Business Loans for Doctors and Medical Practices
Business loans for doctors have their challenges and their advantages. Getting a business loan for a physician in 2019 has become a lot simpler than it was just 10 years ago.
We will explore some of the dynamics of getting loans for physicians in this section. Along with medical practice financing is a litany of best practices for doctors-as-small business owners that will hopefully provide guidance in positioning your medical practice for favorable financing terms.
Physicians have unique challenges as business owners. Scheduling, liability and collections are far more complex than the majority of small businesses. After all, if you are a mechanic, a lawyer, a florist or a hairstylist and you make a mistake; sure it's embarrassing and perhaps inconvenient. However, doctors won't always get a second chance to get it right...physicians have a lot more at stake than other professionals. That's just a small part of it, there is so much more.
In addition to the rigors of staying current in a medical practice, most new physicians come out of their schooling with a mountain of loan debt. Between undergraduate and medical schools, many physicians hit the ground after their residency requirements with close to a half million dollars in loans and debt.
Lending Options for Doctors
The good news is that for most doctors who choose to open their own practice, they tend to qualify for a variety of loans due to their high earning potential and the prospect of steady revenue flows. This can all seem very daunting indeed, but there are many options available for loans for doctors.
For example, one of the most favorable loan types for doctors includes a Small Business Administration or SBA Loan. An SBA loan will almost always offer the best interest rate for a loan, resulting in much lower monthly payments and offering longer repayment schedules and horizons.
The downside of an SBA loan for doctors is the heavy paperwork requirements and the long approval process which could mean waiting 2-3 months before a loan is processed. If you can afford to wait for your funds and think you can qualify for an SBA loan, this is an excellent choice. The chart below shows differences in applying for an SBA loan versus using alternative financing methods.
SBA Loans vs Alternative Loans
|Alternative Loan||SBA Loan|
|Time for Initial Approval||1 Day||1 Week|
|Time to Receive Funds||1-3 Days||30-120+ Days|
|Loan Amounts||$5K - $500K||$30K - $5 Million|
|Repayment Terms||3 Months - 3 Years||7-10 Years|
|Average APR Range||Average of 30-50%
(As low as 6.99%)
|Credit Score Required||500+||680+|
|Annual Gross Revenue||$100K||$120K|
|Time in Business||1 Year||2 Years|
Loans for Doctors Overview - Working Capital Loans
Every business, including medical practices, requires working capital. Especially when just starting-out and not having a full list of patients, cash flow can be negative for an extended period of time.
Slow-paying insurance companies, delays in Medicare and Medicaid reimbursements and cash-strapped patients can hurt cash flow significantly. Meanwhile, employees must be paid, equipment and supplies must be purchased, and malpractice insurance costs continue to mount.
Alternative financing providers like Biz2Credit can help arrange working capital for doctor's offices in the form of business loans, lines of credit cash advances, and other forms of financing that can ease any cash crunch. Biz2Credit specializes in physician loans that suit a wide variety of financing needs for a medical practice.
What is The Purpose of Your Medical Practice Loan?
Like any other loan, business loans for doctors have become specialized. For example, you would likely use a different kind of financing arrangement to purchase equipment than you would use to buy the real estate to house your medical practice. Similarly, you would likely use a specific type of loan to finance your initial insurance premiums that would be different than a loan to cover working capital expenses of your medical practice.
With that understanding, let's now explore the differing loan types, how to qualify and how to position your medical practice to get the most favorable loan rates. In addition, the type of medical practice loan you get may have varying rates of interest payments and payback terms. In some cases the difference can add-up to tens of thousands of dollars in additional costs...or savings.
If you have a financial advisor, be sure to ask questions about the various loan types using the following guides as a basis for your evaluation. If you are making the decision on your own, use this guide as a basis for your research and ask your potential lender(s) about different loan programs they offer.
Physician Loans at-a-glance:
Defining the Use of Your Medical Practice Loan
Like all professionals who run successful businesses, physicians rely on their staff to help their offices run smoothly. These employees include physician's assistants, nurses, receptionists, and office assistants who help with billing health insurance companies, Medicare, and others. When starting a medical practice, expanding services or opening a new office, doctors frequently require an infusion of cash. Insurance companies are notoriously slow in paying, dispute claims and try to negotiate rates.
When calculating your staffing budget requirements, don't forget to include benefits and employer tax responsibilities. This is generally an additional 17%-22% of an employee salary that employers are obligated to pay.
If you are a sole practitioner and you will hopefully be attending to patients throughout the day. You will likely need to have a support staff that can manage scheduling, billing/collections, book-keeping as well as a nurse or assistant.
These expenses and occasional expansion (new hires) can cause cash flow issues. This should be anticipated in a new practice and so physicians should plan in advance.
For this type of medical practice financing, you might want to open a business line of credit. A business line of credit is essentially "ready cash" to be used by a borrower at a moment's notice. In that sense, it is very much like a credit card where the borrower has a certain amount of credit that is pre-defined. However, it is redeemable as cash. A business line of credit is known as a general purpose or working capital loan and can be used for any purpose.
The benefit of a line of credit is that you only pay interest on the amount that you borrow. The difference in a line of credit and cash you could draw from a credit card cash advance is the amount of interest that is charged. Credit card cash advances generally speaking carry very high interest rates.
BizCredit's platform makes available a variety of physician loan options, including business loans, lines of credit and cash advances, which can enable medical practices to be able to hire the staff they need to operate efficiently.
Digitizing Medical Records
Converting patients' records from paper to digital files creates great efficiencies for healthcare providers and their patients. However, the process of converting analogue records into digital format is only a small part of the overall cost of digitization.
Digitizing records will likely require the medical practice to subscribe to software/hosting providers and incur the costs of training staff to use the new technologies. While many software vendors will provide basic-level training, this is frequently inadequate and requires the medical practice to purchase an additional training and support contract.
The benefits for patient care are obvious: digitizing patient files creates an electronic record of visits, exams, blood tests, diagnoses, and prescriptions that can be shared with other physicians if necessary. Creating computer files of health histories can potentially be life-saving.
Using electronic medical records reduces the cost paper and file folders and cuts labor costs. The efficiencies created by simply researching a patient's electronic record -- rather than hunting through hundreds of file folders - cuts space and valuable time, while at the same time save costs for medical practices and hospitals. However, digitizing medical records is a significant long-term investment for any medical office. Conversion costs frequently run in the tens of thousands of dollars. Biz2Credit can help doctors secure the funding they need to create electronic medical records.
According to GlobalSign, a digital conversion and cloud-based service provider, there are 4 main reasons to digitize medical records:
1. Easier Storage
Storing patient records is a highly specialized process than must conform to federal regulations and be kept confidential. Storing patient records has other logistical challenges as well, From housing and sorting, to sorting between active and inactive patients, quality assurance, and, efficiently retrieving records in a timely manner, physical records are hard to deal with.
Converting files to an Electronic Medical Records (EMR) system; staff will have instant access, ability to cross-reference, and reduce the need for physical storage facility.
2. Cost Savings over Time
EMR systems can be very costly and the training associated with learning how to manage the software could cost as much or more than the software itself. However, once firmly deployed it is likely that your practice may operate with fewer staff, less office space and be more efficient, resulting in cost savings and the ability to provide care to more patients.
Maintaining physical records presents back-up risk and risk of loss. Usually physical records are not routinely replicated and present a risk of permanent loss in the event of a catastrophe. With cloud hosting (most preferred), the files are encrypted and stored on offsite servers at multiple locations; they are only accessible with a unique login that will decrypt them.
4. Accuracy and Readability
Hand-written and physical documents can create confusion on multiple levels. Medical records that are illegible can be impossible to distinguish as those physical documents age, especially if the original cannot be found. With malpractice lawsuits continuing to climb, having accurate records can be the difference in setting the record straight and may entitle your practice to lower insurance premiums.
Most medical offices will require equipment purchases. These can range from defibrillators, EKGs, CAT scans, laboratory equipment, lasers, stress test treadmills, surgical equipment, ultrasound equipment, and wheelchairs.
While most lab and diagnostic work is referred to specialized firms, medical office equipment such as basic diagnostic devices and technology hardware/software can be prohibitively expensive out-of-pocket.
Biz2Credit can help doctors secure specific physician financing for all types of medical equipment. Remember, equipment loans are highly specialized and designed to be used specifically for high-ticket items and capital expenditures. Using an equipment loan also allows you to use the purchased equipment as collateral, reducing your debt footprint while getting a lower rate versus a general purpose loan.
Opening New Offices
Professionals including: doctors, dentists, attorneys, and accountants, face financial needs just like other business owners. For instance, physicians often face cash flow issues because of slow-paying insurance companies and disputed reimbursements. Combine that with the high cost of digitizing medical records, ever-increasing malpractice insurance rates, and the rising costs of running a healthcare practice. The result is that physicians can find themselves in a financial crunch.
Startup costs for new offices can be significant. Any physician who has purchased or renovated a building or entered into a lease agreement knows that setting up a location is costly. Next comes the purchases of computers, software and equipment, the investment of setting up phone systems and electronic medical record systems, staffing costs and marketing expenses.
Biz2Credit can help secure business loans for doctors who are seeking office purchases and leasing arrangements, as well as provide a wide variety of options to obtain the working capital needed to launch a new office.
American Medical News, a news source for physicians, reported on the 5 mistakes doctors make when borrowing money, which include:
- Failing to shop for a banker
- Not doing the math
- Using the wrong borrowing tool
- Failing on financing paperwork
- Borrowing to cover operating costs
Borrowing is becoming increasingly common for medical practices today in the ever-evolving world of technology. More business financing options exist today than ever before, making it efficient for doctors to acquire business loans. This allows physicians to focus on their practice, while getting the necessary funds to grow their business.