Prescription for Physicians Needing Small Business Loans


Startup costs for medical offices can be significant. Any physician who has purchased or rented a building and then renovated it can tell you how costly it is to set up a new office. And that’s before purchasing medical equipment, computers and software, phone systems, furniture, supplies, and hiring staff.

Complicating matters is that doctors aren’t automatically wealthy. In fact, for the first few years, they may struggle financially. According to the Association of American Medical Colleges, about 80 percent of medical school student’s graduates with debt and more than 40 percent of them owe in excess of $100,000 as they embark on their careers in medicine. Almost two-thirds (63 percent) owe $150,000 or more for their medical school education. Some doctors graduate with debt of more than $300,000. Being saddled with these kinds of financial obligations can really curtail the development of a medical practice.

Young physicians, who are the most likely to be burdened with student debt, typically are the lowest paid.

The type of medicine a doctor practices substantially impacts finances. According to Medscape’s 2015 Physician Compensation Report, the average primary care physician earns $195,000 annually, while specialists averaged $284,000. Specialized doctors include cardiologists, dentists, neurologists, chiropractors, oncologists, optometrists, and others.

Just as in any profession, doctors can take medical practice loans for expanding their locations, upgrading or purchasing medical equipment or software, obtaining working capital, and dealing with cash flow issues due to slow insurance payments.

Physicians can feel a crunch. Malpractice insurance is very expensive, as is the purchase of new medical equipment. Additionally, digitizing medical records provides more efficient sharing among doctors treating a patient, and reduces the change of human error. Converting patient folders into digital files is both costly and time consuming. However, it is becoming more of a necessity than a luxury at this point.

Meanwhile, insurance companies are notoriously slow in paying and argue over the amounts doctors can charge for certain procedures. Physicians typically don’t want to be involved in haggling for money and have to invest in hiring and training staff to deal with the complicated process of dealing with insurance payments. Fewer and fewer patients are able to fully pay their medical bills on their own. These factors hurt the cash flow of medical practices.

Medical practices do have an advantage in securing capital because lenders do not consider the industry to be as risky as construction or the restaurant business, for example. There is always a demand for medical professionals, particularly as the Baby Boom population ages. Still, they should investigate the kind of loan that a lender is suggesting and whether the repayment rates and terms are acceptable.

Doctors usually easily qualify for business lines of credit, which is a flexible, short-term funding solution that comes with attractive interest rates. Lines of credit can be used for all types of expenses, including equipment purchases and the cost or purchasing of an office building.

Physicians with credit scores above 650 will easily qualify for SBA Loans, which are made not by the agency, but by lending partners, including many banks. They are popular among borrowers because they come at relative low interest rates. Lenders like the government guarantees on the loans. In the case that the borrower defaults, the SBA will cover a significant portion of the cost. This minimizes risk for the lending institutions.

The approval process for SBA loans will be a bit more time-consuming than a line of credit or even a traditional small business loan from a bank. If a doctor is going out on his own or is teaming up with a partner to start a new practice, startup costs can be significant. Land purchases, building renovations, purchasing medical equipment and digitizing records major expenditures that can be covered by SBA loans.

Even successful healthcare groups can use cash infusions. According to Dr. Hemant Dhingra, CEO and President of the Nephrology Group, it can be very challenging to expand a private practice.

Like any other business applying for funding, a medical practice should submit a business plan that provides a roadmap to profitability. It must include a detailed executive summary, which may be the only part of the document that an underwriter chooses to read. Additionally, the plan should outline:

  • Business Description: What does the company do?
  • Local Market and Competitive Landscape
  • Explanation of the Differentiator for the medical group (price, level of service, superior technology, etc.)
  • Marketing Plan
  • Management Team
  • Financial Data – including how much the partners in the practice will also invest.
  • Appendices

Once the business plan is ready, physicians in search of funding must shop of the best deal, just like any other small business borrower. Use the internet to find funding sources and, once a suitable lender has been found, be sure to complete all the required forms and provide the financial documents needed (tax returns, P&L statements, etc.) to process the application.

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