Starting or acquiring a medical practice is expensive. From simple essentials like office furniture to pricy equipment such as X-ray machines, many medical professionals don’t know how they’ll ever be able to afford to open their own practice.
Fortunately, there are medical practice loans explicitly designed for the healthcare industry. Whether you’re opening a new practice, looking to move locations, or ready to expand the practice you have, there are many loan programs and business financing options that you can take advantage of.
Here’s what medical practitioners that are business owners need to know about medical practice loans, including where to get one, how to qualify, and which loan programs to consider.
What Can You Use a Medical Practice Loan for?
Medical practice loans can be used for a variety of different purposes. Here’s a look at the top reasons why medical professionals seek such loans to finance their healthcare practice.
Starting a Medical Practice
Starting a medical practice requires far more than a medical license and good business sense. It also necessitates a lot of capital to cover the costs of:
- Real estate
- Medical equipment
- Medical supplies
- Attorney fees
- Accountant fees
- Computers and software
- Office furniture
- Marketing and advertising costs
- Working capital (until you turn a profit)
No matter what type of medical business you own, turning a profit will inevitably take time. Business owners need to ensure that they have the cash flow not just to open the doors, but also to sustain the business, pay the staff, and pay the mortgage or rent on the space until profits start rolling in.
Acquiring or Buying Into a Practice
Instead of starting a practice from scratch, many physicians choose to acquire an existing one or buy into it as a partner. Both scenarios require financing.
In addition to purchasing your share of the equipment, accounts receivable, and patient records, new owners or stakeholders also have to make a goodwill payment.
The purpose of a goodwill payment is to compensate the seller or other partners for the intangible assets they’ve already accumulated. These include things like the loyal patient base they’ve built up and the reputation they’ve established in the community.
Goodwill payments are sometimes the largest component of a partner’s buy-in amount or acquisition fees.
Keep in mind that to obtain financing for an acquisition, lenders will look at more than just your creditworthiness. They’ll also want to check the financials of the existing business and verify that you can provide the same type of medical care as the seller or existing partners.
Physicians that already own a medical office can use a practice loan to consolidate debt that the business has accrued. Consolidating debt with a medical practice bank loan is a smart idea if:
- Your credit has improved since you were approved for your original loans.
- Your business has significantly increased its profit margins.
- You want to lower your monthly payments.
- You need to borrow more money.
Medical technology is constantly evolving. Purchasing new equipment can be a considerable expense for many medical practices. Premium PET and CT scanners, for example, can cost millions of dollars.
A medical practice equipment loan can be used to cover the price tags of high-cost medical equipment as well as less expensive essentials, such as computers and software.
To obtain this type of financing, your loan lender will want to confirm that the equipment is necessary to run your business.
It’s not uncommon for physicians to relocate to a bigger building or a better location as their practice grows. Unfortunately, the price of real estate almost always increases year over year.
Whether you’re looking to renovate or remodel the space you have or make a new real estate purchase, a medical practice loan can help you out.
How to Qualify for a Medical Practice Loan
Practice loans are available to all sorts of medical practitioners, including MDs, dentists, veterinarians, and optometrists. Regardless of your specialty or what type of practice you intend to open or acquire, be ready to share a lot of personal financial details with your loan lender.
When you submit your loan application, your lender will evaluate your borrowing ability based on several different factors:
- Your medical specialty
- Your credit score
- The purpose of the loan
- The historical financial performance of the practice (if it’s an acquisition or partner buy-in)
- The projected financial performance of the practice (if it’s brand new)
- Assets that you currently have that can be used as collateral
If you’re acquiring an existing business, you’ll need to provide the practice’s complete financial background in addition to your personal financial information. Lenders will need to see the purchase agreement, balance sheet, P&L statements, federal tax returns, and a list of all inventory owned by the practice before approving financing.
Where to Get a Medical Practice Loan
Medical practice loans are available through traditional, online, and alternative lenders. There are dozens of loan options available, and we’ve identified some of the best to help you decide which funding option is right for you.
Traditional Medical Practice Lenders
Several of the nation’s largest banks offer medical practice loans to healthcare professionals; some even have dedicated programs designed to help support medical businesses.
Here are a few good options to consider:
Bank of America
Bank of America is one of the largest banks in the U.S. Many physicians rely on them to finance their medical offices and expand their operations.
Through their Practice Solutions program, BofA offers 100% financing on practice loans up to $5 million. You can use the funds to start, expand, or acquire an existing practice.
They also provide loans to purchase office space and equipment and consolidate debt. Working capital is included with certain loan types, and they even have business lines of credit and business credit cards for practitioners who need cash flow for a short period of time.
Dentists, veterinarians, optometrists, and physicians are eligible to apply.
Learn More: Bank of America Practice Solutions Review
U.S. Bank offers practice financing for acquisition, buy-in, refinancing a practice, expansion or relocation, starting a practice, and equipment financing.
Depending on the type of loan you need, you may qualify for:
- Up to 100% financing
- Terms up to 10 years
- Up to six-month interest-only payments
- Competitive fixed rates
- No prepayment penalty
Learn More: U.S. Bank Medical Practice Financing Review
Wells Fargo has a department dedicated to helping health practitioners buy, acquire, and start medical businesses. In addition to offering 100% financing for start-up practices, Wells Fargo also offers loans for:
- Expanding or relocating your office
- Purchasing equipment
- Buying commercial real estate
- Supplementing cash flow
- Managing your business
If you’re looking to open a medical office and purchase the real estate for it, their commercial real estate loans offer financing up to $5 million, with competitive fixed interest rates and a variety of payment options.
Learn More: Wells Fargo Practice Finance Review
Live Oak Bank
Based in Wilmington, North Carolina, Live Oak Bank is an online bank that offers financing in all 50 states. Since they started providing practice loans, they have financed over $1.5 billion to dental and medical professionals for acquisition, expansion, construction, commercial real estate, refinance, working capital, and more.
Live Oak Bank offers:
- A dedicated healthcare financing team
- 25-year financing options
- Flexible repayment options
Live Oak Bank is essentially a cash flow lender, so it’s an excellent option for practices looking to qualify for financing based on their future cash flow rather than their current equity or collateral.
Learn More: Live Oak Bank Medical Practice Financing Review
Alternative Practice Loan Lenders
There are quite a few non-bank financing options available for medical practice loans. Many of these companies specialize in healthcare and offer short-term loans and lines of credit for medical businesses.
Alternative lenders have more relaxed underwriting standards and emphasize the potential of your business, as opposed to your past credit history. They also tend to release funds much faster than traditional banks do.
Here are some options to consider:
OnDeck gives borrowers competitive APR rates and can provide funding in as little as one day, with a business line of credit up to $100K or a short-term business loan up to $250K.
OnDeck isn’t for start-ups – you must be in business for at least a year to qualify. Applicants also need a FICO® credit score of at least 625 and $100K in annual business revenue. The maximum repayment term is 24 months.
Business lines of credit up to $100K have a maximum repayment term of 12 months.
1st Med Financial
1st Med Financial provides 100% startup financing programs for licensed medical physicians. Loans are available for:
- Purchasing, remodeling, and expanding
- Refinancing or consolidating practice debt
- Purchasing or refinancing equipment
1st Med Financial has low fixed interest rates and up to 15-year repayment terms with no upfront fees or points. Your loan-to-collections ratio must be below 85-90% to qualify for a conventional loan.
National Funding provides quick financing on working capital loans, short-term small business loans up to $400K, and equipment loans up to $150K.
National Funding has provided over $4.5 billion in liquidity to over 75,000 businesses across various industries, including healthcare.
To qualify, you must be in business for at least six months and have a minimum of $250,000 in annual sales. Collateral is not required.
Consolidate debt or finance your practice with Hippo Lending. They provide working capital, medical equipment, and startup loans for medical professionals looking to open or buy a stake in an existing practice.
The application process is quick, and qualifying physicians can receive funding in as little as a week.
Initial Lending Group
Initial Lending Group (ILG) offers business loans between $25,000 and $150,000. They charge based on the prime rate, and the current rate ranges from 3.5% to 6.5% above prime.
Terms of up to five years are available, as are business lines of credit and SBA microloans for physicians that need to borrow small amounts under $50,000.
Tips for Finding the Right Medical Practice Loan Lender
No matter how much financing you need, it’s always best to obtain rates and terms from a few lenders before deciding which one to borrow from.
When considering lenders, be sure to compare:
- Interest rates
- Loan limits
- Repayment terms
- Eligibility requirements
- Limitations on what the money can be used for
Some medical professionals need to secure a small amount of financing quickly. Others need large amounts, requiring extensive applications and detailed reporting regarding personal and business finances.
Whichever type of loan you need, rest assured that there is a lender for you — it’s just a matter of finding the best one and getting approved.
Whether you’re looking to establish a brand new medical office or purchase one that already exists, many financing options are available to medical professionals across various specialties.
To start obtaining quotes and comparing lenders, contact LeverageRx now.