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A Physician’s Guide to Medical Practice Financing

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Updated November 6, 2023​

8 min. read​

Are you looking to open your own medical practice? There are several reasons why doctors, dentists, optometrists, and other medical professionals want to start their private practice. For one, it gives you flexibility in terms of how much or little you work. Plus, it offers the opportunity to scale your company and increase your earning potential.

However, opening a medical practice requires considerable capital, which can be difficult to raise, especially if you already have other loans. Whether you’re starting your new practice or looking to expand, medical practice loans can be a great financial resource to meet your practice needs.

Understanding what medical practice financing is, what you can use the funds for and where to get a practice loan is essential for every healthcare professional. This guide will outline how these loans work and what you will need to get enough capital for your medical practice.

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What is a Practice Finance Loan?

A practice loan is a specific business loan that medical professionals can tap into to start or grow their practice business. Depending on the type of small business loan you get, you can use the funds for various purposes, including acquisition, starting a new medical office, or expanding your existing practice. The amount of medical practice loan you can borrow vary greatly based on what you plan to use and your creditworthiness.

Medical practice business loans are essentially created for physicians who are practicing or licensed and looking to open a new practice. However, some lenders are willing to extend practice loans to healthcare professionals who are still training and looking to start a medical office.

What You Can Use the Funds of Medical Practice Financing For

You can use medical practice financing for a variety of purposes, such as purchasing equipment, covering operation costs, startup costs, or acquiring a practice. You don’t have to tell the lender how you intend to use the funds unless you get a loan where the purchased asset becomes collateral (equipment loans and commercial real estate loans fit this category). Most medical professionals borrow these funds for one or more of the following purposes.

Start a New Practice or Expand an Existing One

Opening a new medical practice requires capital to get it off the ground. When starting out, some of the major expenses include medical office space, new equipment, furniture, hiring staff, and advertising. Unfortunately, you can’t tap into funds from your new business since it’s still in the early stages. Fortunately, a practice loan can help cover some of these startup costs and operational costs. But if you’re already running a practice and are looking to expand it, medical practice financing can turn your dream into a reality.

Make Renovations or Repairs to Your Medical Practice

Whether you just acquired a new practice or you’ve been running one for years, you’ll probably need to do renovations or repairs at one point. Depending on the type of renovation you need and the scope of work, medical business loans come in handy to give your office a new look. Not only do renovations make your property more attractive for patients, but those enhancements will increase your property’s value. The higher value will allow you to borrow against a higher credit limit in the future if you take out a credit line against the property.

Purchase Medical Equipment

Medical equipment is arguably one of the major expenses linked to opening a medical office. Whether you’re looking to purchase small items like computer software and exam tables to larger items like an x-ray machine or scanners, you’ll likely need equipment financing. 

You can start with equipment leases to fill your office with the right resources, but those monthly payments never go away unless you ditch the equipment. Equipment financing allows medical practitioners to eventually own their equipment instead of getting trapped in a cycle of never-ending monthly payments. Once the loan is paid off, you will own the equipment outright and won’t have a recurring expense eat away at your cash flow and profit margins. 

A medical practice loan will help you foot the bill for expensive equipment. The monthly payments may be slightly higher than lease payments, but it’s worth it in the long run if you plan on holding onto the equipment for many years. On the other hand, leasing may make more sense if the equipment only fulfills a short-term need.

Hire New Employees

If your medical business is growing at a fast rate, you may want to hire more staff to meet your growing demand. Keeping your staff the same and overworking them with new patients can lead to burnout, and if one of them quits, it can become more difficult to keep the rest of your workers. Furthermore, patients may become unhappy about long wait times and lower quality due to your staff feeling burned out. Hiring new employees can mitigate this problem, increase worker morale, and provide clients with a great experience. Onboarding new employees mean an extra cost. While the ROI can justify the expense, you need capital to make it happen. A medical practice loan can assist you in covering the cost of hiring more medical professionals and office employees.

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Buy an Ambulatory Vehicle

An ambulatory vehicle is an added perk for a medical practice, especially if you perform surgeries. However, purchasing an ambulatory car comes at a huge cost, and you may need quick access to cash. With a medical practice loan, you can purchase the vehicle and give your patients another reason to choose your company over the competition.

If you’re opening a new practice or expanding your operations, you’ll need to market and advertise your brand to acquiring new patients. Investing in social media campaigns, ads, hosting events, and search engine optimization can help you reach more customers. In addition, the targeting capabilities of these marketing channels allow businesses to find prospects based on their locations, interests, past behaviors, and other details. 

These advertising efforts can help you get prospects who become patients for life, a result that can yield significant profits. However, it’s difficult to advertise to get patients before you have an established medical practice. Businesses barely breaking even may also have limited resources to invest in advertising. With medical practice financing, you can obtain the capital you need to advertise your services.

Who is Medical Practice Financing For?

Medical practice financing can be used by a variety of professionals in the healthcare industry, including:

  • Physicians: Physicians aim to provide the best care they can to patients. To do this, they’ll need a complete medical office with the best equipment, enough employees to meet their growing demand, and of course, offer the best services. Physician practice loans can help you achieve this.
  • Massage Therapists: The work of a massage therapist is to treat patients using touch to relieve pain, heal injuries, increase relaxation, and help in the general wellness of clients. Running such a practice requires a great deal of capital because you’ll need to rent or lease a space, hire massage therapists, and purchase equipment like a massage table.
  • Plastic Surgeons: These are healthcare professionals who perform reconstructive procedures to restore injured body parts caused by accidents or major illnesses such as cancer. Starting a plastic surgery practice can be very expensive as it includes the purchase of many types of equipment, such as procedure tables, patient monitors, anesthesia machines, and surgical instruments. Considering the startup cost, you’ll need to secure office space and purchase equipment and supplies to get it off the ground.
  • Psychologists are trained medical specialists who study people’s mental health by observing and interpreting how they relate to their surroundings. Psychologists looking to start their own practice require a dedicated space in a quiet environment, cover operating expenses, and market their services to get clients.
  • Pediatricians: The work of pediatricians is to diagnose, treat and monitor common ailments of infants, children, adolescents, and young adults. To open a pediatric practice, you need to procure space, hire pediatricians, and purchase the necessary medical equipment.
  • Dermatologists: These are professionals who specialize in conditions involving the skin, hair, and nails. Medical practice loans can be a great resource for dermatologists looking to kick-start their practice business.

The Loan Application Process 

Banks, credit unions, and financial institutions can provide financial solutions for your medical practice. These institutions have several financial products that can address your specific needs, but they all require you to fill out an application. During this process, a lender will review your information, which includes basic information about you and your business. Each lender will review your revenue, credit score, years of business experience, and other factors. Most lenders list their requirements on their application pages so you know if you can qualify or not.

Most banks and credit unions have strict requirements about your credit score, annual revenue, and years of experience. Unfortunately, while you may get lucky, not all of these financial institutions have suitable loans for startup medical practices. 

Online lenders tend to be more flexible with their types of loans and requirements. Not only that, but you can also get competitive rates and quick funding. You won’t have to wait too long before you can use the capital for your medical service business.

After submitting an application, you will have to wait a few days for the lender’s decision. Some online lenders can provide a decision within a few hours, but most major banks take multiple days to get back to you. Then, you receive your capital soon after getting approved. While this entire process can take over a week for traditional banks and institutions, you can get capital from an online lender 2-3 days after submitting your application.

Funding Options for Medical Practices

Medical practitioners hoping to start their own businesses can get funding from several sources. These are some of the types of loans you can use.

  • Small Business Term Loan: You can receive a lump sum right away and make monthly payments until you pay off the loan. These loans usually have fixed interest rates which make the monthly payments the same. You can also get a variable interest rate on your business loan, but that rate makes your monthly payments less predictable. You can save money if interest rates go down but end up paying more if interest rates go up.
  • Business Line of Credit: A business line of credit provides you with a lump sum, just like a small business term loan. However, this funding source may have a lower credit score requirement, and you only pay interest when you borrow against the credit limit. Each line of credit has a draw period, where you make interest-only payments against the money you borrow. After the draw period, the unpaid balance becomes a loan with monthly payments. You can repay the credit line at any time, making it possible to continuously borrow money, repay the credit line, and repeat the process without having to apply for several short-term loans. 
  • Commercial Real Estate Loan: Equipment, employees, and advertising all cost money, but none of them hold a candle to the cost of purchasing a commercial property. Some properties cost millions of dollars and may find themselves outside of your savings account. A commercial real estate loan makes it easier to purchase a property, with large loan maximums and lengthy terms to make the monthly payments more manageable. The commercial property becomes collateral for the loan, and since you have collateral, you can get a lower interest rate.
  • Working Capital Loan: Some business owners have short-term financial needs. They don’t want a large-scale loan or aren’t eager to make a big investment. Working capital loans provide the funds you need to cover operations and other expenses that keep coming up. These loans typically have shorter durations which can help you repay the loan more quickly.
  • Equipment Loans: Many traditional banks, credit unions, and online lenders offer these loans. You can use them to purchase equipment instead of keeping up with monthly lease payments. Lenders will give you capital equal to a percentage of the equipment’s face value. Some lenders give you up to 100% of the equipment’s face value, allowing you to avoid making a down payment. However, a small down payment can make the monthly loan payments more affordable. 
  • Business Credit Cards: These cards are essentially lines of credit with rewards programs attached to them. You can use a business credit card to cover everyday business expenses and build business credit. Improving your business credit with every purchase can help you qualify for better loans in the future, and you get an immediate credit line you can use for your business. Rewards like cashback and points can make these cards more enticing. Many credit card issuers create reports detailing your expenses which can help you come up with more tax deductions.
  • Merchant Cash Advance: You can receive a lump sum right away and repay the loan with a percentage of each credit and debit card transaction your business generates. These loans can get expensive and usually feature higher interest rates than average, but they are accessible to borrowers with low credit. Some lenders make merchant cash advances available to business owners with credit scores in the 400s, while other loans have higher standards. The ease of entry combined with a less predatory approach than payday loans can make them an enticing option for borrowers with bad credit and no other way to get financing.
  • U.S. Small Business Administration Loans: The U.S. SBA backs several lenders. While SBA loans have the most competitive rates and terms, they also take a while to obtain. It can take over a month before receiving funds, and you will need a good credit score, business experience, and a sufficient amount of annual revenue. The 7(a) loan program is the most popular choice, but the SBA also has short-term loans such as a microloan. The SBA also allocates a portion of capital specifically for disadvantaged individuals.

Where Can You Get a Medical Practice Loan?

A medical practice loan can give your company the necessary funds to get started and reach customers, but what is the best way to obtain funds? You can get a medical practice loan through banks and online lenders, but it’s good to assess your needs before submitting applications. If you opt to apply for funding through a bank, the loan application and approval process might take longer than working with an online lender. Banks may also give you fewer loan options if you are getting started or have bad credit. If you want to get approved for medical practice financing faster and get a competitive interest rate, consider working with a specialized business lender.

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