Everything you need to know about medical practice loans

Launching a new independent practice requires a lot of thoughtful planning and, often, a significant financial investment. Securing the funds to purchase equipment, hire staff, and rent a suitable space for your operations may require a loan. Here is everything you need to know about medical practice loans so you can get your healthcare practice off to the best start for your team and your patients.

A medical practice loan is basically a business term loan for physicians. It gives you the working capital you need to sustain your practice until your revenue flow is sufficient. Getting the right kind of loan for you and your practice is an important step toward your financial success.

Calculate how much you will need as you start your independent practice. Expenses can include:

  • Office space
  • Utilities
  • Furniture and equipment
  • Staffing
  • Marketing
  • Technology, including your electronic health record (EHR) solution

As a practicing physician, you have several qualities that a lender will look for when determining eligibility for a medical practice loan. You and your independent practice have a strong earning potential and a stable income. If you have previous experience working for another practice, that also shows the stability that a lender will want to see in your application.

There are a number of options for securing a medical practice loan. To determine which works best for you, consider:

  • How quickly you will the funds
  • How quickly you will be able to repay the loan
  • Whether you need the payments to be flexible
  • Whether you have available collateral.

Medical practice loan options include traditional bank loans as well as loans secured through the Small Business Administration (SBA).

SBA guaranteed loans. Since your independent practice is a business, going through the SBA for a medical practice loan might be a good option. An SBA loan is actually provided by a partnering bank but is guaranteed by the SBA, up to 85%. Loans secured through the SBA typically offer the largest loan amounts at the lowest rates and with the longest terms. However, be prepared for a long application process and extensive paperwork as well as the possibility of having to provide collateral or a personal guarantee for the loan.

Traditional bank loans. If you have an existing relationship with a lender, you might prefer this route for a medical practice loan. Terms and rates will be competitive, although you may still be required to provide collateral or a personal guarantee. For a start up independent practice looking for customized funding, a bank may be more likely to consider unique circumstances such as student debt. There are a few banks that offer funding options designed specifically for physicians that consider the unique profile of an independent practice.

Business line of credit. An alternative to a loan, the line of credit can be secured through a traditional bank as well as alternative lenders. The line of credit is more like a credit card than a loan and may be more suited to an independent practice that needs flexible access to working capital. A line of credit offers that flexibility, allowing you to draw from it whenever you need the funds. You only pay interest on the amount you withdraw.

Practice acquisition loans. If you are launching your own medical practice by acquiring another practice, a practice acquisition loan may be more appropriate for your funding needs. For example, you may decide to purchase a practice from a retiring physician rather than launching a completely new practice of your own. Some traditional lenders offer specific programs for physicians who want to purchase an existing practice. With a practice acquisition loan, you will be required to provide a personal guarantee or collateral.