Medical Practice Loans: What Are the Different Options?

As a medical professional — whether you’re a doctor, dentist, optometrist, or veterinarian — you know there’s more to running your practice than just providing excellent patient care. Like any business, you need a solid plan for growth and enough funding to cover your day-to-day expenses. Taking out a medical practice loan can help you expand your practice, manage operational costs, or invest in new equipment and facilities.

In this article, you’ll discover the challenges of running a healthcare business, explore the types of medical practice financing you can apply for, and learn how to choose the best option for your needs.

Financial and Operational Challenges Medical Practitioners Face

Running a medical business can be incredibly rewarding, but it also comes with more than its fair share of obstacles.

Here are five of the main challenges faced by owners of healthcare firms:

• High startup costs: Starting a new practice requires a big investment of $70,000 or more. You need this capital to cover your initial property costs and any renovations required, recruiting costs, the first few months of salaries, equipment costs, and more. Combined, all these expenses can really stretch your finances right from the start.

• Student loan debt: Medical students accumulate an average of $264,519 in student loans and other educational debts. Being loaded with this much debt before you even open your doors makes it hard to find lenders willing to take a risk, even though your idea has strong earning potential.

• Volatile cash flow: Patients are shouldering increasing proportions of the costs of healthcare. You have to invoice them and wait for payment, and not everyone settles up fast. On top of that, falling insurance reimbursements make it difficult to manage working capital.

• Expensive ongoing costs: Medical equipment, like X-ray machines and ultrasound devices, is expensive, as are the staff you need to run a successful healthcare practice. You also need cash to meet regular bills for maintenance, insurance, utilities, and regulatory compliance.

• Complex financing needs: When you ask for a loan, many lenders will need you to provide extensive financial documentation, such as a business plan, tax returns, collateral, and a personal guarantee. All of this paperwork also stretches out the application process, meaning you have to wait for your funds.

With the right medical practice loan, you can overcome these challenges and be in a stronger position to build a stable and thriving practice that benefits both your family and your patients.

Financing Options Available for Medical Practices

There are many types of financing available for medical practices. Here are some of the more popular medical practice loans:

1. Small Business Loans

Small business loans are available from large national banks like Wells Fargo and Bank of America as well as regional banks and credit unions.

With this financing method, you will receive a lump sum of cash from your lender and agree to pay it back over a given time period. Credit approval is often harder for these types of loans, but you may increase your chances of being accepted by offering your lender collateral.

Collateral can include assets such as commercial real estate and accounts receivable. However, it is important to note that if you fail to meet the loan repayment terms, your lender has the right to seize these assets. Offering collateral on your bank loan may also benefit you by lowering interest rates on your facility.

Some lenders may also require a personal guarantee. If they do and you sign it, that means if your business defaults on the loan, you’ll be personally responsible for repaying any outstanding loan amounts.

2. SBA Loans

If you’re unable to secure funding from a traditional lender like a bank or credit union, you may have more success with the SBA loan program.

The program, run by the Small Business Administration (SBA), guarantees to cover some of the losses a private lender incurs if you default on your medical practice loan. This takes away a lot of risk from the private lender, meaning their underwriting team is more likely to approve your loan application.

There are multiple SBA loan options available, including:

• SBA 7(a) loans: Borrow up to $5.5 million for working capital, real estate projects (like buying and renovating office space and turning it into your practice), machinery and equipment purchases, furniture, purchase of an existing practice, or refinancing of existing debt.

• SBA Express loans: Borrow up to $500,000 and use the funds for the same purposes as an SBA 7(a) loan. The application process is expedited on Express loans, meaning you’ll get an answer within 36 hours rather than the standard five to 10 working days.

• SBA 504 loans: Borrow up to $5.5 million for commercial real estate projects, equipment and machinery purposes, or to refinance existing debt. SBA 504 loan funds aren’t eligible for working capital uses.

• SBA Microloans: Borrow up to $50,000 for working capital, inventory purchases, equipment, machinery, and other assets to grow your business.

Most SBA business financing partners will want collateral, a down payment, and possibly a personal guarantee.

3. Equipment Financing

Equipment financing might be a suitable option if you need capital to purchase machinery like imaging and diagnostic equipment, a new computer system, or fixtures and furnishings for your treatment rooms.

With equipment financing, the equipment itself is collateral. You’ll still need to make a down payment in many cases, but you won’t have to pledge any additional personal or business assets as collateral.

It does mean, however, that if you don’t keep up with your repayments, you’re at risk of losing the equipment, which may make running your practice harder.

4. Business Lines of Credit

Business lines of credit work like business credit cards – you have a limit that you’re allowed to spend up to. Your balance is the amount you’ve spent minus the amount you’ve paid back, and you will only pay interest on the outstanding balance.

This type of credit is the ideal medical practice loan in many ways because it provides you with flexible access to funds, helps you manage any short-term cash flow gaps, and only charges interest on the funds you’re actually using.

Backd offers a business line of credit to healthcare and other companies with a maximum limit of $750,000. You can draw down money only when you need it and repay the facility over six or 12 months.

5. Merchant Cash Advances

You could borrow against future credit card sales with a merchant cash advance. The lender then collects a percentage of the settlement payment your merchant service provider transfers into your bank account until you clear the balance.

Merchant cash advances are a high-cost, short-term financing option. Instead of being charged an interest rate, you’re charged a factor rate. For example, if you borrow $100,000 at a factor rate of 1.5, you’ll pay back $150,000.

Given the speed at which you pay back a merchant cash advance, choosing this funding option could create even worse cash flow problems down the line if your turnover dips for a short period. Merchant cash advances tend to be offered by alternative and online lenders rather than traditional banks and credit unions.

6. Practice Acquisition Finance

Practice acquisition finance is a type of medical practice loan small business owners and healthcare professionals use when they want to buy an existing practice, take full ownership of a partnership, or expand to a new location.

You can also use them to buy out a retiring partner’s share or bring in new partners to strengthen your practice. These types of loans often require a personal guarantee or collateral and a high credit score.

7. Working Capital Advances

Working capital advances, sometimes called working capital loans, provide you with the funding you need to meet everyday bills like stocking up on medical supplies, covering payroll, and paying your utilities.

Working capital loans can be very useful for plugging short-term gaps in cash flow. Lenders can generally turn around applications quickly too. For example, Backd’s apply-to-answer time is typically 24 hours.

Choose the Right Medical Practice Loan for Your Healthcare Business

There are plenty of choices out there for healthcare entrepreneurs looking for funding. Before you apply, do all you can to boost your creditworthiness by paying off any outstanding debts, keeping all your financial records up to date, and not opening new credit accounts you don’t need. The higher your credit score, the more likely you are to meet more lenders’ eligibility requirements.

Your next step as a borrower is to choose the medical practice loan that’s right for your situation. Make sure that you don’t borrow more than you need and that you can afford the repayments.

Consider approaching Backd next time you need a medical practice loan. We have two competitive funding options that can provide you with the capital you need:

• Working capital advance: Access between $25,000 and $2 million (minimum one year in business required).

• Business line of credit: Borrow between $50,000 and $750,000 (minimum two years in business required).

To be eligible for our lending solutions, you must be based in the U.S., have established business credit already, have a brick-and-mortar address, have a minimum credit score of 625, and have a minimum monthly revenue of $100,000.

Apply now and be funded within as little as 24 hours.