How to Obtain Independent Medical Practice Financing

By: on December 12, 2018

Financing your new small or independent medical practice is a daunting process. It’s only made more difficult by the fact that you can’t afford to sink endless time and energy into researching the best medical practice loans.

Starting an independent medical practice requires a certain amount of working capital and equipment financing, preferably at suitable interest rates and with flexible terms and conditions.

The goods news is that physicians and doctors are considered good candidates for a potential loan, with lenders focusing on the following three qualities:

Physicians' and doctors' loan candidacy venn diagram

Physicians’ and doctors’ loan candidacy

Still, you need a reliable lender that allows you to build your medical practice the way you want with minimum monetary issues. Your lender must take care of finances while you focus on developing your new practice.

Physicians who plan well, secure proper funding and remain flexible in the ever-changing climate of health care face a better overall chance of achieving private practice success. To help you out, we’ve listed three ways to obtain medical practice financing to get you started with your small and independent practice.

U.S. Small Business Administration (SBA) Loans

 WHO THIS IS FOR:  New independent practices that are looking for longer repayment terms and can afford slightly higher interest rates.

 LOAN OVERVIEW:  As a small business owner, you can approach the U.S. Small Business Administration (SBA) to obtain a business loan for your independent medical practice. The SBA partners with intermediary lenders, microlending institutions and community development organizations that offer loans to small businesses in the U.S.

The SBA lends money to small businesses only through partnering lenders and not directly. However, to support small businesses, it guarantees 85 percent of the loan amount to partnering lenders in case of any default. Thus, the SBA reduces risk for all lenders and makes it easier for small businesses to obtain the required loan.

 HOW TO SECURE THIS LOAN:  Securing a loan from the SBA is not an easy task. The whole process requires a lot of documentation, time and energy, and the partnering banks/lenders generally take a couple of weeks—at a minimum—to process SBA loan applications.

In addition, one of the most critical factors in securing the loan will be your credit score, since the SBA usually lends money only to those with clean and trustworthy borrowing histories. A credit score of 680 and above is considered sufficient to secure a loan from SBA.

SBA loans range from $500 to $5.5 million and are repaid through monthly installments. The loan term is typically in the range of five to 25 years. The SBA loan interest rates are usually 7.5 percent and above. For more details, visit the SBA loan fact sheet.

Here’s what you need to do if you’ve decided to apply for an SBA loan:

1. Select the suitable loan for your practice out of the different loans SBA offers. For instance, two of the most popular SBA loans are:

Popular SBA Loans

SBA 7(a) Loan Program
  • Up to $5 million in loan amount.
  • Repayment term of seven to 25 years.
  • Suitable for general business financing requirements.
SBA Microloan Program
  • Up to $50,000 in loan amount.
  • Repayment term up to six years.
  • Suitable for starting or expanding a small or new business.

2. Check whether you are eligible for the selected SBA loan type or not. For example, you can check the SBA 7(a) Loan Program eligibility here. If applying for SBA Microloan Program, you can contact the partnering lender (see point below) for eligibility and other requirements. For instance, Community Economic Development Fund (CEDF) is a SBA partner that offers the SBA Microloan and you can submit an informal loan inquiry here.

3. Find a lender. Click on “FIND LENDERS” on this page and then continue as instructed.

4. Once you’ve found the right lender, start collating your documents (such as your medical license, resume, tax returns, financial projections etc.) as required by the lender. Then fill out the application form—which varies from lender to lender—and submit the completed application form along with required documents to the lender.

5. Some lenders may ask you for one or more other forms such as SBA Form 1919: Borrower Information Form, SBA Form 413: Personal Financial Statement, SBA Form 159: Fee Disclosure Form or SBA Form 912: Statement of Personal History. So keep these filled-in forms handy.

Now that you’ve got an idea of how to apply for the SBA loan, let’s quickly summarize the pros and cons of this type of loan to help you decide:

  • High capital amounts are available (up to $5 million)
  • Long repayment terms (up to 25 years)
  • Long application process
  • Long timeline to obtain capital
  • Relatively higher interest rates

Traditional Bank Loans

 WHO THIS IS FOR:  New independent practices looking for lower interest rates which have no urgent need to obtain capital.

 LOAN OVERVIEW:  Instead of going to the SBA, some small practice owners may want to approach a bank or another traditional institutional lender directly, as some banks offer specialized loans for medical practice financing. Also keep in mind that if you get a bank loan, you’re probably getting one of the cheapest financing options available to you due to low interest rates (2.55 to 5.14 percent for large banks, and 2.48 to 5.40 percent for small banks).

Bank loans are considered difficult to obtain, as borrowers must have excellent financial histories to satisfy banks’ lending criteria. In fact, bank loans are among the toughest financing products to qualify for, and around 80 percent of small business owners get rejected. However, if you’re a qualified borrower with a clean financial record, a bank loan can be a great option since they cost significantly less.

 HOW TO SECURE THIS LOAN:  To obtain medical practice financing from a bank:

1. Visit the nearest branch of a bank of your choice and consult with the bank’s loan manager. For instance, U.S. Bank, Wells Fargo and Bank of America are among the banks that offer customized loans to physicians and other health care professionals, such as doctors, optometrists, dentists and veterinarians.

2. Check with the bank’s loan manager to see whether you are eligible to apply for a loan or not. Also confirm the loan amount that you’re eligible to receive.

Usually, banks (such as Wells Fargo and Bank of America) have a fixed range of small business loans to offer, with amounts starting ranging $5,000 or $10,000 up to $100,000. However, a few other banks (such as U.S. Bank) have no set lending limits; instead, they determine the loan amount based on borrower’s needs.

3. If the bank meets your requirements, then submit the loan application form along with required documents. After that, wait until the application is processed and the loan amount is disbursed to you, which might take either a few weeks or couple of months.

Now that you’ve got an idea of how to apply for a bank loan, let’s quickly summarize the pros and cons of these loans:

  • Relatively inexpensive due to lower interest rates
  • Offer specialized loan products for health care professionals
  • Difficult to obtain due to high standards
  • Banks may take extra time to disburse funds, especially if they require additional documentation

Alternative Short-Term and Medium-Term Loans

 WHO THIS IS FOR:  New independent practices looking for quick capital that can afford higher interest rates.

 LOAN OVERVIEW:  Aside from SBA and traditional bank loans for medical practice financing, there are short-term and medium-term loans offered by alternative lenders such as non-banks or private lenders.

These lenders offer loans to small businesses at a relatively higher interest rate and a shorter repayment term. However, the extra cost might be worth it for small and independent medical practice owners who seek quicker financing without much paperwork.

It’s not that these loans are easy to obtain though—these lenders can set a high bar for the small business borrowers they choose and may require that you have a good credit history and high annual revenue. So, if you have a history in the medical or health care business and are confident that you can easily pay off a short-term loan, this product could be perfect for your small and independent practice.

 HOW TO SECURE THIS LOAN:  To obtain medical practice financing from a non-bank or private lender:

1. Visit the website of any non-bank of your choice. Some popular non-banks include LoanBuilder (a PayPal service), Lendio, LendingTree, Credibly, National Funding, LendingClub and Fora Financial.

2. Study the website carefully, as each has different eligibility criteria, offers different ranges of loan amounts and may or may not require collateral.

3. If any one of them suits you, contact them and confirm the loan fee/charges, interest rates and your ability to repay the amount over the set time period. Also check with them to determine other charges, such as exit fees or termination fees in case you have to quit the loan early.

4. Once you’re satisfied with all the requirements and fees/charges, apply for the loan and submit your application, as instructed on their website.

Now that you’ve got an idea of how to apply for an alternate loan, let’s quickly summarize the pros and cons of these loans to help you decide:

  • Quick paperwork and funding process
  • Relatively lesser stringent qualifications and criteria for loan approval
  • Relatively higher interest rates
  • Shorter repayment terms

What Are My Next Steps?

Understanding the various financing options available to start your independent medical practice is a crucial first step on a long journey. The three ways to obtain medical practice financing mentioned in this article will help you narrow down which way to go to get the necessary funds to start and run your practice.

Now that you are aware of the methods to get funds, here are a couple questions you need to answer for yourself before you move forward:

1. What should I consider before selecting the best way to obtain funds?

Take time to analyze the different loan options available to you, to find the right fit for your medical practice and save money in the longer run. Compare different loans based on features such as:

  1. Interest rates: Calculate how large a monthly installment your independent practice can handle, and then decide upon the maximum interest rates you can afford and manage to pay back the loan amount.
  2. Loan fees: All types of lenders charge a service and loan fees that they’ll usually discuss with you before the application process. If they don’t, remember to ask them the loan fees before getting caught off guard later.
  3. Loan amounts: Make sure the lender you select for the loan covers all your financial needs, as most lenders have a limit to the maximum loan amounts they can offer to borrowers.
  4. Loan terms: Select loan terms carefully, as short-term loans last only for a year or two, while long-term larger loans could last for many years. Long-term loans often mean lower monthly payments, but more money gets paid as interest, and vice versa.

2. What loan amount do I need to start my new practice?

If you’re starting your independent practice from scratch, consider the following costs before deciding your loan amount:

  1. Buying or leasing an office space
  2. Purchasing medical equipment and office supplies
  3. Advertising and marketing expenses
  4. Cost of hiring and paying medical staff
  5. Buying electronic medical records (EMR) software

These steps will help you calculate and apply for an accurate loan amount from the most suitable source. Also, if you’re not sure about which EMR system you’ll deploy in your new practice, call us for a free consultation with an EHR software advisor at (844) 686-5616.

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