Are you planning to open a medical practice or expand the number of clinics you are operating? Perhaps you are a massage therapist or acupuncturist in need of money to market your business. If so, you may be exploring your options for medical practice loans. This guide explains who can get a medical practice loan and how healthcare professionals can use the financing. You will also find details of common requirements for medical practice loans and the pros and cons of several types of financing you might use.
What Are Medical Practice Loans and How Do They Work?
Medical practice loans are loans from commercial banks, credit unions, and online lenders used by medical doctors, dentists, and other specialized practitioners. But how do they work? It can be quite simple to get a medical practice loan, depending on the lender. You will apply for financing and provide verification of your employment status and business operation, such as clinic, dental office, veterinarian, massage therapy, mental health clinic, and more. All kinds of medical practitioners qualify for medical practice loans. Your lender will review both personal and business financial information. Once the loan is approved, you can receive funding in just a matter of days and use the funds as you have indicated on your loan application. Then, depending on the type of funding, you begin repaying the loan immediately for the agreed-upon term.
Who Can Get a Medical Practice Loan?
Physicians and dentists may be the first professions you think of for a medical practice loan. But the financing is readily available to a wide range of medical professionals, including veterinarians, massage therapists, chiropractors, plastic surgeons, mental health therapists and psychologists, eye doctors, dermatologists, and podiatrists. Of course, the offices of any of these healthcare professions would require office space, equipment, diagnostic machines, insurance, and many startup costs, too numerous to mention. The good news is that medical practice loans can be tailored to your specific needs.
What You Can Use a Medical Practice Loan For
From marketing your new business to expanding your existing medical practice in a new city and everything in between, there are many practical ways to use a medical practice loan. This list shows many examples of what you can use a medical practice loan for:
- Start a New Practice
- Acquire an Existing Medical Practice
- Buy New Equipment
- Advertise to Acquire New Patients
- Pay Salary and Benefits
- Refinance Your Business Debt
- Complete Office Upgrades and Renovations
Common Requirements for Medical Practice Loans
There are common requirements for medical practice loans, no matter which type of loan or other financing you choose. Therefore, it’s smart to prepare in advance, especially if you have a bad credit score and need to take time to boost your creditworthiness or locate all the documents and licenses you may need to provide to the bank, credit union, or online lender.
Personal and Business Finances
Prospective lenders will scrutinize your personal and business finances to determine whether your medical practice is worth the risk they will incur by offering you a medical practice loan. You may be required to present personal and business bank statements, credit card statements, income tax records, as well as business financials, such as profit and loss statements, cash flow, revenue records, and information about other existing business loans. The required documents will vary depending on whether your medical practice is a startup business or has a long track record. Of course, your time in business will impact the type of medical practice financing you qualify for as well.
Credit Score
Your personal credit score will be one of the main considerations by prospective lenders for any type of medical practice financing. You want to have a “good” or “excellent” credit score to qualify for the lowest interest rates and best repayment terms. If you don’t have a credit score above 680 on a scale of 300 to 850, don’t get discouraged. There are many lenders today who will work with you to secure funding for your medical practice. Online marketplaces with multiple lending partners can offer the flexibility you may need if your credit score is lower than you would like. It does pay to boost your credit score, so do what you can to pay bills on time and manage your mix of creditors and the number of recent credit inquiries.
Legal Documents, Business Licenses, Medical Licenses, Registrations
As you are well aware, your medical credentials come with a long list of legal documents, business licenses, medical licenses, and registrations. Depending on the type of medical practice loan you are seeking, you may be required to present some or all of these documents to your lender. It will all depend on the type of funding, the type of lender, and the medical practice you operate. You may have a file of these documents ready, or you may need to search for them.
Collateral
Your lender may request that you present collateral in exchange for a medical practice loan. Collateral is an asset the lender may claim if you, for any reason, do not repay the loan or make payments on time. Examples of collateral include tangible assets such as vehicles, real estate, buildings, equipment, inventory, and liquid assets like cash and investments. Fortunately, most medical practice loans do not require collateral because you can offer the office building or medical equipment you are acquiring as collateral.
Funding Options for Your Medical Practice
Your medical practice is unique to your specialty, and the funding options for your medical practice can be too. The type of business loan you choose will depend on many factors. Consider the pros and cons of the many types of medical practice loans before deciding:
SBA 7(a) Loans
SBA 7(a) loans are a popular SBA loan guaranteed by the U.S. Small Business Administration. Like other SBA loans, an SBA 7(a) loan is not provided by the SBA but rather from banks approved by the SBA. Business owners and medical professionals with good credit scores who need a long-term loan and have at least four years in business may qualify for SBA loans. The SBA 7(a) loan specifically offers low interest rates and the longest repayment terms when compared to other medical practice loans. However, the major drawbacks of the SBA loan program are how complicated the application process is and how long it takes to get funding after your loan is approved. If you need cash fast for your medical practice, an SBA 7(a) loan may not be for you.
Traditional Bank and Credit Union Loans
If you prefer using a traditional bank or credit union for your medical practice loan, be aware of the pros and cons associated with them. While you may get a low interest rate and long payment terms, there are more limitations on how you can use the funding in your medical practice. You may not find a lender that would accept your application with a bad credit score for a traditional loan from a bank or credit union. Also, it could take a long time to get your loan, which may delay your plans for your medical practice. On the other hand, online lenders can offer financing much faster and have fewer qualifications than banks and other traditional funding institutions.
Business Term Loans
Business term loans are more accessible than traditional bank loans. With a term loan, you will receive a lump sum from your lender that you will repay in regular installments for the term of the loan, which is commonly from one to 10 years, depending on the lender. You may want to stretch a business term loan out as long as you can if you don’t plan to use the money to drive business revenue. For example, you might use a business term loan for building maintenance or supplies. Collateral may be required for a business term loan in some circumstances as well. You may find that an online lender will require less financial paperwork during the application process for a term loan and have less strict requirements in terms of your credit score or time in business.
Business Lines of Credit
In contrast to traditional medical practice loans, a business line of credit works more like a business credit card. You get approved for a certain amount in the form of a line of credit. For example, you might request a $100,000 business line of credit. You draw the funds as you need them and pay them back, and you can use them again as revolving credit. You only pay interest on the amount you take. So, if you draw $20,000 of the $100,000 line of credit, you don’t pay interest on the remaining $80,000, which is the main difference between a business line of credit and a traditional medical practice loan. Consequently, you may be charged extra fees for the convenience of a line of credit. It’s intended for use over time, and you can be drawn on the business line of credit quickly once you’re approved, which usually happens fast as well. Business lines of credit are popular with doctors, dentists, and other medical specialists for their flexibility and easy access to funds.
Equipment Financing
Equipment financing is a common type of medical practice loan simply because you can’t run a clinic or medical office without up-to-date equipment. With an equipment loan, you use the equipment itself as collateral. Whether you are buying an X-ray machine, massage tables, or a slit lamp microscope for your vision clinic, the lender has less risk because you’re using the equipment they are financing every day in your business. Therefore, you may not be required to make a down payment either. For these reasons, it’s easy to qualify for equipment financing, especially from online lenders. Another benefit of equipment loans is that you own the equipment and aren’t leasing it temporarily. However, your lender will require that you show proof of purchase, so you can’t use equipment financing for other business expenses on a whim.
