Skip to content

A Physician’s Guide to Medical Practice Loans | L3 Funding

  • by

How to Secure Medical Practice Financing: A Comprehensive Guide

As a new physician, you likely envision opening a medical practice. Starting a business from the ground up is exciting and empowering. You now have a say in how things run, and control of the company is in your hands.

However, you can only achieve these results once your business is off the ground and running. The standard avenue toward reaching this goal is through medical practice loans.

Today, let’s dive into how to start a medical practice with minimal self-investment and how to get approved for a physician practice loan that can help you make it happen.

What is Medical Practice Financing?

Medicine financing is an essential source of financing for medical practice, specifically for doctors and other medical professionals.

Medical practice financing typically consists of two main components: revenue sharing for services and risk-sharing for the investment in the doctor-patient relationship. The structure of funding for medical practice is determined by various factors, including the amount of reimbursement doctors can claim, the amount of risk in the investment, and the degree to which the risk is shared.

However, medical practice financing has changed over the years, and the current model is very different from the old.

Regarding the changing landscape of funding for medical practice, you’ll be better served with a continuously evolving model in response to the changing needs of your organization and your practice.

Once you’ve acquired a medical practice loan, it’s possible to use this finance for various purposes, such as operational expenditures, purchasing stock or equipment, buying an existing practice, or beginning a new practice.

Common Types of Medical Practice Loans

Many financial organizations, including banks, internet lenders, and other businesses, offer medical business loans. Occasionally, you may be able to get private funding.

For medical practice lenders, these are some of the most common options:

Small Business Administration (SBA)

The Small Business Administration (SBA) does not provide small business loans directly to medical practitioners but instead works with lenders. It is easier for lenders to lend to small firms since the government backs SBA loans. A variety of funding options are available through SBA-affiliated lenders.

These medical practice loans are available in various amounts, allowing doctors to get the capital they need to grow their practices. SBA loans often include cheaper down payments, competitive interest rates, and other advantages. In some cases, the SBA does not need security for loans.

SBA loans may be an alternative if you’re experiencing trouble securing a loan from other lenders.

Bank Loans

If you want a medical private practice loan through a typical bank or credit union, weigh the benefits and drawbacks carefully. It’s possible to receive cheap interest and extended payment periods, but additional restrictions exist on how you may use the money in your medical business. If you’re looking for a traditional loan from a bank or credit union and have terrible credit, you could have trouble finding a lender that will accept your application. As a result, your ambitions for your medical practice may be put on hold while you wait for a loan. On the other hand, online lenders can provide finance far more quickly and with fewer requirements than traditional financial institutions.

Online Lenders

Online lenders have much better acceptance rates for small business loans than banks and credit unions. If starting a medical practice, you may look at online lenders, which have more permissive rules and are more inclined to support early-stage businesses.

Most of the time, capital is available for withdrawal within 24 hours or less. Many other types of loans are available, including term loans, lines of credit, invoice finance, etc. In addition, internet lenders are well-known for their lightning-fast loan approval processes.

Term Loans

A term loan usually comes to mind when you think of a standard company loan. Loans are repaid by the borrower over a predetermined period, including interest.

These medical practice term loans, like the bank loans we covered, are suited to the needs of physicians and specialists. You would use a medical-only alternative lender instead of a typical bank for this type of loan rather than the general public.

What are the main differences between this loan and a bank loan? What we mean is this: As small company owners had challenges getting funding from traditional banks during the financial crisis of 2008, the rise of alternative lending emerged. Accessibility and cost are the two main factors in this situation. Many more borrowers now have access to funding choices since non-bank internet lenders have lowered their qualifying rules, making it easier for them to qualify. However, because lenders are taking on greater risk by making these loans, borrowers must pay a higher interest rate.

In addition, even if the loan conditions are favorable, some medical financing companies have strict requirements for the customers they select. To get a business loan, you may need to be in the company for several years with an excellent credit history and have a sizable yearly income to meet their criteria.

Business Lines of Credit

It’s not uncommon to see comparisons between business lines of credit and credit cards. There is a reason for this: Lines of credit have more significant financing and cheaper interest rates than personal loans.

Regarding funding, there are several advantages to using this method. You’ll be given a predetermined credit limit from which you can draw as needed. You will only be charged interest on what you borrow. There will be more money available for use when your balance is reduced.

When you aren’t sure exactly how much a project or refurbishment will cost, a business line of credit might come in handy. It is possible to utilize them to support a wide range of business needs, including running costs, supplier purchases, advertising, renovations, staff compensation, and more.

Equipment Loans

A medical equipment loan is primarily used to finance the establishment of new healthcare firms, the expansion of existing facilities, and the upgrading of medical equipment. It’s a long-term loan that needs to be backed by collateral and can also be used for the company’s supplementary needs. Businesses can borrow money at a low-interest rate and choose their payback terms. This form of loan is available from several well-known financial institutions around the country.

The firm will require additional financing to keep up with the demand for medical services. The following are a few of the most critical aspects of this loan:

  • To use the loan, you must only purchase medical equipment and its associated needs.
  • Banks cater to the specific financial requirements of healthcare providers with a range of tailored services.
  • The time it takes to repay a loan typically varies from 12 to 84 months.
  • Lenders give financial support at affordable rates and, more crucially, provide solutions specific to the company’s needs because of the nature of large projects.
  • Loans beyond a particular amount need collateral.
  • Finance for medical equipment, projects, operating capital, and other credit requirements are covered by the loan.

Who Can Apply for a Medical Practice Loan? 

Many different types of healthcare and wellness businesses might benefit from medical practice funding. Regarding the nature of your services, lenders aren’t likely to be overly picky.

Medical practice loans have been authorized for the following types of businesses:

  • Physicians
  • Plastic surgeons
  • Mental health specialists
  • Optometrists
  • Pediatricians
  • Dermatologists
  • Wellness professions (such as Chiropractic)

Medical Practice Loans: Things to Consider 

Regardless of the sort of loan or other financing option you choose, there are standard criteria for medical practice loans. As a result, it’s a good idea to plan, especially if you have a poor credit rating and will take some time to improve it or locate all necessary paperwork and licenses.

Financials

Potential lenders will examine your personal and business finances to assess whether your medical practice is worth the risk they would take by granting you a physician business loan. You may be asked to provide various financial documents when applying for a personal loan. The list of items may include your most recent personal and business financial records (such as bank and credit card statements), your most recent tax return (if you have one), and information about any previous business loans. Whether your medical practice is a new venture or has a long history will affect the documentation needed. The sort of medical practice financing you are eligible for will be influenced by the length of time you’ve been in business.

Creditworthiness

Prospective medical practice lenders will heavily weigh your credit score when evaluating your application for any financing. You need “good” or “excellent” credit to get the interest rates and repayment condition score. Don’t give up if your credit score isn’t at least 680 out of a possible 850. It is possible to acquire financing for your medical business from various lenders. If your credit score isn’t entirely where you’d like it to be, online marketplaces with several lending partners may be able to help. You may improve your credit score by paying your bills on time and managing your creditor mix and the number of recent queries.

Licenses and Documentation

A vast array of legal documents, business permits, medical licenses, and registrations accompany your professional qualifications. These documents may already be in your possession, or you may have to search for them. Depending on which sort of medical practice loan you are applying for, your lender may or may not require these papers. All of this depends on the kind of finance, lender, and practice you run.

Collateral

To secure a medical practice loan, your lender may require that you provide collateral. Most doctor practice financing doesn’t require collateral since you may use the medical equipment you’re purchasing as collateral. If you default on a loan or payment, the lender has the right to seize your collateral.

Medical Practice Funding: How Does It Work? 

Funding for medical practices can assist doctors in overcoming the specific difficulties they face, including:

Inventory

Due to the high cost of medical supplies and the challenges of collecting payment from patients, keeping an adequate supply can be problematic.

Equipment

In addition to standard equipment such as exam tables and computer software, medical practices of all specializations will require specialist equipment, such as radiography, defibrillators, EKG machines, lab equipment, and imaging equipment. The equipment they need all depends on their area of expertise

Technology

Streamlining patient communication, enhancing billing processes, and making it simpler to exchange information with other physicians or between locations are some benefits of digitizing medical data. 

Collections

Slow-paying insurance companies, Medicare and Medicaid payment delays, and non-paying clients can lead to cash flow issues for small business owners.

Insurance

Due to the elevated danger of sickness, medical practices require particular types of insurance, such as malpractice and workers’ compensation. 

COVID-19

Many medical offices are battling to stay open with fewer patients allowed in at a time, service limits, and higher costs for personal protective equipment (PPE) and other preventive measures.

If you’re a medical practice, you may use medical practice funds for more than just getting through tough times.

Real Estate

Purchasing your office space may lower your monthly expenditures while increasing your assets, extending your firm to another location. 

Purchasing a Practice

Instead of beginning from scratch, buy an existing one with a business loan. To sell a medical practice, many retiring physicians are looking for the next generation of doctors (with a good credit rating!)

Expanding your business by serving additional areas, providing new services, and adding new patients is also an excellent method to do so without making significant expenditures in marketing or development.

Hiring Employees

Taking on more patients without compromising the quality of care is possible with additional doctors, nurses, and other support staff to your team.

Marketing

When starting a new practice or moving to a new location, adding new staff and accommodating more patients, or offering new or extended services, it’s imperative to advertise your clinic, whether it’s through print ads, a website redesign, or direct marketing.

Finance Your Practice with L3

Getting a medical practice off the ground requires considerable knowledge and understanding surrounding the potential investments you can acquire before you start seeing patients. 

To help medical and wellness practitioners realize their company aspirations, L3 Funding offers a wide range of financial services, including merchant cash advances, business loans, and other options.

Learn more about medical practice financing or apply for merchant funding with L3 today!