Whether you are a physician with a well-established medical office, or you’ve just completed your residency and are getting set up, obtaining funding for a medical practice is different from applying for a standard business or personal loan. Though those differences do not necessarily mean that the process is more difficult, they do mean that you need to carefully assess your needs and identify the approach that fits them best. To help, we’ve assembled the following list of must-know items specifically designed to facilitate medical practice funding:
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Doctors, dentists, and other healthcare professionals can always apply for standard loans, but the specialized medical practice loans available online and through big brand banks like Wells Fargo and Bank of America were created around the realities of running a medical practice. That means that they offer access to the higher level of funding that is usually required while also taking into account elements such as the existence of medical school debts as well as the probability that your practice is likely to earn significant revenue as it becomes more established.
- Consider equipment financing instead of a Medical Practice Loan
Though your first instinct may be to apply for a more typical loan, if you’re planning on buying medical equipment then equipment financing may make more sense. Though these loans may require a down payment, and use the equipment itself as collateral, they enable 100% financing of the acquisition and are structured so that repayment is completed at the end of the anticipated useful life of the asset. This is a superior outcome to having a loan that will continue long after you’ve replaced the equipment – especially if you will need to purchase something to replace it and take out an additional loan. Paying two loans at once – with one being for an asset that you no longer have – is something you definitely want to avoid.
See this related post from Dennis Harabin: Important Key Points to Improve Cash Flow for Medical Practices
Proper cash flow management requires a fundamental understanding that not all types of businesses are created equally. Some, like retail stores, tend to make a significant portion of their income at the end of the year — hence events like "Black Friday" and "Cyber Monday." Others, like landscaping businesses, see the vast majority of their income generated during the warm summer months.
- A Small Business Administration Loan may be a good fit for you
The Small Business Administration has well-established relationships with lenders that can offer up to $5 million in funding through the 7(a) loan program, while also guaranteeing a portion of the loan for the lender. This additional protection makes lenders more likely to extend a loan, offering rates that are competitive and can be used for almost any purpose. Note that the SBA will not extend a 7(a) loan to an unestablished business – which eliminates this option for those who have just graduated – but they do have other loan products available for newer businesses.
- Lump sum funding through term loans
If you need a specific amount of money and are looking for a fixed low interest rate, term loans are another good option, especially if you have good credit. You can use the money for anything and pay it off over a predictable term that can range from 12 months to 5 years or more, though compared to medical practice loans or SBA loans, the amount of funding may be limited.
- Business line of credit
Once you’ve decided on the right loan product, all that’s left is the application process. It is not all that different from applying for any other type of loan, but since financing a medical practice is so critical to your success, you’ll be smart to do your homework and be prepared. The following steps will be helpful:
- Know what your lenders are going to see when you apply by checking your own credit report and score.
- Prepare an updated set of financial statements that include current profit and loss statements and an assessment of your practice’s financial health, including cash flow.
- Be prepared to put business equipment or personal assets up for collateral on loans.
- Those who are just starting out will need to compile details about what they will need to purchase and what they expect to make, as well as a comprehensive business plan.
- Those who have been in practice for a while and who plan to expand need to detail their growth objectives. Having a plan for new acquisitions or changes will demonstrate that you are working towards a specific, attainable goal.
- Know what each type of loan requires to meet eligibility requirements to optimize your ability to be approved.
- Understand exactly what your chosen lender expects to see in terms of documentation and make sure you have copies of each in order to expedite the underwriting process. These may include income tax returns, bank statements, and more.
- Take the time to read through the terms of any loan that you’re applying for to ensure that you will be able to comply. Knowing that a loan is right for you goes well beyond the interest rate you’re going to pay and loan fees. Read the small print to make sure that there are no surprises and that you’re choosing the loan product that is most suitable for your medical practice’s needs.
If you have questions about the financial aspects of your medical practice, please contact our office at 551-249-1040 for assistance.
Do you have some questions? Dennis Harabin at Relax Tax can answer them!
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