What are the Best Business Loans for Doctors? And Which is the Right Choice for Your Practice?
The good news for doctors when it comes to looking for medical practice loans is that most financial institutions consider them to be excellent loan applicants, business loans for doctors are a low risk loan for lenders. With high earning potential and consistent income levels, medical businesses usually enjoy a wide selection of loan options.
However, there are two mistakes that medical practices and medical business owners often make when looking for business loans. The most common mistake is to take the first loan offered without shopping around for better interest rates. The second is to take out the wrong sort of practice loan (for example paying for medical equipment with a credit card).
This article will outline not only the business loans that are available for medical professionals, but also which financing options are most suited to different borrowing needs.
Breaking down medical practice loans
Doctors have a number of unique challenges when it comes to their medical practice financing. Slow payments and reimbursements from insurance companies, Medicare and Medicaid can bring serious cash flow issues. Medical equipment can be very expensive, as can starting up a medical business.
Medical malpractice insurance costs thousands of dollars every year and, with medical and administrative staff, there is a payroll to be made every month. Unexpected emergencies, such as a malpractice lawsuit, can bring high and unexpected financing needs.
Thankfully, for every situation there is a medical practice loan that can provide the most suitable type of funding. Below, we examine the most common situations where medical practices need funds and the best financing options available.
What are the best loans when starting up a new medical practice?
Starting up any type of business requires funds and opening your own practice can be costlier than most. Of all the business loans for doctors, term loans are usually the best option when starting a new practice. You borrow a specific amount and pay it off over an agreed number of years.
Banks, such as Wells Fargo, can be among the best providers of medical practice loans to help start up a business. They offer business loans designed for doctors and take into account their unique status. This means that they may disregard student debt when qualifying you and base the loan on your future earning power, rather than your history of earning.
It can be difficult to qualify for bank loans, however, so a medical practice loan from online or alternative lenders may be a more realistic option.
Buying or building an office for your medical practice
Once your medical business is established and you want to move into your own premises, SBA loans could be the best option. The Small Business Administration is a government agency that provides support for small businesses and offers business loans for doctors.
While the SBA doesn’t actually provide the funding, it does guarantee a large part of the loan. This makes it much more attractive to lenders, so SBA loans often have the best interest rates and the longest repayment terms.
The disadvantages of SBA loans – and this includes their business loans for doctors – are that the approval process is long-winded, and it can take three or four months before you receive the money. Your gross income must be above $120,000 and your credit score must be high. You also need to have been in business for a minimum of two years, which is why SBA loans are typically not an option when opening up a medical practice.
Failing this, the next best option would be a commercial real estate loan from one of the traditional banks. Some offer medical practice loans as high as $5 million, with terms up to 15 years. Your credit history will still have an impact on your application’s success.
Medical equipment financing
Medical practices often need to update medical equipment, which can be a huge drain on the business’s cash reserves. In this instance, equipment financing can be the best business loan for doctors.
When a medical practice takes out a loan through equipment financing, the loan is secured on the equipment itself. This means that interest rates and terms are typically very good and the loan itself is easier to come by.
Also, Section 179 of the IRS allows doctors to purchase equipment and write off the full amount in the year it’s bought. This can bring immediate tax advantages, rather than the alternative of writing off small amounts over several years.
Working capital loans
Having enough working capital can be difficult for medical practices, especially those just starting out. Paying all of your monthly expenses while waiting for insurance company and Medicaid/Medicare payments can put a big strain on your cash flow.
A business line of credit can be the best solution for working capital needs and cash flow issues. Once agreed with your lender, you have access to a lump sum of revolving credit. With lines of credit, you only pay interest on the amount you use, and you have flexibility over when you pay it back.
Medical malpractice insurance loans
You can’t run a medical practice without malpractice insurance, but this can be a huge expense, especially when starting out. It can run to several thousand or even tens of thousands of dollars.
A term loan can be the best business loan for doctors’ insurance. Loan terms allow you to spread the insurance cost over 12 equal payments during the year.
As medical practices grow, so do their staffing needs. Meeting monthly staff payroll is essential if you are to keep quality people.
If you find that you’re regularly struggling to make payroll and frequently need short-term loans, a business line of credit could be the best solution. It’s there if you need it and you pay no interest if you don’t draw from it. Plus, if you only need the money for a few days every month, business line of credit interest charges are quite nominal.
Which medical practice loans are best for emergencies?
If your medical practice has no emergency fund, you may at some point need an emergency loan. The roof might fall in, your furnace may die, or you could be facing a lawsuit.
When an emergency strikes, and you have no emergency fund, you have two options. Lines of credit can help get you through the worst, especially if you’re confident you’ll be able to pay it off soon. If the loan amount is large, a term loan can help spread the cost with monthly payments, which make paying for it less crippling.
Where to start
As we’ve seen, there is a wide variety of small business loans for doctors, depending on what you need the money for.
It’s really important to shop around for loans with the best terms and interest rates that reflect your medical practice’s unique situation. You also need to make sure that you take out the most appropriate loan for your financing needs.
Doing your homework thoroughly and asking for advice will pay huge dividends in the long term.