What types of practice loans are available to borrowers?
The first place many business owners seek financing is through a national, regional, or community bank. Banks offer both term loans and lines of credit to medical professionals. Several national banks have programs designed specifically for health care businesses. Depending on the purpose of the loan, you may be able to borrow as much as $5 million.
Traditional banks that have physician programs are usually the best option if you’re purchasing or buying into an existing practice that has documented cash flow.
Advantages of traditional bank loans. A traditional bank will offer competitive interest rates and terms. Larger banks may also provide consultants and other resources to help business owners improve their chances of success.
Disadvantages of traditional bank loans. Traditional financial institutions are the most discerning. There’s a significant amount of paperwork involved, and there’s no guarantee that after going through the arduous application process that you will be accepted for financing. Unless a bank offers a physician loan program with 100 percent financing, you will need to provide a significant downpayment to obtain financing.
The Small Business Administration (SBA) has several federal government-backed programs, such as the 7(a) loan program, designed specifically to help small businesses. This is an option for long-term financing, especially if you’re denied by a traditional lender. If you’re starting a practice from the ground up, an SBA lender might be your best option.
Advantages of SBA loans. This type of financing will typically offer the lowest monthly payment. Repayment terms of up to 10 years are available and SBA loans typically charge among the lowest interest rates. You can also obtain funding if you have limited collateral. SBA loans are also the best option if you need significant financing, as you may be able to get up to $5 million.
Disadvantages of SBA loans. There is a considerable amount of paperwork and bureaucracy when applying for SBA financing, and it often takes two to three months to get funding. There are also more extensive underwriting requirements.
To meet the needs of health care businesses in need of faster financing without the underwriting process, several alternative lenders have recently been established. You may see these companies referred to as merchant cash advance providers, bridge lenders, gap lenders, or “fast-app” lenders.
These companies market themselves on fast loan approval, less restrictive qualifications, the ability to use funds for nearly any business purpose, and flexible repayment options. Depending on the lender, you can obtain financing between $5,000 to $500,000.These lenders may be a viable option for short-term needs such as cash flow management, equipment replacement, or funding a marketing campaign.
Advantages of alternative loans. The major advantage of these lenders is that they will approve loans and distribute funds within a day or two. This makes them ideal for unforeseen expenses or other short-term financing needs. Underwriting is not as arduous as for traditional and SBA lenders.
Disadvantages of alternative loans. Because they don’t do full underwriting, alternative lenders take on more risk. That means higher interest rates and shorter repayment terms, which mean higher monthly payments. Alternative lenders do not offer the size of loans that traditional banks and SBA lenders do.