Loans for Surgeons Starting a Private Practice: What to Know Before You Apply

For medical professionals, starting a private practice can be a lucrative and exciting professional opportunity. It marks the shift from hospital employee to business owner and provides the opportunity to be your own boss. However, opening a private healthcare practice requires a significant upfront investment. Like other healthcare professionals, surgeons can make a good income, but few feel comfortable funding a new practice out of pocket. This is where small business loans for medical professionals help.

Securing the right funding is a big step towards starting a successful practice. Lenders may view surgeons as low-risk borrowers because of their high earning potential, but you’ll still need a strong loan application to gain approval. Understanding the nuances of business loans for medical professionals will help you navigate the application process with confidence.

Why Surgeons May Need Medical Business Financing

A new private surgical practice has significant financing needs. Some conventional business loan programs may fall short. Medical practice financing covers new medical equipment, leasehold improvements on an office, and significant insurance costs.

Lenders who have specific experience offering business loans for medical professionals understand the unique needs and challenges of starting a private practice. They understand that surgeons will have to credential with insurance companies and build a patient base before they may begin turning a profit. Lenders with medical experience may offer startup loans that feature:

• Higher loan limits

• Lower medical practice loan compared to general commercial loans

• Flexible repayment terms

Every lender and loan is different, and your loan terms are subject to your creditworthiness and business plan. But working with financial institutions with experience lending to private practices may give you a better chance at securing low interest medical financing.

Private Practice Startup Costs

Doctorly estimates that opening a private practice costs $70,000 to more than $100,000. Before you apply for business loans for medical professionals, it’s crucial to understand exactly how much you need. In your business plan, you should itemize your expected costs so both you and the lender understand how much of a lump sum you need to get started. Some of the most important costs include:

• Real estate and leasehold improvements: You need a location that’s accessible for patients and close to a hospital for emergencies. After finding the location, you’ll likely need to make renovations for medical-grade plumbing, reinforced floors for heavy equipment, and restructuring to support offices, operating rooms, and waiting areas.

• Specialized equipment: New equipment may end up being the most expensive line item in your budget. Depending on your specialty, you’ll need diagnostic tools, operating tools, and electronic health record (EHR) software.

• Working capital: Working capital includes payroll, utilities, and marketing to keep the business running smoothly. It’s a good idea to have at least six months of operating expenses in reserve. You can build this money into business loans for medical professionals.

Eligibility Requirements for Business Loans for Medical Professionals

Any time you apply for a loan, your application is subject to credit approval. The lender has to assess the risk of lending your business money. For surgeons, the underwriting process will determine both if you’re a responsible borrower and a qualified surgeon who can make it with a private practice.

Eligibility requirements vary between lenders and loan types. Generally, traditional financial institutions like banks and credit unions have stricter eligibility requirements than online lenders. Some factors that lenders will review include:

• Credit score: Your personal credit score is vital when you have no business credit history. The higher your score, the more likely you are to qualify for better interest rates.

• Debt-to-income (DTI) ratio: Surgeons often carry significant student loan debt. Lenders with experience in medicine understand this. More important are other types of debt, like credit cards and car loans. If you can, it’s a good idea to pay down small debts before applying.

• Medical experience: Lenders are more likely to approve lenders with at least a few years of experience in a professional setting. They want to know you have a track record of successful procedures. If you’re fresh out of residency, you may need a co-signer or a very strong business plan to secure business loans for medical professionals.

Documentation Requirements

The application process and required documentation will vary between lenders. Traditional lenders will typically have a more rigorous process than online lenders. If you’re applying for an SBA loan for medical practices, the process may be even more intensive. Being organized can help streamline the process, and it’s a good signal to lenders that you’re ready for the responsibility of a loan.

Commonly required documents for business loans for medical professionals include:

• Personal tax returns

• Personal financial statements

• Business plan

• Financial projections

• Proof of licensing

• Resume

• Letter of intent (LOI) if you’re leasing a space or buying an existing practice

Types of Business Loans for Medical Professionals

Not all business loans for medical professionals are the same. You may have several loan options available to you, so it’s important to do your due diligence to understand the right loan that fits your specific timeline and goals.

Term Loans

Both traditional banks and online lenders offer conventional term loans. When you think of financing options, this is probably the first that comes to mind. With these loans, you receive a lump sum that you repay with monthly payments based on an interest rate.

Term loans are a one-time payment, so you’ll need to diligently account for all of your startup costs and working capital needs.

Traditional lenders typically have stricter requirements than online lenders, but they may offer higher loan amounts and lower medical practice loan rates.

SBA Loans

The SBA works with approved lenders to partially guarantee loan proceeds. SBA loans offer qualified applicants competitive interest rates, low down payments, and long repayment terms, which makes them particularly desirable for new business owners. However, the application process is slow and requires a lot of paperwork.

The SBA 7(a) loan program is the SBA’s most popular and may be most suitable for business loans for medical professionals.

Equipment Financing

If you have other costs covered and only need money for a specific piece of equipment, then equipment financing is a useful tool. With these loans, the equipment itself serves as collateral, making it easier to qualify for lower interest rates.

Business Line of Credit

A business line of credit serves as a financial safety net for your business. A cross between a term loan and a credit card, with a line of credit, you have access to a maximum loan amount. But unlike a loan, you only pay interest on the money you spend. Since lines of credit are typically a revolving credit facility, once you repay what you borrowed, you’ll have access to the full amount again.

A line of credit is a valuable tool for managing cash flow dips or covering emergency costs.

Tips Before Applying for Business Loans for Medical Professionals

Starting a private practice is a great opportunity for surgeons. Getting denied for a loan is a setback that might derail your plans. These tips can help you present the best possible loan application:

• Hire a medical CPA: An accountant who understands healthcare can help you create realistic projections. Having them work on your business plan and financial projections will likely give you more accurate numbers than if you were to run them yourself.

• Consult a healthcare attorney: An attorney can review your lease and contracts to ensure there are no hidden risks and that you’re compliant with regulations.

• Check your NPI and credentialing: Start the credentialing process as early as possible to ensure your National Provider Identifier (NPI) is up to date. Lenders want to see that you’re ready to bill insurance companies immediately.

Final Thoughts

Surgery is a bold line of medicine. Opening a private practice is a bold move worthy of a surgeon. By understanding how business loans for medical professionals work, you can set yourself up to open your own practice and take control of your financial future.

An initial startup loan is only the beginning. Financing can be a strategic vehicle to support your business growth in the long term, too. Always take the time to compare lenders and review loan offers carefully before committing to an agreement.