Medical Practice Loans - Heartland Financial Group

How Medical Practice Loans Can Help You Grow Your Practice

Whether you are just starting a medical practice, or have one already established, medical practice loans can help your business grow and thrive. 

Setting up a private practice, urgent care clinic, or primary care facility does not come cheap. A physician making the leap to managing a practice of their own will be faced with overwhelming costs while acquiring a practice. Acquiring all the necessary medical equipment, hiring a competent and welcoming staff in a competitive industry, and finally making a meaningful mark in the community.  

Most will not get by without ample financial assistance. This is where a medical practice lender comes. However, there are more than a few ways to borrow money for a medical practice. It’s important to choose the right loan for what you aim to do with your practice.  

What Are Medical Practice Loans?  

Medical practice loans are the same business loans offered to small businesses, SMEs, and major companies throughout the world, but with a few important factors that lenders appreciate:  

  1. Medical practices have a low default rate.  
  2. The healthcare sector promises stable growth.  
  3. Medical practices provide greater security to lenders due to high success rates and average annual revenue.  

Many lending companies, financial institutions, and banks dedicate entire teams, departments, and special offers to medical practices and aspiring solo physicians.  

Popular loan options and financial services considered by medical practices include:

  • Acquisition loans
  • Debt consolidation
  • Medical equipment loans
  • Medical equipment leases
  • Office and real estate leasing
  • Practice expansion loans
  • Short-term loans for operational costs and medication inventory
  • Long-term loans to start a practice from scratch

Types of Medical Practice Loans  

The vast majority of medical practices are run by 1-5 physicians, with nearly a quarter of all private practices being headed by a solo physician.  

It’s tough to finance and keep a practice running on the skills of so few medical professionals, even with the talents of assistants, nurses, and auxiliary staff each playing a vital role in promoting and safeguarding patient health. In fact, the rate of private practices has gown down considerably, from 57 percent in 2000 to 39 percent in 2012, with nearly 90 percent of respondent physicians claiming that their top concerns include costs and expenses 

If you are planning to step away from hospital life and into your own practice, knowing what loans you need to finance your dream is important. Medical practice is still a business, and all businesses require investment to function.  

1. Long-Term Loans 

The first and most straightforward medical practice loan is the term loan. Like any business term loan, you get a lump sum of money, an interest rate, and a loan term. Medical practice loan terms run from anywhere between 2 and 10 years.  You pay the money back in monthly installments throughout the loan term, with the added interest, alongside a (usually low) upfront processing fee.  

The benefit of qualifying for a loan term as a physician versus most other businesses is that you are usually looking at a higher-than-average loan value, with a lower-than-expected interest rate.  

Of course, qualifications for a major loan like this vary. This isn’t the kind of loan you would take out to acquire a medical practice in the first place. This is usually a loan reserved for major cash investments. Renovations or expansion, employee training costs, inventory, or debt consolidation, for practices that have been in business for at least a handful of years and have seen some profit.

Most banks and lenders will have a minimum annual revenue and annual profit requirement, as well as a credit score requirement for both the business and, potentially, yourself.  

2. SBA Loans  

Private medical practices can take advantage of government-backed small business loans offered by the Small Business Administration. However, private practices face the same caveats as other small businesses trying to qualify for an SBA – the requirements are strict, and not many are approved.  

What makes SBA loans special is that the SBA itself guarantees up to 75 percent of the total loan. The SBA doesn’t provide the loan itself but works with SBA-approved lenders who do.  

The idea is that the SBA vets and approves loan applicants, who receive a very long-term loan with very low-interest rates. Lenders are assured that the majority of the money they’re lending is guaranteed by the SBA. As such, the SBA is quite strict about who is approved, because a default can be quite a heavy loss. It can take over a month for the SBA to process your application.  

3. Medical Equipment Loans 

No medical practice can function without equipment, and medical equipment is very expensive. Medical equipment loans are different from usual term loans because the equipment itself serves as collateral. Meaning these loans usually have better rates and are easier to qualify for than lump sum cash loans.  

Alternatively, if the equipment you are looking to purchase is frequently replaced, you can opt for a medical equipment lease instead. Medical equipment leases may be a better option for medical practices that do not want to pay a ten-year loan on equipment. They’ll sell shortly after the term is over.   

4. Short-Term Loans 

Short-term medical practice loans are ideal for preserving cash flow, paying for medical supplies and medication inventory. These loans cover the costs of updating the information systems, office supplies, staff training, and other costs.  

These are similar to longer-term loans, with the difference that you’re looking at higher approval rates, lower credit requirements, lower overall loan amounts, a shorter term, and higher installment costs.  

5. Medical Practice Line of Credit  

Medical practices with great credit and years in business can opt for a revolving line of credit. This is a loan wherein the repayment depends on how much of the lender’s money was spent, rather than the entirety of the allotted loan.  

This is the ideal option for practices that need more financial flexibility, and have the means to qualify for it. The standards for a business line of credit are generally higher than a term loan.  

Which is the right loan for you? You should contact an approved lender and receive a one-on-one consultation. Medical practices will need different loans depending on their revenue, credit history, and current financial needs.  

Contact us today to find the right loan for you.