Tips on Financing a Single-Room Surgery Center

Enormous Expenses

Whether it's plastic surgery or preventative angioplasties, the costs associated with creating an ASC are enormous, especially when compared to the cost of setting up other types of small businesses. Those costs include:

• Surgical machines such as surgeon-controlled consoles, patient-side carts with robotic arms, and high-definition 3D imaging systems.

• Competitive wages for nurses and assistants specializing in the types of surgery being performed.

• Enhanced HVAC systems to help keep the surgical room sterile.

• Assistants experienced in processing Medicare/Medicaid payments and tailored insurance reimbursements.

• Construction costs from experienced contractors. 

Specialty ASCs with approximately two surgical suites can cost between $2 million and $3 million, while multi-specialty ASCs can cost between $4 million and $8 million, according to Ambula.

Specialty Loans for Healthcare

Most healthcare specialists will almost certainly need financing if they decide to take the plunge into running an ASC. Fortunately, many lenders - including traditional banks, online and SBA lenders - may view healthcare professionals as low-risk borrowers since the medical field is generally more lucrative and recession-proof than other industries (after all, there will always be a need for doctors no matter how the economy is doing). Many of these lenders offer loan options specifically tailored to independent medical practitioners that include funding for startup medical offices and more favorable terms than other types of small businesses. 

Also, unlike typical small businesses that require years of profitable history, doctors can often secure financing for startup costs, equipment, or expansion based on their credentialed status and high earning potential - and even before they start practicing – rather than their years in business and credit scores.

Pre-Loan Prep

Like any other small business loan applicant, independent doctors must submit standard paperwork to qualify for SBA 7(a) loans, term loans and business lines of credit. Independent doctors considering a loan, however, should be ready to present some unique paperwork that lenders offering healthcare loans look for.:

• If a doctor previously practiced within a healthcare organization or as a resident, they should demonstrate Practice stability. To do so a doctor should document past experience in maintaining an efficient including real time charting and fostering a loyal patient base.

• A record of repeat patients.

• A record of employment contracts. These contracts detail productivity-based salary models, non-compete clauses, specific work hours, and malpractice insurance contracts.

• Show proof of personal equity-documented proof that the doctor has or will put personal assets or money into the new ASC.

• Having a doctor's mortgage isn't required by lenders, but it may help. A doctor's mortgage (aka a physician's loan) is a mortgage specifically tailored to medical professionals that usually do not require down payments, no PMI and underwriting that often ignores student debt.

Preparing these documents in advance will go a long way in preparing doctors to apply for healthcare business loans, which is offered by many traditional banks and online lenders.

What Types of Loans Exist for ASCs?

Medical professionals - especially doctors seeking funding to set up an ASC – have the same funding options as any other small businesses. Before applying, however, they may want to seek out lenders that have specialized healthcare loans, as well as consider the fact that creating a new ASC will be large and long-term investment and therefore, they may want to seek a long-duration loan that offers a large maximum loan amount.

The options include:

• SBA 7(a) Loan. There are several lenders that offer SBA 7(a) loans for doctors. These loans offer the benefits of an SBA 7(a) loan such as relatively low interest rates. These loans provide a lump sum of money to be paid back over a set amount of time. Lenders will also ease some of the restrictions specifically for doctors, including those seeking to establish an ASC. 7(a) loans can also be used to purchase equipment and enhance cash flows.

• SBA 504 Loan. An SBA 504 loan is a community-oriented loan that offers up to $5 million to businesses that contribute to their communities. These loans are available through Certified Development Companies to small businesses that enhance their local communities by hiring local workers and enhancing their local Main Streets. They can be used by doctors to set up new businesses, purchase equipment and acquire other companies.

• Term loan. Term loans are provided by both banks and online lenders and also provide a lump sum of money. This duration of this loan can short-, intermediate and long-term and often carries a slightly higher interest rate than a 7(a) loan since it is not partially guaranteed by the U.S. Small Business Administration. In rare cases, however, term loans can be beneficial to doctors seeking to set up an ASC because some lenders offer a 25-year duration, which may be beneficial to doctors given the cost of building an ASC. Lenders that do offer term loans for doctors typically offer lower requirements and may not require the ASC to have been in existence for a number of years to give the loan.

• Business Line of Credit. A business line of credit sets up a predetermined amount of credit to a physician-owner for any business need. Independent doctors looking to set up an ASC may want a line of credit to purchase small pieces of equipment or to maintain cash flow, since the amount of credit obtained most likely won't cover the cost of building an ASC. There are lenders, however, that may offer favorable terms to doctors.

No ‘One Size Fits All'

There is no "one-size-fits-all" loan for an ambulatory surgical center. A startup venture might lean toward an SBA 7(a) loan for its flexibility, while an established orthopedics group might use a 504 loan to purchase a permanent facility. The purpose of financing should be to minimize cost of capital while maximizing the ASC's ability to invest in the latest technology. By aligning the loan type with the specific lifecycle of the ASC, physician-owners can build a sustainable, profitable surgical center that can serve their local community for decades.