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Essential Industry Funding Guides

Medical Practice Funding: The Essential Guide to Physician Business Loans

Understanding your funding options and applying for the right small business loan for your business can be confusing. Our Industry Funding guides make it easy to compare your funding options and choose the right loan for your business, whether you’re just starting up or are looking to grow an existing business.

Getting Started with Medical Practice Funding

You may be a doctor first and foremost, but if you own your own practice, you’re also a small business owner. According to a survey conducted by the American Medical Association in 2018, 45.8% of physicians owned their own practices. Surgical subspecialists were most likely to own their own practice, followed by OB-GYNs, internal medicine specialists, and radiologists.

Whether you’re looking to open a private practice, supplement your cash flow, or expand your offices, medical practices of all sizes and specialties can benefit from an infusion of working capital

Small business funding is available for general and family physicians, as well as specialist doctors like dermatologists, pediatricians, psychiatrists, chiropractors, optometrists, and all other specialties. Funding can be used to help you navigate the challenges unique to running a medical practice, such as:

  • Office space: Medical practices of all sizes and specialties must present a clean, comfortable environment, which means they need an attractive and well-furnished waiting room along with up-to-date exam rooms, reliable technology, and specialized equipment. This infrastructure can be costly, especially if you’re starting a new practice.
  • Billing models: Delayed or denied insurance claims and trouble receiving timely payments from patients can significantly impact your practice’s cash flow. Even stable practices with a robust patient roster can experience cash flow issues due to slow payers, bounced checks, and billing issues with insurance companies. In addition to making it difficult to stay on top of operating expenses, cash flow shortages may impact your eligibility for medical practice funding.
  • Equipment: Medical equipment and diagnostic tools are costly to purchase and maintain, but are essential for providing high-quality care that meets the standards of your patients and medical governing bodies.
  • Specialized needs: Medical businesses have more rules to follow and more specialized needs than businesses like retail shops. As a result, operating costs are typically higher and profit margins may be thinner.

Medical Practice Loan Options

Most medical practice loans are designed for licensed doctors who are preparing to start their own practice or practicing doctors who are ready to expand. Long- and short-term physician business loans are available, as well as secured and unsecured business loans for doctors, including:

  1. SBA medical practice loans
  2. Bank loans
  3. Alternative funding
  4. Lines of credit
  5. Practice acquisition loans
  6. Equipment financing

Let’s take a closer look at these options.

1. SBA medical practice loans

SBA loans are not provided directly by the Small Business Administration—instead, you apply for and receive funding from a traditional lender like a bank or a credit union, and the SBA guarantees your loan (up to 85%). This reduces the risk to the lender, which in turn reduces your rates and fees.

Because the terms for SBA funding are typically the most favorable, these loans are the preferred loan for many small businesses, including medical practices. However, the application process is long—up to 4 months—and requires extensive paperwork along with years of detailed business and personal financial information, all with no guarantee of approval.

SBA loans are available for both start-up and existing practices. Several SBA loan options are available, but 7(a) Guaranteed Loans and 504 Local Development Company Program loans are the most popular:

  • 7(a) Guaranteed Loans: These loans are the most commonly sought SBA business loan for doctors because they have fewer restrictions on how the funds are used, larger loan amounts, longer repayment terms, and lower interest rates. Loans up to $5 million are available, and can be used to meet short- or long-term needs, as well as for starting, expanding, or acquiring another practice.
  • 504 Local Development Company Program: 504 loans are long-term, fixed rate loans that are often used to acquire real estate or equipment such as computers or medical equipment. These loans are administered by CDCs through commercial lending institutions with the expectation that the borrowing business will create or retain jobs or uphold other public policy goals, such as supporting minority-owned businesses, rural development, or revitalizing a business district.
Difficulty:

5/5

Pros
  • Lowest rates and typically better terms
  • Large loan amounts are available, up to $5 million
Cons
  • Most applicants are rejected, especially those with low credit
  • Extensive application requiring years of detailed business and personal financial information
  • Can take weeks or months to process with no guarantee of approval
  • Some loans restrict how you can spend your funds

2. Bank loans

Commercial banks also offer business loans for doctors. While loan terms and rates are competitive, they will not be as low as SBA-guaranteed loans and typically depend on the size of the loan and your credit history. Approval requirements are not as strict as SBA loans so these loans may be easier to acquire, especially if you have an existing relationship with a commercial lender. However, similar to SBA loans, it can take weeks to learn whether your application has been approved, and approval is never guaranteed.

The anticipated revenue of a medical practice can make these businesses an attractive candidate for funding, but it can still be difficult for medical practices to get the funding they need from banks and other commercial lending institutions. Because banks prefer to grant loans for larger amounts or loans to large, established businesses, it can be especially tough for smaller practices or practices looking for smaller amounts to get funding from a bank that doesn’t offer specialized physician business loan programs.

Some lenders, including Wells Fargo and the Bank of America, offer a variety of funding options designed specifically for doctors. These lending options factor in the unique profile of medical practices when evaluating your application, including things like student debt or low cash reserves.

Difficulty:

4/5

Pros
  • Low rates and good terms depending on size of loan and credit history
  • Slightly less strict application requirements than SBA loans
Cons
  • Many applicants are rejected, especially small loan amounts and applicants with low credit
  • Extensive application requiring detailed business and personal financial information
  • Can take weeks to process, with no guarantee of approval
  • Some loans restrict how you can spend your funds

3. Alternative funding

Alternative funding from a direct online lender like Greenbox Capital® is easier to acquire than SBA or bank loans for doctors. While rates are higher than traditional forms of funding, lending requirements for alternative lenders are more flexible with less focus on factors like credit score. Approval can be made in as little as 24 hours, making alternative funding an ideal option for medical practices that need fast funding to take advantage of short-lived opportunities to grow or cover unexpected complications like equipment repairs.

These lenders base your approval on the overall health of your practice and are more lenient with credit records and financial documentation. They are also more likely to grant loans to newer businesses, though some will not lend to start-ups or practices in operation for less than 6 months. Multiple types of short- and long-term funding are available depending on your medical practice’s needs, including merchant cash advances, invoice factoring, lines of credit, alternative small business loans, and collateral loans, typically with no limits on how you use your funding.

Difficulty:

2/5

Pros
  • Faster approvals with funds deposited in as little as 24 hours
  • Easier lending requirements
  • No restrictions on how funds are used
  • More likely to fund younger businesses
Cons
  • Higher rates
  • Daily or weekly repayment terms depending on type of funding

4. Lines of credit

Business lines of credit are available from traditional banks and alternative lenders, typically for longer terms than short-term funding options like invoice factoring or a merchant cash advance. Lines of credit offer the most flexibility, allowing you to draw and repay from the line whenever needed, making this type of funding ideal for responding to unexpected complications, purchasing inventory, or repairing equipment. Rates may be higher, but you’ll only pay interest on the funds you use.

Difficulty:

3/5

Pros
  • Only pay interest on the amount you borrow
  • Draw and repay funds as needed
  • No restrictions on how you spend your funds
  • Lower rates and higher limits than business credit cards
Cons
  • Tougher application requirements
  • Lower amounts than other forms of funding

5. Practice acquisition loans

Practice acquisition loans are designed specifically for the purpose of acquiring another practice, whether you’re just starting out and are purchasing a retiring doctor’s practice or are considering expanding your existing practice. Multiple types of funding can be used to acquire a practice, including SBA 7(a) loans or 504 loans, traditional bank loans, and alternative funding.

Because practice acquisition loans are typically for larger amounts, you may need to provide detailed financial information, especially if you are applying for funding from the SBA or a traditional lender. Be prepared to provide a purchase agreement, a current balance sheet, year-to-date profit and loss statements, federal tax returns, and a schedule of inventory, equipment, fixtures, and other assets when applying for a practice acquisition loan.

Traditional and alternative financing options are available for doctors looking to acquire an existing practice. Some lenders, including Wells Fargo and the Bank of America, offer specific lending programs designed for doctors looking to purchase an existing practice.

Difficulty:

4/5

Pros
  • Multiple types of funding can be used to acquire an existing practice
  • Can be used to buy an entire practice, a share of the practice, or a partnership stake
  • Typically includes equipment, facilities, and patient records
Cons
  • Funding can only be used to acquire another practice
  • Application process may be long, depending on your lender

6. Equipment financing

Equipment financing is designed to help finance the purchase of expensive medical equipment, such as imaging machines, diagnostic equipment, lab equipment, exam tables, computers, wheelchairs, and more.

With this type of financing, the equipment will serve as collateral, and terms typically match the lifespan of the equipment. A down payment may also be required.

Difficulty:

3/5

Pros
  • May be easier to qualify for because equipment serves as collateral
  • You own the equipment instead of leasing it
Cons
  • Funding can only be used to purchase specific equipment
  • Funding can only be used to purchase specific equipment
  • Very specific equipment or equipment that goes out-of-date quickly may have higher interest rates

What Is The Best Physician Business Loan?

The best physician business loan depends on your goals. Your medical practice loan, including the amount you borrow and your repayment terms, should serve a specific purpose that aligns with your business goals, such as purchasing new equipment, investing in real estate, or boosting your marketing campaign.

For short-term funding, merchant cash advances or online invoice factoring can provide a quick infusion of working capital that can help you bridge the gap between insurance payments, invest in marketing your medical practice, or kickstart your growth.

For long-term funding, SBA 7(a) loans offer the best rates and terms, but they are the most difficult to acquire. Bank loans are a good alternative, especially if you work with a lender who offers financing options designed specifically for doctors. If neither of these options are available to you, alternative lenders also offer long-term funding like small business loans or collateral business loans.

For fast medical practice loans, your best bet is always an alternative lender. These lenders can approve and deposit funds in as little as 24 hours, while SBA and bank loans can take weeks or even months with no guarantee of approval.

How To Use Medical Practice Funding

Medical practice funding can help doctors overcome the unique challenges of their field, including:

  • Inventory: Medical supplies are expensive but essential, and maintaining your inventory can be tough if cash flow is limited due to slow insurance payouts or difficulty collecting payment from patients. Strict personal protective equipment (PPE) requirements for medical businesses operating during the COVID-19 pandemic can place an additional strain on your budget.
  • Equipment: Medical practices in all specialties will require standard equipment like exam tables and computer software, along with x-ray machines, defibrillators, EKG machines, lab equipment, imaging equipment, and other specialized equipment depending on your area of focus. These items can be prohibitively expensive to purchase up front, and repairs can also be costly.
  • Technology: Digitizing medical records can significantly boost efficiency by improving billing systems, streamlining patient communication, and making it easier to share information with other physicians or between locations. However, this technology requires an upfront investment in software, as well as the time it will take to convert physical files to digital formats. Your electronic medical records system also needs to be secure, and must conform to federal regulations to ensure confidentiality.
  • Collections: Slow-paying insurance companies, delays in Medicare and Medicaid reimbursements, and non-paying clients can all create cash flow concerns. Invoice factoring and other forms of financing can help you cover your operating costs or continue to grow while you wait for payments.
  • Insurance: Medical practices have unique insurance needs, such as malpractice insurance and worker’s compensation due to increased risk of illness. These unique needs make insurance especially expensive for medical practices.
  • COVID-19: Health care businesses are among the most impacted by the COVID-19 pandemic, with nearly 95% of businesses reporting a large or moderate negative impact between April 26 and June 27, 2020. Many practices are struggling to operate under restrictions, with fewer patients allowed inside at one time, service restrictions, and increased expenses for PPE and other preventive measures.

Medical practice funding can be used for more than overcoming challenges faced by medical practices—it can also be used to grow or expand your practice, such as:

  • Purchasing real estate: Lower your monthly expenses and expand your assets by purchasing your office space, or grow your practice by expanding to another location. Owning your office also makes it easier to renovate and update your space to create a comfortable environment for your patients.
  • Acquiring a practice: Acquiring an existing practice, such as purchasing a practice from a retiring physician, is a good alternative to starting your own. It’s also a great way to expand your business by enabling you to serve new territories, offer new services, and acquire new patients without requiring significant investments in marketing or development. Acquiring another practice may be planned in advance, in which case SBA or bank loans will offer the best terms, but short-lived opportunities to purchase a practice may arise unexpectedly, in which case fast alternative financing is a better option.
  • Hiring staff: Adding additional doctors, nurses, and other support staff to your team will enable you to take on more patients without compromising quality of care, but finding talented clinical staff can be difficult for smaller practices who may not have the budget to compete with the pay and benefits of larger organizations.
  • Boosting your marketing: Advertise your practice, create or update your website, or use direct marketing to reach new patients, especially if you’re opening a new practice or expanding to a new location, have hired new staff and can take on additional patients, or are offering new or expanded services.
  • Improving patient services: Offer the most up-to-date and sought after patient services to keep your practice competitive, such as online booking, online paperwork, updated wait times, quick responses to inquiries, free wifi in your waiting room, or extended hours.

How To Apply For Medical Practice Funding

Doctors and medical practices are often considered ideal candidates for funding because of their high earning potential, high net worth, and stable income. Doctors with an existing practice who are looking to expand are especially attractive. Here’s what you need to know before you apply for a business loan for your medical practice:

  • You may be asked to supply a business plan that includes a timeline of your medical practice’s income for 1-5 years, costs associated with running your practice, an analysis of competition in your area, and how you intend to use and repay your funding. Some lenders, including the SBA and banks, will require this information, while others may not. It’s a good idea to have a business plan prepared just in case to minimize any delays with your application.
  • Most doctors graduate with high amounts of student debt. Some lenders will factor this type of personal debt into your application, especially if you’re just starting up. Other lenders will focus more on the health of your business, and some even offer special forms of funding that balance factors like student debt against your high earning potential.
  • Revenue and billing structures for medical practices and delays receiving payments from insurance companies and patients can strain your cash flow, which can make it difficult to get approved for funding. Requesting payment up front, billing clients quickly, and making it as easy as possible for patients to pay can all improve cash flow.

The steps you’ll follow when applying for a physician business loan will be similar to other industries.

Learn more about how to apply for small business funding

Frequently Asked Questions

How do I get a loan to start a medical practice?

To get a loan to start a medical practice, your best option is to work with a lender who understands the unique challenges faced by new doctors, such as high levels of student debt or a lack of savings. The right lender will balance these concerns with other factors like your future earning potential to help you get the funding you need to start your practice.

How much does it cost to start a medical practice?

Most estimates suggest that you will need between $70,000 and $100,000 or more to start a medical practice. This estimation includes the money you’ll need to acquire office space, insurance, payroll, equipment and supplies, and payroll for the first few months.

What is a physician mortgage?

A physician mortgage is a low or no down payment mortgage designed specifically for physicians, dentists, and other medical professionals. Also known as doctor loans, doctor home loans, and doctor mortgage loans, these loans are used to help finance the purchase of a primary home. They cannot be used to purchase real estate for a medical practice or a second home.

How does a physician loan work?

A physician loan is a mortgage for medical doctors that does not require private mortgage insurance, even with a small down payment or no down payment at all. These loans make allowances for student debt and the chronology of a medical career. Available to doctors with M.D. or D.O. degrees, as well as sometimes D.P.M., D.D.S., or D.M.D. degrees, loan criteria will depend on where the borrower is in their training and career development—for example, physician loans tend to have higher maximum loan amounts for physicians compared to interns, residents, and fellows.

Is a physician loan a conventional loan?

A physician loan is similar to a conventional loan, but it is not the same. Physician loans differ from conventional loans in three ways:

  1. They don’t require private mortgage insurance (PMI). Most mortgages require PMI for loans with down payments less than 20%, but this does not apply to physician loans.
  2. Flexible debt-to-income ratio. Some lenders don’t count medical school debt when calculating debt-to-income ratio.
  3. Proof of employment. Residency contracts, even those that may not have started, are accepted forms of verification of employment.

Greenbox Funding Options for Doctors

Get the medical practice funding you need

As an alternative lender, Greenbox Capital® can approve more medical practice loans than traditional lenders. We can also approve your medical practice funding faster, with funds deposited in as little as 24 hours. We provide several types of small business funding to help grow your medical practice, with funding from as low $3,000 up to $500,000.

Greenbox Capital® funds all medical specialties. Our expert Funding Advisors will work closely with you to determine which funding option will help you achieve your goals without compromising your practice’s cash flow.

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