6 Medical Practice Financing Options — and How to Use Them
You went to medical school to learn how to help people (or pets). However, running a practice goes beyond healthcare. It involves payroll, operational expenses, and accounts receivable.
With the right medical practice financing, you can more easily manage your cash flow, so you can focus on what really matters — your patients.
In this article, we’ll take a closer look at the types of medical practice financing that are available. We’ll also dive into common use cases and discuss which funding options work best for each.
What Is Medical Practice Financing?
Medical practice financing solutions provide funding to healthcare professionals — such as general practitioners, optometrists, cardiologists, or veterinarians. Depending on the type of financing, the funds may help new practices get off the ground or allow existing practices to expand or manage cash flow.
What Types of Medical Practice Financing Are Available?
There are a variety of financing options available for medical professionals. Let’s take a closer look at six of the most popular.
1. Medical Practice Loans
Medical practice loans are similar to traditional bank term loans, but they’re created specifically for healthcare practices.
Some lenders have dedicated team members for their medical business loan options, and others offer supplemental perks. For example, you may receive a discount on fees or interest rates if you already have a business banking account with the lending bank. Discounts may also be available if you’re a member of a professional organization — such as the ADA — that endorses the loan program.
With the loan application, you’ll likely have to provide tax returns, a business plan, and financial statements to prove your creditworthiness. This information will be used to make an approval decision, and if you’re deemed a qualified borrower, you may receive a no or low down payment offer.
2. Small Business Administration (SBA) Loans
If you don’t qualify for a practice loan from a traditional bank, you can look into SBA loans, such as the SBA 7(a) and SBA 504 programs.
Both loan options can be used to:
Consolidate or refinance debt
Purchase machinery or equipment — although it must have a useful life of at least 10 years when paying with SBA 504 funds
Buy or improve real estate or buildings
However, only an SBA 7(a) loan can be used for working capital or inventory purchases.
3. Working Capital Loan
Working capital loans are perfect for established practices that want to fund a long-term project, buy equipment, expand operations, or cover operational expenses or payroll when cash flow is tied up in other investments. The benefit of this type of funding over a traditional bank term loan is that it’s fast and flexible. In addition, it doesn’t require collateral.
If you work with an online lender like Backd, the application process will only take a few minutes, and you could receive an offer for a Business Term Loan* in as little as six hours**. Plus, with flexible repayment terms, you may be able to make weekly or monthly payments.
In general, this financing solution is best for established practices since a brand-new practice might have trouble meeting a lender’s eligibility criteria. For example, Backd requires a business to have been operating for at least one year.
4. Business Lines of Credit
A business line of credit is a type of revolving credit that’s perfect for bridging cash flow gaps, covering unplanned or emergency expenses, or financing equipment purchases.
While loans and working capital advances provide you with a lump sum, a business line of credit gives you access to a credit limit. You decide when you want to withdraw the funds and how much. The money is then deposited into your business checking account for you to use.
For example, if you had a $100,000 business line of credit, you could choose to withdraw $10,000 right away and $5,000 two months later. The money is there for you when you need it, and you’ll only pay interest on the amount you withdraw. In this example, you’d pay interest on the $15,000 you took out, but not on the $85,000 you haven’t used.
Many lenders require borrowers to have been in business for a minimum number of years, so this is usually not a good option for a startup. For instance, you’d need to be in business for at least two years to be eligible for Backd’s business line of credit.
5. Business Credit Cards
You’re likely familiar with how business credit cards work. You charge expenses to the card and make at least the minimum payment on a monthly basis. This is a quick and convenient form of business financing.
However, it comes with one major downside: very high interest rates. If you aren’t able to pay your balance in full each month, interest can quickly compound and put further strain on your practice’s financial health.
6. Medical Factoring
Medical factoring is similar to invoice factoring, except it’s specifically tailored for healthcare businesses. With this type of financing, you sell your unpaid invoices to a factoring company. They will give you up to 90% of the unpaid balance upfront and then collect the invoice payments from your patients.
Once an invoice has been paid, they’ll send you the remaining amount minus a fee. This is the downside to medical factoring, as the fee can be quite expensive. Generally, the factoring company will keep a percentage based on how long it took to collect the payment. For example, a payment that was collected within 30 days might have a fee of 2-3%, while a payment that took 60 days might have a fee of 4-6%.
What Are Common Use Cases for Medical Practice Financing?
Here, we’ll review some of the ways you might use medical practice financing and which funding solutions are the best fit for each use case.
Equipment Purchases
Your practice will likely need a wide range of small- and large-scale medical equipment. This may include:
Disposable and one-time-use supplies: Bandages, syringes, tongue depressors, or diagnostics (e.g., flu test kits, strep test kits, etc.)
Mid-range medical devices: Scales, portable EKG machines, or blood pressure machines
Large equipment: Exam tables, a full stress-test setup, or X-ray machines
In addition to medical equipment, you’ll need office furniture, computers and tablets, phone systems, and more to complete your space.
The type of financing that’s right for your equipment purchase will depend on the cost and how much you’re buying at once. For example, if you’re opening a brand-new practice, you might need to buy multiple mid-range medical devices and large equipment items all at once. In this case, the total cost could be quite high. A medical practice loan, an SBA loan, or Backd’s Business Term Loan would allow you to cover the expenses and pay them back over a longer time frame.
However, let’s say your practice is already up and running. You want to upgrade your portable EKG machines, which will be $1,000-$3,000 a piece. A business line of credit would be a good option here because you can withdraw only the funds you need and repay them over the next six or 12 months.
For your disposable and one-time-use supplies, they’re likely already a line item on your budget since they’re used and replaced frequently. You may even receive an automatic replenishment on a monthly basis. A business credit card works well for planned expenses like this.
Payroll
The front office staff and nurses all work hard, and you don’t want cash flow gaps to get in the way of payday. Sometimes, investing in growth or experiencing accounts receivable delays can temporarily tighten your available working capital. In these circumstances, a working capital loan or a business line of credit can help you manage your payroll until your cash flow balances out.
Expansion
Medical practice financing can help you expand your practice in a variety of ways.
Perhaps you’d like to buy an existing practice to increase the size of your business, or maybe you want to renovate an office space for a second location. These are both expensive undertakings, and a medical practice loan, an SBA loan, or a Backd Business Term Loan would be your best option.
However, maybe your idea of expansion right now is filling up your patient roster. To accomplish this goal, you might decide to invest in an advertising or marketing campaign to spread the word about your healthcare practice and that you’re accepting new patients. A flexible financing option, like a business line of credit, would work well for this smaller expansion project.
Insurance and Payment Delays
A medical practice’s accounts receivable are prone to delays that can result in cash flow fluctuations. In many cases, each patient’s bill will have to go through two stages of payment: first to insurance, then to the patient. Because of this, there will often be a delay between when you provide care and when you receive payment.
First, you will submit a claim to a patient’s insurance company. Then, the insurance company will verify the patient’s coverage and determine how much of the bill will be covered by them vs. the patient.
If the claim is accepted, they will send their portion of the payment to your practice, and you can bill the patient for the balance. It may take up to 30 days for you to receive the payment from the insurance company.
However, what about when the process doesn’t go smoothly? If a claim is denied because of an error, you may need to resubmit it. This will add to the amount of time it takes for you to receive the insurance payment and will potentially delay your ability to invoice your patient.
Even without insurance complications, patient invoices may be paid late or need to be paid in installments, which further increases your days sales outstanding.
If insurance and payment delays put a strain on your cash flow, a business line of credit would be a good option to help you bridge the gap. You’ll be able to pay bills and employees with short-term funds while you wait for your accounts receivable to balance out.
Flexible Financing: The Right Prescription for Medical Practices
There are a variety of medical practice financing options available to meet your business’s funding needs — from medical practice term loans to invoice factoring. But when it comes to surprise expenses, constrained cash flows, or time-sensitive opportunities, flexible financing can get you the funds you need quickly.
Look to Backd’s working capital products, like Business Term Loans of up to $1.5 million and terms extending up to 24 months, and Business Lines of Credit of up to $750,000 and terms up to 12 months. The application process is fast, and the eligibility requirements are straightforward:
$100,000 in monthly revenue
A 650+ credit score
Established business credit
Based in the U.S. with a brick-and-mortar address
Been in business for one year for a Business Term Loan and two years for a Business Line of Credit
Apply now*** and receive a funding offer within as little as 6 hours.
*Loans are decisioned and funded by one of Backd's lender partner banks.
**Decisions and funding may take additional time and not be same-day. Additional information may be required. Time to receive funds varies based upon your financial institution's receiving schedule and operating hours.
***Your application, including the amount, cost, and approval, is subject to review and is not guaranteed. Terms and conditions subject to change without prior disclosure or notice."
