Medical Practice Loans Are Different than Other Business Loans
Doctors, dentists and other healthcare professionals are held in high regard and generally are highly paid in comparison to other occupations. However, the stereotype of the rich doctor on the golf course every Wednesday afternoon is more the exception than the rule these days. In fact, it takes years for physicians to become financially comfortable. Medical practice loans can be a lifeline to a growing medical office.
TIME magazine reported that doctors’ earnings ranged from $156,000 a year for pediatricians to specialists such as cardiologists and orthopedic surgeons, who earn upwards of $300,000 per year. Starting salaries, naturally are lower. According to Short White Coats, a website that covers a variety of issues facing doctors, the starting salaries for physicians practicing family medicine were $140,000 to $175,000. While this may seem like a lot of money to the average America, young doctors are frequently saddled with student loan debt, which takes years to fully wipe out.
Once student loan debt payments are finished, physicians may look to start or expand their medical practices by securing loans for doctors. Medical practices, like other small businesses, require working capital. Doctors sometimes find themselves in a cash crunch because of slow-paying insurance companies, delays in Medicare and Medicaid reimbursements, and cash-strapped patients who request to string out their payments. These situations can significantly hurt the cash flow of any medical practice.
At the same time, while doctors’ offices are chasing money, expenses mount. Payroll must be met, utility bills have to be paid, and supplies must be purchased. Then there is the skyrocketing cost of medical malpractice insurance. The result is that physicians, like other business owners, will look to secure working capital via business loans, business lines of credit, cash advances, and other forms of small business financing.
Recruiting and Hiring Staff
To run their offices smoothly, medical practices rely on physician’s assistants, nurses, receptionists, and office assistants who help with billing health insurance companies, Medicare, and others. Securing payment is much more complicated than ever before because of insurance companies that frequently question procedures and delay processing of payment until their inquiries are satisfied. Medicare and Medicaid are notoriously slow in paying, as well. All of these factors can lead to cash flow issues, particularly for newer, growing medical practices. Doctors can no longer take care of the books themselves, they need employees to handle these duties in order focus on what they enjoy and prefer doing: treating patients.
Digitizing Medical Records
Paper records are becoming part of the past for medical practices. However, while converting patients’ records from paper to digital files creates efficiencies for healthcare providers and their patients, it is a time-consuming and expensive task
Digitizing patient files creates an electronic record of visits, exams, blood tests, diagnoses, and prescriptions that enable doctors to perform their duties more efficiently. But the conversion process brings significant conversion costs as literally hundreds – sometimes thousands – of electronic patient files must be created. In the long run, digitalization of medical records saves time, cuts labor costs and enables a practice to run more efficiently, but the process of digitizing medical records is a significant long-term investment for any medical practice.
Doctors’ offices purchase major assets, such as X-Ray machines, CAT scans, stress test treadmills, surgical equipment, and ultrasound equipment. Medical practices also still need everyday inventory, such as bandages, tongue depressors, cotton swaps, rubbing alcohol, etc.
Expanding into New Offices
Successful physician groups grow, just like other businesses, face significant cash requirements when opening new offices. Costs include:
- Building purchases or rent
- Equipment leasing agreements (if the medical equipment is not purchased outright)
- New computers and software
- Staffing costs
- Marketing expenses.
Biz2Credit can help secure business loans for doctors who are seeking office purchases and leasing arrangements, as well as provide a wide variety of options to obtain the working capital needed to launch a new office.
Dr. Hermant Dhingra, who is based in Silicon Valley, says that securing funding can be a challenge, but it is necessary to grow a practice.
Funding Options for Physicians
If a medical practice is looking to purchase or rehabilitate a building, a commercial loan can be the answer. These can be 15-year or 30-year fixed rate loans or adjustable loans. Often they require 20 percent down.
Medical office, particularly startup practices, may qualify for Small Business Administration (SBA) funding. SBA loans require more paperwork than traditional term loans from banks, but they offer attractive rates and terms for borrowers and government guarantees for lenders that are looking to mitigate their exposure to risk.
Business Line of Credit
A business line of credit is like having a debit account for use during periods when a practice might be cash-strapped. Once a lump sum amount is agreed to by a bank, the money becomes available for use. The beauty of this type of small business financing option is that the borrower only pays interest on the amount of the money that he or she actually spends. Typically, the interest rate charged is much lower than the rate charged by a credit card, which can impost 15 to 20 percent interest rates. Thus, a small business line of credit represents a significant savings for a physician in search of funding.