Medical Practice Loans Demystified

A Guide to Medical Practice Loans

There are many reasons why, as a doctor, dentist, or other healthcare professional, you might decide to open your own practice.

You get to be your own boss. You have the final say in where you work—and who you work with. Over time, you develop trusted relationships with your own patients, and help them and their families enjoy a better quality of life.

There’s also the financial potential. When you own your own practice, you can determine how many patients you see. For example, you might decide to expand your operating hours or see patients occasionally on the weekend to grow your practice and increase your profitability.

Despite these benefits, owning your own medical practice has its fair share of downsides. While you have a bigger share of the profits, you also have to shoulder all of the risk.

One of the biggest challenges associated with opening your own practice is the large financial expense. By some estimates, you need at least $100,000 to simply open your doors for the first time. Once you’re in business, it just gets more expensive. In fact, depending on the size of the practice, operating expenses might eclipse $1.1 million annually.

Unfortunately, the average doctor begins their career in the red, graduating with more than $166,000 of debt. That being the case, many doctors decide to turn to outside sources of funding to finance their practice’s startups costs, in the form of medical practice loans.

New doctors and medical professionals aren’t the only ones who need financing. Established medical professionals face the decision of whether to get outside funding, too.

Even when your practice is successful, you may need financing to cover your operating costs during the slower times of the year or cover new medical equipment expenses, among other things. You may also need a loan if you plan on expanding your practice to another location, assuming you’re up for the challenge.

The good news is that—compared to professionals in other industries—it tends to be easier for physicians to obtain loans for their medical practices. This is because medical professionals tend to have high incomes and generate consistent revenues, increasing the likelihood lenders will recoup their costs and turn a profit.

What Is a Medical Practice Loan?

A medical practice loan provides needed funding for new and existing medical service businesses. Qualifications for medical practice loans are typically primarily based on the health of the medical practice, as well as on the individual medical professional’s creditworthiness.

How Can You Use a Medical Practice Loan?

Medical practice loans are intended for use to build your medical business. While playing golf with potential business partners may technically be considered helping to build your practice, spending your borrowed medical loan funds on course fees is not doctor recommended! There are plenty of good reasons to use your medical practice loans, though. Here are some common ways that medical professionals leverage medical practice funds to become even more successful.

• Start a new practice
• Advertising to acquire new customers
• Mergers and/or acquisitions funding for a larger or additional practice
• New diagnostic equipment purchases
• Salary and benefits packages funding for new hires and/or new partners
• Ambulatory vehicle purchase
• Updated administrative equipment purchases
• Community outreach event funding

Are There Restrictions on Medical Practice Loans?

Medical practice loans are paid out as lump sums. When loans are funded, money goes into the practice’s dedicated bank account. There’s little oversight as to how the money is used once it comes into the practice’s possession. Once funds are in your account, you can use the money to grow your business however you see fit.

First, since the money will likely go into a business account, the IRS will take a dim view of you using business funds to pay off personal bills or debts. There are strict Federal guidelines as to how business funds can be utilized. So, while there are no technical lender restrictions on how medical practice loan funds are used, there are some very stringent government business regulations that should keep any extravagant impulses in check.

As a reminder, medical practice loan funds are intended for use to grow the business. If your expenditure falls into that category, you should be fine. Be sure to keep detailed records as to how every dollar was spent, including purchase and warranty receipts, for your tax records.

Typical legitimate uses for medical practice loans include:

• Advertising to acquire new customers
• Acquiring a new practice to rapidly expand and grow your business
• Purchasing new equipment that’s necessary for serving your customers better
• Acquiring new commercial property as part of your business expansion efforts

How Do Medical Practice Loans Work?

Medical practice loans are funded by commercial lenders. When you apply for a medical practice loan as a medical professional, you’ll be required to provide verification of your employment status and the nature of your medical business practice. The loan application will include personal financial information from the applicant. However, the majority of the application will pertain to the practice itself. Financial information from the practice will need to be submitted, including but not limited to records regarding accounts receivable, accounts payable, outstanding existing loans, P & L, cash flow statements and more.

Once the lender has reviewed and approved the loan, funds could be in your practice's business account in a matter of days. (This is in stark contrast to most other forms of loans, where applicants are forced to wait months to hear back with any response at all. Imagine waiting months to find out if you’ll be able to purchase a much-needed diagnostic machine, only to find out you’ve been rejected!)

After the funds are deposited into the practice’s account, you can begin using the money immediately to grow your practice.

Who Uses Medical Practice Loans?

Medical practice loans are used by a vast number of medical professionals. If you’re a non-traditional medical practitioner, you might be surprised to find that you qualify for a medical practice loan. If you have a business that practices medicine, you could potentially get approved for a medical practice loan.

Here are some common examples of how medical professionals use these kinds of loans:

• Primary care physicians have dreams of becoming the go-to doctors in their towns, providing the best care they possibly to their neighbors for decades to come. To do this, they not only need to build, design, and furnish welcoming medical offices, they also need to hire enough talented staff and buy the latest medical equipment and machinery to provide a high level of care.
• Massage therapists aim to give their clients comfort. In some instances, a client might just need a rub down after a particularly stressful week. Other clients have ailments and injuries that only a massage therapist’s touch can nurture. Depending on whether the therapist takes incalls or outcalls, several costs are involved in running such a practice. You either need to find dedicate space and decorate it or you need to have a trustworthy vehicle you can rely on to get from one appointment to the next. You’ll also need to buy equipment (e.g., a massage table) and other supplies (e.g., massage oils).
• Reiki professionals believe healing starts with the right touch. Like other medical professionals, Reiki practitioners may need business loans to cover an assortment of expenses, including a Reiki table; linens, cloths, and other fabrics; a dedicated and decorated workspace; a website; insurance; accounting software; a means to play music; and more.
• Plastic surgeons help people feel comfortable in their own skin. It’s not all facelifts and nose jobs, either. Plastic surgeons are also tasked with performing reconstructive procedures on those who’ve been disfigured by accidents, for example. Starting and maintaining a plastic surgery practice is a costly undertaking. Practitioners use loans to procure an office and furnish it, market their businesses, buy supplies and medical equipment, and cover insurance, among other things.
• Psychologists work with clients to help them overcome mental and emotional struggles by suggesting changes in behaviors and thinking. To provide the best service possible, they need to create a comfortable atmosphere in a dedicated and quiet space. They also need to pay operating expenses and licensing fees and market their businesses to attract new customers.
• Psychiatric professionals are trained medical doctors who try to solve the same problems as psychologists. The difference is psychiatrists can prescribe drugs whereas psychologists cannot. Psychiatric professionals use medical practice loans to cover business startup costs and, over time, expand into new facilities as their practice grows.
• Chiropractors help patients with back problems feel normal in their own bodies. To provide the best care possible, chiropractors need to find an ideal office location and furnish and decorate in an appealing and comfortable manner. They also may need to purchase X-ray machines, which don’t come cheap. That’s in addition to all the other expenses all medical professionals encounter: operating costs, marketing budgets, software, and more.
• Eye doctors come in all sizes. Ophthalmologists perform surgeries on eyes to help people see better. Optometrists study the eye to figure out whether there are any disorders or diseases affecting vision. Opticians focus on prescribing glasses and contacts so patients can see more clearly. All of these medical professionals have to cover significant startup expenses when opening their own practices.
• Podiatrists help their patients walk more comfortably. On one end, this entails removing warts and corns. On another end, it involves performing surgery on feet and ankle to heal various afflictions. Starting a private podiatry practice is no easy undertaking. Podiatrists have to absorb the same kinds of startup costs their medical peers do (e.g., office design and furnishing, operating costs, medical equipment, insurance, and more).
• Pediatricians help ensure our future is secured by providing medical care to babies, infants, and children. Providing great care starts with creating a welcoming atmosphere that makes kids feel right at home. In addition to all the medical equipment and supplies needed to run a proper operation, pediatricians also have to procure items that most other medical professionals do not: toys.
• Dermatologists treat skin conditions and ailments. They also detect precancerous growths and remove them before they become series problems. Some dermatologists are even involved in the hair transplant business. Many dermatologists turn to medical practice loans to purchase all of the equipment and supplies needed to start a practice the right way—in addition to all those recurring operating expenses.

Who Are the Medical Practice Lenders?

Just like any other business loan, medical practice lenders make up a wide pool of banks, financial institutions and private investors. Your money may ultimately come from an investment club, a traditional bank, an investment firm, or from a group of independently wealthy individuals.

While you won’t be privy to the precise derivation of your loan funds, you can be assured that your money comes from reputable sources and that the loan terms are managed by traditional sources.

Who Gives Medical Practice Loans?

You can find business loans for your medical practice from major banks.

For example, Wells Fargo offers healthcare practice financing for doctors, dentists, optometrists, physicians, veterinarians, and other healthcare professionals, through their Wells Fargo Practice Finance division.

Bank of America also offers specialized loan options for doctors, dentists, veterinarians, and other types of medical professionals.

As a small business owner, you can go to the Small Business Administration to find a business loan for your medical practice. The SBA offers medical practice loans, through third-party lenders such as banks. SBA loans offer very competitive interest rates, with extended repayment options.

One major drawback to getting a medical practice loan from the SBA is that the final funding can take up to four months. That’s a long time to wait if you have immediate financing needs for your practice. Another drawback to SBA loans is that they have very tight requirements for approval.

How Do You Apply For an SBA Medical Practice Loan?

Qualifying for an SBA medical practice loan is hard for professionals in any industry as many healthcare professionals know all to well.

First, in order to qualify for an SBA loan, you almost always need to have been in business for at least one year. To qualify, according to the SBA, you’ll be subject to SBA personal credit screenings, and your business practice needs to pass credit score requirements, too. Even though the business is receiving the loan, the SBA wants to know whether you yourself can handle debt in the unfortunate event your business doesn’t take off as you imagine it will.

Assuming you’ve got strong credit scores, here’s what you’ll need to do next:

1. Gather an assortment of financial records and paperwork

While the exact items may vary by lender, they typically include:

• Personal and business tax returns for the past two years
• Balance sheet
• Income statement
• Bank statements
• Current commercial lease agreements
• Relevant business licenses
• Articles of incorporation
• Your business plan and mission statement
• Resumes of all the officers and partners of the business
• Financial projections

2. Figure out how big of a loan you need

After submitting all that paperwork, you’ll also need to come up with a figure for the amount you need to borrow. You’ll also need to provide information as to how you intend to invest the money.

3. Submit your application

Once you’ve gathered all the relevant information and determined how much money you’ll need and how you plan on investing it, it’s time to turn the application in. Good luck!

4. Play the waiting game

After you’ve applied, it may take as long as three months before you hear back from the SBA. Few businesses can afford to go without cash for that long.

Fingers crossed that, when you do hear back, it’s good news. Otherwise, you may discover that you’ve wasted your time seeking funding from a traditional lender.

What Kind of Terms Can You Expect?

Terms for medical practice loans can be very favorable or not—depending on where you go for the money. Big banks, if you’re lucky enough to get approval, will almost certainly ask for collateral on the loan in return for highly competitive loan rates. Alternative lenders, on the other hand, might not ask for collateral for smaller loans (e.g., up to $150,000). They may, however, charge much heftier interest rates (e.g., prime + 3.5%).

Regardless of which lender you go with, your rates will usually depend on how much money you need, how long you’ve been in business, your financial health, what the loan will be used for, and your personal and business credit scores. Seasoned practices tend to have an easier time securing cheaper capital than startups and newer businesses.

Term lengths will vary depending on the size of your loan and the lender’s policies. Generally speaking, larger medical practice loans might come with 5-year or 10-year terms while smaller loans might have to be repaid within a year or two.

Alternative Funding Through Fundbox

Not sure if medical practice loans are the right choice for you right now? There are many other options out there for funding to grow your business. Fundbox works with U.S.-based professionals and business owners in all industries, to help them get access to the funds they need to succeed.

With Fundbox, business financing is a whole lot simpler than a traditional loan. First of all, at Fundbox, your business performance is what matters. Even if your personal credit is a bit bruised (by medical school debt, perhaps), you could still be qualified to receive a loan for your medical practice of up to $100,000.

Second of all, you could have your decision in as little as three minutes. Instead of waiting days or weeks for a credit decision, you could be making plans for growing your practice using the funds you receive, right away. When you draw the funds from your credit line, you can see them in your business account as early as the next business day. Apply in seconds and find out how much credit you could get for your growing practice.

Does Fundbox sound a lot easier than applying for a medical practice loan the traditional way? Not only is it easier and faster, but the fees and repayment schedules are simple and transparent, so you’ll always know what you owe in advance. If you’re thinking about growing your private medical practice, register for Fundbox and see how much credit you could get today.