offer the most favorable rate for financing out there, most of them are hesitant when it comes to small business borrowers. Alternative lenders give entrepreneurs a chance to obtain funds without having to go through the tedious process the banks require. Although alternative financing companies might still require a good credit background, their guidelines are less stricter than those of the banks.

Insurance Factoring

Insurance factoring for medical practices is used to accelerate payments on open receivables. Insurance companies are notorious for slow-paying receivables. This affects the cash flow of medical practices that relies on this insurance. To speed up receivables payment cycles, medical practices can use medical factoring.

By collecting payments on aging receivables there is more cash flow available for:

  • Marketing and advertising
  • Operating expenses
  • Business expansion
  • Hiring new employees
  • Purchasing bulk medical supplies
  • Leasehold improvements

One important thing to note about insurance factoring is that the insurance provider only pays for the net claim. The net claim is the amount that the insurance company will pay for the claim. Most of the time, it may vary from the total amount of the invoice.

Tips When Applying for Medical Practice Financing

Like other business loans, there are some things that medical specialists can do to increase their chances of medical practice loan approval. Here are some tips:

1. Maintain a Good Credit Background

Medical practitioners usually don’t encounter problems when it comes to qualifying a loan, given that they have a good credit background. Since lenders are facing a big risk, they have to make sure that you have a great credit history. So, be sure not to default on loan payments or miss a deadline. This can hurt your credit score badly.

2. Craft a Good Business Plan

Since you’re applying for a business loan, naturally, the lenders will want to know what you have in mind. Your business plan will sell your business to lenders. You have to show how you’re going to make a profit from your services. Your business plan should also include the costs for your strategies and show an estimate of how much you need to put your plans into action.

3. Consider What Collateral You’ll Pledge

Most of the time, lenders will ask you for collateral. This guarantees the loan in case the borrower fails to pay the loan balance for some reason. Accounts receivables, invoices, inventory, or equipment are the most common assets that many businesses pledge. Moreover, with collateral, you’ll also get to enjoy lower interest rates and better loan terms.

4. Know What Your Business Needs

Some loans are only meant to address short-term needs like covering rent and utilities, purchasing inventory, or additional working capital. Long-term investments like business expansion or obtaining equipment may call for a bigger and more comprehensive business loan. When you apply, be sure to know what you need. Lenders are most likely to approve applicants with a clear sense of how they’ll make use of the funds.

Why Work With SMB Compass?

SMB Compass takes pride in providing medical practice financing to healthcare professionals in the industry. There are a variety of medical business loans for doctors designed to address the needs of different medical practices. Often, a combination of multiple loan options is the best path for your medical practice.

For example, if you are looking to expand your medical practice you have to consider the costs that come with construction and obtaining medical equipment. Other than that, you’ll more likely need additional working capital to support the short-term expenses associated with the expansion. SMB Compass can help you apply for a business line of credit for working capital, a business term loan for construction, and equipment financing for your equipment!

By utilizing different financing options for your medical practice, you will have the ability to grow without worrying about capital!

Types of Medical Practices We Finance

  • Dental practice financing
  • Pediatrician business loans
  • Ophthalmologist business loans
  • Private practice loans
  • Chiropractor business financing
  • Group practice financing
  • Internal medicine practice loans
  • Dermatology office loans
  • Gynecologist practice loans
  • Psychiatrist office loans

FAQ About Medical Practice financing

What is medical practice financing?

Medical practice financing is essential to how doctor’s offices and medical properly manage their cash flow and operate effectively. This allows medical practices to not only manage day-to-day expenses but also continue to grow the business.

How do you qualify for a medical practice financing?

The qualifications to qualify for medical practice financing can vary depending on the objective of the business and the type of financing. Typically the qualifications considered include the cash flow in the business, the time in business, and the business owners personal credit profile.

How long does the application process take for a medical practice financing?

The type of financing also determines the length of the application process the business is looking to secure. Financing such as business lines of credit, bridge loans, and invoice financing required limited documentation. The process for equipment financing, asset based loans, and SBA Loans can take much longer and require significant documentation.

How would you use medical practice financing?

Medical practices use financing in a variety of ways. Bridge loans and lines of credits can be used to cover daily expenses such medical supply purchases, payroll, and marketing. SBA Loans can be used for refinancing existing debt, hiring new employees, purchasing equipment, and expanding the business.

Is collateral required for a medical practice financing?

Collateral may be required when securing financing for medical practices depending on the type of financing program. Bridge loans and lines of credit typically can be secured without collateral. SBA Loans, asset based loans, and equipment financing will require collateral.

What are the different medical practice financing options?

There are many different financing options to consider for medical practices and doctors offices depending on the objective of the business. Long term financing can include SBA Loans, Equipment Financing, Asset Based loans, and factoring. Short term financing options can include business lines of credit and bridge loans.

Learn About Your Financing Options