A medical practice loan can be used in the following ways:
Starting a practice
Starting a medical practice is expensive. You will need capital for the following things:
- Real estate
- Medical equipment
- Attorney fees
- Accountant fees
- Computers and software
- Office furniture
- Working capital until you turn a profit
- Marketing and advertising costs
Acquiring or buying into a practice
Instead of starting a practice from scratch, you may want to acquire an existing one or buy partial ownership.
Acquisition financing will include the goodwill, accounts receivable, equipment, patient records, and working capital. Construction financing may also be available for remodeling if that is necessary. Lenders will verify that you can perform the same medical procedures as the seller or existing partners.
If you already own a medical practice, you can use a practice loan to consolidate any debt you have accrued. These are good reasons to consolidate debt:
- Your credit has improved
- The business has significantly increased profit margins
- Lower your monthly payment
- You need to borrow more
Your medical practice may need cash flow while you wait for patients to pay their bills or for insurance claims to be processed. A medical practice loan can be used to pay staff salaries, rent and utilities during lean times.
Medical technology is constantly changing and keeping up can be expensive for many medical practices. For this reason, a practice loan can be used to purchase new equipment, including computers and software, that you and the lender agree is necessary for your business.
Growing businesses often need to relocate to a bigger building or even a better location. Of course, this is not cheap. You can take out a medical practice loan to finance real estate purchases, relocation costs or renovations.
When you apply for a practice loan, be ready to share a lot of financial details. If you’re buying into or acquiring a practice, be prepared to provide the target business's complete financial background.
Lenders will evaluate your loan application based on a number of factors:
- Your medical specialty
- Your credit score
- The purpose of the loan
- The historical financial performance of an existing practice or the projected financial performance for a new practice
- Assets that you can use as collateral
If you’re buying a practice, you need to give the lender the purchase agreement, balance sheet, P&L statement, federal tax returns and a list of all inventory owned by the practice.
Several of the nation's largest banks offer medical practice loans to healthcare professionals. Here are a few examples:
Bank of America
Bank of America offers 100% financing on practice loans up to $5 million. You can use funds to start, expand, or acquire a practice. The bank also makes loans to purchase office space, buy equipment and consolidate debt.
U.S. Bank offers practice financing for acquisition, buy-in, refinancing a practice, expansion or relocation, starting a practice, and equipment financing.
Recent dental practice loans have averaged $325,556 with an average rate of 6.7%.
U.S. Bank offers:
- Up to 100% financing
- Terms up to 10 years
- Up to six-month interest-only
- 12-month step-up programs
- Ability to offer no prepayment penalty
In 2017, Wells Fargo made 78 practice loans with average financing of $774,331. The average interest rate charged was 6.3%.
The bank has a dedicated department for health practitioners and offers 100% financing to start, acquire, or expand a medical practice. Wells Fargo also offers practice support, project oversight, and access to health care business specialists.
Live Oak Bank
Based in Wilmington, North Carolina, Live Oak Bank has financed over $1 billion in practice loans to dental and medical professionals for acquisition, expansion, construction, commercial real estate, refinance, working capital, and more.
The bank offers:
- A dedicated health care financing team
- 25-year financing options
- Flexible repayment options
- No balloon payments or covenants
Live Oak loaned money to borrowers in 48 states last year. The average dental practice loan was nearly $1.4 million and the average physician practice loans was more than $1.6 million. Both loan types had average interest rates of 5.8%.
There are many 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.
Alternative lenders have more relaxed underwriting standards and emphasize the potential of your business. Your past credit history is not as important to alternative lenders and they usually release funds much quicker than a traditional bank would.
Here are some examples:
OnDeck offers prime borrowers APR rates as low as 6.99%. Physicians can get funded in as fast as one day. Loan amounts up to $500,000 are available. Repayment terms between three months and three years are available. Qualification requirements include a 500 credit score, at least 12 months in business, and annual gross revenue of at least $100,000.
1st Med Financial
1st Med Financial provides 100% startup financing programs for licensed medical doctors. Financing includes working capital. Loan amounts from $250,000 to $10 million are available with low fixed-rate terms. Graduated and deferred payment options are available.
National Funding provides quick financing of up to $500,000. The application process can be done in minutes when you provide three months of your practice’s bank statements. Collateral is not required.
American Medical Loans
With American Medical Loans, doctors can borrow up to $300,000. Money can be used to hire staff, to purchase equipment, for practice expansion, to consolidate debt, and to lease office space. Term loans and lines of credit are available.
Initial Lending Group
Initial Lending Group (ILG) makes business loans between $25,000 and $150,000. The lender charges rates based on the prime rate. The range is between 3.5 percent to 6.5 percent above prime. The longest term available is five years. A line of credit is also available. Approvals usually take 48 business hours and funds can be transferred the day after.