An Overview of Medical Practice Loans
If you’re a physician or specialist looking for a business loan to start, purchase, or expand your business, you might find the number of options available confusing. You already put in long hours, so finding the time to research and find a loan product that makes sense for your business can be overwhelming. That’s why we created this guide: to help doctors and specialists find the best medical practice loan for their business.
Here are the top medical practice loans:
What Are Medical Practice Loans?
A medical practice loan is a loan designed to provide financing to physicians and specialists. Depending on the loan product, you can use this financing for a range of different needs, including operational costs, purchasing inventory or equipment, acquiring an existing practice, and starting a new practice.
And the good news is, it shouldn’t be that hard for these types of borrowers to find a great loan.
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.
Types of Medical Practice Loans
There are many options for medical practice loans for doctors and specialists. Your best fit will depend on your specific needs, as well as the lender’s requirements. Factors to consider when shopping for a medical practice loan 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.
While you have several options to choose from, each product has its own pros and cons. We’ll detail these to help you find the best match for your medical financing needs.
SBA 7(a) Loans
In general, SBA loans are 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 U.S. Small Business Administration. The SBA 7(a) loan is the most popular product among the SBA loan programs.
The SBA 7(a) loan is highly sought after because of its use-case flexibility and great terms. These loans carry some of the 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 requires a great deal of paperwork, so there can be a lot of back and forth—especially for borrowers who don’t have organized financial records. 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.
Also note that if you’re starting a business for the first time, an SBA 7(a) loan might not be the best option for you. The most qualified borrowers not only have strong credit scores, but also a couple of years of time in business, too.
Cons of SBA 7(a) Loans:
- Long application process
- Extended underwriting process
- Long timeline to capital access
Pros of SBA 7(a) Loans:
- High capital amounts available
- Low interest rates and long repayment terms
- Annual revenue over $180,000
- Minimum credit score of 680
- Over four years of business history
- Loan amounts up to $5 million
- Loan terms ranging from five to 25 years
- Interest rates ranging from Prime Rate + 2.75% to Prime Rate + 4.75%
- Funding in as little as two weeks
Qualifications and Terms
To qualify for an SBA 7(a) loan for your medical practice, you’ll generally need to meet the following criteria:
Traditional Bank Loans
Some borrowers prefer 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, U.S. Bank and Wells Fargo are among the banks that offer special lending tailored to health care practitioners—including doctors, dentists, optometrists, and even veterinarians. By working directly with borrowers in these specific professions, they’re able to more appropriately assess 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 health care 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 receive. 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 among the least expensive loan products, and applying for a product designed specifically for your sector can only help.
But remember that although these specialized products are designed with medical professionals in mind, this doesn’t mean 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.
Cons of Bank Loans:
- Difficult to obtain
- Not conducive for fast access to funds
Pros of Bank Loans:
- Relatively inexpensive
- Specialized products for medical professionals
- Willingness to overlook some poor credit history and student loan debt
Qualifications and Terms
A term loan is likely what you think of when you think of a traditional business loan. A lender loans you a lump sum, which you repay over time, including interest, for a set term.
As with the bank loan products we discussed, 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 online, alternative lender that exclusively serves the medical community.
The core things that make this loan product different than a similar bank loan? Mostly, accessibility and 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 through traditional banks, 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 for lenders, they’re more expensive for borrowers.
What’s more, 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.
Cons of Term Loans:
- More expensive relative to bank loans
- Still tricky to qualify for
Pros of Term Loans:
- Less-stringent qualifications than bank loans
- Faster application and qualification process than bank loans
- Similar industry-specific considerations as a specialized medical loan
- Loan amounts between $25,000 and $500,000
- Loan terms between six months and five years
- Interest rates between 4.99% and 22.99%
Funding Circle Term Loans
If you’re looking for a term loan from an alternative lender for your medical practice, one lender to consider is Funding Circle. Here are the details on Funding Circle’s term loan product:
To qualify for a Funding Circle term loan, you need a minimum credit score of 620 and at least two years of business history.
Lending Club Term Loans
Another alternative lender offering term loans is Lending Club. Through Lending Club, you can get a term loan ranging between $5,000 and $500,000. Your loan term ranges between six months and five years, and your interest rate could be as low as 4.99%.
To qualify, you’ll need at least $50,000 in annual revenue, and one year of business history on the books.
Relative to SBA loans, bank loans, and non-bank term loans, short-term loans are more expensive with higher interest rates and shorter repayment terms. But for health care 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 loans might also be a fit if you need cash quickly. Plus, if you know you generate a lot of revenue and would prefer to avoid carrying additional debt over a lower interest rate, this could be a good product for you, too.
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 medical business.
Cons of Short-Term Loans:
- Shorter repayment terms
- Higher average interest rate
- Rarely specifically for medical providers
Pros of Short-Term Loans:
- Quick application and funding process
- Looser criteria for approval
Fundation Short-Term Loans
Through Fundation, medical practitioners can acquire a term loan between $20,000 and $500,000 on a one- to four-year term and an APR between 8% and 30%. To qualify, borrowers will need an annual revenue north of $100,000, at least two years of business history, and at least a 600 credit score.
Business Lines of Credit
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 business 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, it’s there when you do need it.
For example, let’s say that you open a line of credit of $100,000 for your medical practice. In the short-term, 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.
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 equipment without much warning.
Cons of Business Lines of Credit:
- Fees and extra charges can build up
- Not ideal for one-off investments
Pros of Business Lines of Credit:
- Fast approval
- Interest paid only on funds used
- Flexible repayment terms
- Quick access to funds
Kabbage Lines of Credit
One of the best options for a business line of credit is Kabbage. With Kabbage, you can secure a line of credit up to $250,000 on a term ranging from six to 18 months with interest rates as low as 1.5% per month.
To qualify, you’ll need an annual revenue of at least $50,000 and one year of business history.
OnDeck Capital Line of Credit
Another great lender for lines of credit is OnDeck Capital. Through OnDeck, you can get a line of credit ranging from $6,000 to $100,000 on a six-month term with an APR between 11% and 63%.
To qualify, you’ll need an annual revenue of at least $100,000, a 600+ personal credit score, and at least one year of business history.
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 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 equipment 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 is often the case for medical equipment, that can also help keep the loan cost down.
Equipment financing for a medical practice loan has a very limited purpose, but it’s easier to qualify for than bank loans, for instance, because of its self-secured nature. This also means your other business and personal assets will be exempt from the risk of being collateralized.
Cons of Equipment Loans:
- Can only be used to purchase equipment
- Hyper-specific or quickly outdated equipment will likely have higher interest rates
Pros of Equipment Loans:
- Easier to qualify for than many term loans
- Generally no need for additional collateral
- You own the equipment instead of leasing it
Currency Capital Equipment Financing
If you’re looking for equipment financing for your medical practice, a good lender to work with is Currency Capital. Through Currency, you can secure equipment financing of up to $2 million on loan terms ranging from six months to seven years with interest rates starting at 6%.
Currency Capital works with lenders with average annual revenue of $120,000 and a personal credit score of at least 620.
How to Select the Best Medical Practice Loan for Your Business
With all of your options, is 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 specific needs.
That said, you should certainly explore if you have options with a lender that specializes in medical practice financing, as there can be several benefits.
But if you find a lower interest rate and a longer repayment term from a traditional lender, that product is better 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.
The Bottom Line
Now that you know all about the best medical practice loans on the market, the only thing left to do is evaluate your specific business situation and start the application process. Fortunately, as a doctor or medical specialist, you shouldn’t have a hard time finding a good option. This puts you in the rarified position of being able to pick and choose the loan that works best for you.