HealthFebruary 07, 2020

A quick guide to physician practice financing

By: Whitney J. Palmer
Whether you’re a new or an experienced doctor, securing physician practice financing can be a complex task. Here’s what to consider as you look for a loan.

Whether you’re a new or an experienced doctor, securing physician practice financing can be a complex task when you’re considering launching a private practice.

You’re likely focused on designing your practice—the employees you’ll need, how your workflow will run and the patient population you want to attract. But you can’t forget to address the most significant part of your plan: How are you going to pay for it?

For most, the answer to the question of physician practice financing is a loan. To get the right funding, though, you need to consider what you need the money for as well as what financing options are available.

What are the funds for?

When you’re planning for your practice launch, remember that your practice financing should be reserved for and applied to several areas. Based on guidance from business loan company Funding Circle, these are the areas you should consider.

Startup costs

When launching a practice, you’ll have several initial expenses, such as hiring and training staff, marketing and advertising and initial leasing or purchasing.

Equipment

This is often one of your largest expenses, and a loan can give you the flexibility to buy your first pieces of equipment or upgrade what you currently have. For example, you can buy computer software, an X-ray machine or other types of specialty equipment. In addition to the startup costs described above, these expenses can approach $100,000, according to Business News Daily.

Inventory

Alongside medical equipment, you can use your loan to stock your inventory and patient-care supplies. Not only does financing allow you to meet your current inventory needs, but you can plan for the future as well.

Working capital

These funds support your day-to-day business. You’ll need working capital to cover payroll and your lease or your utilities until your practice begins to turn a profit. According to Business News Daily, you should venture to have at least an additional $100,000 on hand for these expenses.

Expansion

If you’re looking to grow your existing practice, physician practice financing can support your efforts. In these instances, the loan can be used to cover construction and renovation costs as well as purchases made to outfit the new space.

Acquisition

Even if you’re buying a practice—rather than starting your own—this kind of financing can help with funding the purchase.

Refinancing debt

Getting a new loan with a lower interest rate can help you with payments and reduce the overall cost of your existing debt.

What financing options are available?

Deciding which physician practice financing option to pursue can be complicated, and there are several financing types available, according to lending company LeverageRx. The option that works best for you will depend on your capital needs, your timeline and your ability to repay the loan quickly. These are your main avenues.

Traditional bank loans

A national, regional or even community bank might be your first thought when you consider a loan. They often have specific healthcare business loan programs that allow you to borrow as much as $5 million. LeverageRx recommends this route if you’re purchasing or buying into an existing practice that already has a documented cash flow.

Usually, these banks will offer you competitive interest rates and terms, and they may provide consultants and other resources that can boost your chances of success. However, traditional banks heavily scrutinize your application, and you’ll fill out a hefty amount of paperwork. And, unless the physician loan program offers 100% financing, you’ll need a significant down payment.

SBA loans

The Small Business Administration (SBA) offers these federally funded loan options, particularly the 7(a) loan for small business owners. It can be a good option for long-term financing, especially if you can’t secure funding through a traditional bank or if you’re building a practice from the ground up.

According to LeverageRx, these loans can offer you up to $5.5 million for equipment and land purchases, construction costs, capital repairs, practice expansions and debt refinancing. Interest rates can be lower, leading to lower monthly payments and longer repayment terms of up to 25 years. And 100% financing is available.

But it can take up to four months to receive the money, and you must have tried other financing options before applying for an SBA loan. Additionally, you must be in practice for at least two years and have a minimum credit score of 680. Also, as an SBA loan, the terms will dictate the allowable size and worth of your practice.

Alternative loans

This is a good fit if you’re seeking faster financing without an extensive underwriting process. In the market, these funders are frequently called merchant cash advance providers, bridge lenders, gap lenders or fast-app lenders.

With less restrictive qualifications, funds can be used for any business purpose, and repayment options are flexible. These loans typically amount to between $5,000 and $500,000 and can be applied to cash flow management, equipment replacement or even a marketing campaign.

If you have unforeseen or emergency expenses, alternative loans can provide funding within a day or two. However, these lenders’ underwriting processes aren’t as extensive, so they’re taking on more risk. That means your interest rate will be higher, and you’ll be expected to repay the loan faster with higher monthly payments.

No matter if you’re starting a new practice or assuming an existing one, you’ll likely need financing to launch you down the right path. Considering your potential expenditures and the most beneficial requirements surrounding any new debt can help you lay a strong foundation for success.

Whitney J. Palmer