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If you’re a doctor or specialist looking for a medical practice loan to start, purchase, or expand a business, you might find the number of options available confusing. Add to that to the long hours you already put in, and finding the best medical practice loan might seem like it requires time and energy for research you don’t have.
The good news, though? From a lender’s perspective, doctors have three qualities that make them great potential loan candidates—strong earning potential, high net worth, and stable income. In particular, doctors who already own a medical practice and are looking to expand will typically find themselves in an excellent financial position to be eligible for a medical practice loan.
That said, although there are a number of medical practice loans available on the market, not all will be the right fit for you. To help you make an informed decision quickly and get you to (or back to) serving your patients, we’ve gathered the most critical facts you need to know about the best medical practice loan options on the market.
There are many options for medical practice loans for doctors and specialists. Your best fit will depend on your specific requirements. Examples include how quickly you need access to funds, how fast you can repay the loan, how flexible you need payments to be, and whether you’re able to provide any collateral for the financing.
The six best medical practice loan options you might have will generally be SBA 7(a) loans, traditional bank loans, term loans from lenders who specialize in medical practice financing, short- and medium-term loans from alternative lenders, business lines of credit, and equipment financing. Since each medical practice loan product has its own pros and cons, we’ll detail these to help you find the best match for your medical financing needs.
In general, SBA loans are considered among the best—if not the best—small business loans available. These financing products are funded through intermediary lenders and guaranteed up to 85% by the US Small Business Administration. The SBA 7(a) loan is the most popular product among the types of SBA loans available.
The SBA 7(a) loan is highly sought after because of its use-case flexibility and great terms—these carry among the most lowest interest rates and longest repayment terms available. But because SBA 7(a) loans are coveted, they’re competitive. Among the qualifications you’ll need to provide are a strong borrowing background (aka a high credit score) and steady finances. You see, though, why doctors are often strong candidates.
You’ll also need to know that the SBA loan timeline can take weeks or even months. The SBA loan application itself is highly paperwork intensive and rigorous, so there can be a lot of back and forth—especially for borrowers who don’t have financial records in tip-top organization. For this reason, the SBA 7(a) loan isn’t a great medical practice loan option for doctors and specialists who need fast access to funds.
Pros of SBA 7(a) loans for medical practices:
Cons of SBA 7(a) loans for medical practices:
Also note that if you’re starting a business for the first time, an SBA 7(a) loan might not be the best medical practice loan option for you. The most qualified borrowers not only have strong credit scores, but a couple years of history in business, too.
Some borrowers want to go straight for the known entity: a loan from a traditional institutional lender (aka a bank). And, if you’re a qualified borrower, this can definitely be a great option—some banks even offer loan products specifically designated for medical practice financing.
For instance, US Bank and Wells Fargo are among the banks that offer special lending tailored to healthcare practitioners—think doctors, dentists, optometrists, and even veterinarians. By working directly with borrowers in these specific professions, they’re able to more appropriately size their risk. They take into account qualities that might adversely affect other borrowers, like student loan debt (of which doctors often have a lot) or credit gaps, due to healthcare workers’ high earning potential, insurance, and the track records of similar past borrowers.
But, of course, bank loans of any stripe are very difficult to get. Borrowers have to be highly creditworthy with excellent financial pasts. But, if you think you might qualify for one of these medical practice loans, you should apply—they’re also among the least expensive loan products, and applying for a product designed specifically for your sector can only help.
Pros of bank healthcare loans for medical practices:
Cons of bank healthcare loans for medical practices:
Remember that although these specialized products are designed with medical professionals in mind, this doesn’t mean that approval is guaranteed. The application process can be long, and, even after approval is granted, obtaining funds for your loan can take a few months. But, if you’re looking for a long-term financing option to purchase or lease real estate, invest in medical equipment, or to buy into an existing practice, working with a traditional bank may be a great option.
A term loan is likely what you think of when you think of a traditional business loan. A lender—one specializing in a medical practice financing, in this case—loans you a lump sum. You repay it over time, including interest, for a set term.
As with the bank loan products we talked about, these medical practice term loans are tailored to the needs of doctors and specialists. But instead of working with a traditional bank, this option would involve borrowing from an alternative lender (like an online lender) that exclusively serves the medical community.
The core things that make this loan product different than the similar bank loan? Mostly, access and, subsequently, rates. Here’s what we mean: The emergence of alternative lending has been a direct response to the increased difficulty for small business owners to obtain financing, especially after the financial crisis. The great news is that non-bank, online lenders have opened up funding options to many more borrowers through more accessible qualification standards than you’ll find at a traditional bank. But, since those loans are inherently riskier, they’re more expensive.
Pros of non-bank healthcare loans for medical practices:
Cons of non-bank healthcare loans for medical practices:
Though the loan terms might be great, some medical financing lenders set a high bar for the borrowers they choose. They might require you to have been in business for a number of years, have a good credit history, and already have high annual revenue.
Relative to SBA loans and bank loans, short- and medium-term loans are more expensive with higher interest rates and shorter repayment terms. But for healthcare providers who need fast financing, they might be worth the cost. Especially if you’ve crunched the numbers and decided that your income will support paying off this medical practice loan on time.
Short-term online loans might also be a fit because you’re busy and just need cash quickly. Plus, if you know you generate a lot of cash and would prefer to avoid carrying additional debt over a lower interest rate, this could be a good product for you, too.
Pros of short-term loans from alternative lenders for medical practices:
Cons of short-term loans from alternative lenders for medical practices:
Provided you’ve been in business long enough to predict your monthly cash flow and are confident that you can pay off a short-term loan, the ease of application and the speed of funding for a short-term or medium-term loan might make this the perfect product for your business.
A business line of credit is a little different than the rest of the medical practice loans we’ve already mentioned in this article.
Unlike a term loan, a business line of credit functions more like a credit card. A lender approves you for a line of credit for a set amount. But here, you only pay interest on the funds that you actually borrow. The other big benefit is that once you’ve established a business line of credit, the funds are quickly accessible. So even if you don’t use it for months, as soon as you need it, it’s there.
For example, let’s say that you open a line of credit of $100,000 for your medical practice. In the short-term, however, you only need to withdraw $10,000 for immediate expenses. This means you’ll only pay interest on that $10,000 while still reserving the option to take out the additional $90,000 as needed. And, once you’ve repaid the funds you’ve borrowed, they replenish—it’s called a “revolving” line.
Pros of business lines of credit for medical practices:
Cons of business lines of credit for medical practices:
Given its flexibility and cost-effectiveness, the business line of credit is widely considered among the best medical practice loans for doctors and specialists—particularly those who might have fluctuating expenses or periodically need to buy expensive tools without much warning.
If you need financing for the explicit purpose of updating or buying tools, equipment, or gear, you might want to go directly to equipment financing. These medical practice loans are limited to just purchasing specific items—you literally need to submit a quote to a lender in order to get the financing—but can be great if you have specific needs.
Equipment loans are excellent for large equipment purchases—say, an MRI machine—because the equipment is used as collateral for the loan itself. This lowers the risk for the lender, which means that you rarely have to submit a down payment or use any personal property as collateral. If you’re buying a high-value piece of equipment, as medical equipment can be, that can also help keep the loan cost down.
Pros of equipment financing for medical practices:
Cons of equipment financing for medical practices:
Equipment financing for a medical practice loan has a very limited purpose, but it’s easier to qualify for than bank loans, for instance, so it could be an option.
See Your Medical Practice Loan Options
With all of your options, it better to work with a traditional lender or a lender that specializes in medical practice financing? There’s no universal answer. In general, your rule of thumb should be to find the best medical practice loan for your needs.
That said, you should certainly explore if you have options with a lender that specializes in medical practice financing. There can be a lot of benefits to working with a lender that provides a product specific to your industry or works solely with borrowers from your industry.
But if you find a lower interest rate and a longer repayment term from a traditional lender, that’s the right product for you. There’s no reason to spend more money on a loan simply because it comes from a lender that specializes in medical practice financing. Choose the loan you qualify for that’s most affordable for your business.