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Medical practice loans are designed to meet the unique needs of physicians and other healthcare professionals, offering funding for everything from startup costs to practice acquisitions and facility upgrades.
Understanding the different types of loans available and how lenders evaluate borrowers can help you choose financing that supports your long-term goals while keeping your borrowing costs under control.
Key Points
• Medical practice loans provide funding for physicians and health care professionals to cover startup costs, practice acquisitions, facility upgrades, and more.
• Loan amounts range from approximately $200,000 up to $5 million, and borrowers may want to match the amount to their actual needs.
• SBA loans are government-backed loans that are potentially easier to qualify for and may offer lower interest rates than conventional loans.
• SBA 7(a) loans can offer up to $5 million for a variety of purposes including real estate acquisition, equipment purchases, and debt consolidation.
• A conventional business term loan provides an upfront lump sum that the borrower repays through scheduled payments and can help finance new practices, commercial property, and even practice acquisitions.
How Practice Loans Work
Medical practice loans are specialized small business loans. They can be used for a wide range of purposes, including as a first-time business loan for new practices, and they can also be used to acquire a new practice or expand an existing practice.
Loan Amounts and Terms
Loan terms and amounts will vary by lender and by type of business loan. Loan maximums can range from around $200,000 up to $5 million. It’s generally a good idea to match the amount you borrow to your actual needs. That way you aren’t paying more money in interest than is necessary.
Loan term — the amount of time you have to pay back the loan — can also vary. Short-term loans may have terms as low as six months, while longer-term loans may give you up to 25 years to repay.
It can also be worthwhile to match your loan term to your needs. Consider that shorter-term loans tend to have higher monthly payments, but you may end up paying less in interest over the life of the loan. Longer terms may allow you to manage cash flow better, but the overall cost of the loan, including interest, may be greater.
Fixed vs Variable Rates
As with any small business loan, you will be charged interest. With a fixed-rate loan, the interest rate is locked in when the loan is issued and remains the same until the balance is repaid. Borrowers with strong credit profiles generally qualify for the most competitive fixed rates.
Variable-rate loans work differently. Their interest rates are usually based on the prime rate, a benchmark that financial institutions use when setting rates for their most creditworthy customers. Because the prime rate fluctuates in response to economic conditions, the interest rate on a variable-rate loan can increase or decrease over time. If the prime rate moves higher, borrowers with variable-rate loans will typically see their borrowing costs rise as well.
Types of Medical Practice Financing
There are several different types of loan it may be worth considering when you’re financing a medical practice. Here are some of the most common.
SBA Loans for Medical Practices
Small Business Administration (SBA) loans are government-backed loans that are usually offered through traditional lenders, such as banks and credit unions. Because these loans are partially guaranteed, they are less risky for lenders to offer. This, in turn, can mean that they’re easier to qualify for and they may offer lower interest rates.
There are two main types of SBA loans for small businesses to consider:
SBA 7(a) loans are the most common and offer a lot of flexibility for medical practices. The maximum loan amount is $5 million, which can be used for purposes as varied as acquiring real estate or a new practice to purchasing equipment and supplies as well as consolidating debt.
SBA 504 loans, on the other hand, offer up to $5.5 million as a loan maximum and are typically used for the purchase, construction, or improvement of real estate. They cannot be used to provide working capital, purchase inventory, or consolidate general debt.
Conventional Business Term Loans
Many lenders offer conventional business term loans. With this type of loan, you receive an upfront lump sum and repay it, plus interest, through fixed payments over an agreed-upon term. These loans can help finance a variety of business needs, such as launching a new practice, purchasing commercial property, or acquiring an existing dental practice.
Unlike SBA loans, conventional business loans aren’t guaranteed by the government, so qualifying may be more challenging. Lenders typically look for borrowers with strong credit profiles, established revenue, and a solid financial track record. They may also require collateral (such as a lien on business assets), a personal guarantee from the practice owners, and a down payment.
Equipment Financing
Equipment financing loans are designed specifically to help small businesses purchase the tools, equipment, or appliances that they need to help their business grow and stay competitive. As with traditional business loans, equipment financing loans are paid back at regular intervals with interest.
What defines equipment loans is that they’re collateralized by the equipment itself. In other words, if you fail to pay back the loan, your lender can seize the equipment to help them recoup their losses.
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What Can a Practice Loan Be Used For?
Medical practices loans can be used for a variety of purposes, including startup loans, funds to improve an existing business, or business acquisition loans.
Used as a startup loan, a medical practice loan can help you construct offices, let you acquire equipment, and provide working capital to buy supplies and pay employees.
Medical practice loans can also help you grow your practice, letting you update equipment, hire new staff, set up another office, or even purchase an existing practice and book of business.
How to Qualify for a Medical Practice Loan
When evaluating your loan application, lenders will often have several business loan requirements. One of the most important is your creditworthiness, including your personal credit score and borrowing history. They’ll also review your debt-to-income (DTI) ratio, which compares your existing debt obligations to your income. A lower DTI suggests you have the capacity to comfortably manage additional loan payments.
In addition, lenders typically request documentation to verify your financial health. This often includes personal and business tax returns from the previous two or three years, along with financial statements that detail your practice’s revenue, expenses, profits, and overall financial position.
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How to Apply for Medical Practice Financing
Once you’ve gathered the information detailed above and prepared your documentation, you can apply for business loan financing from various lenders. Shop around to several lenders for the lowest interest rates and terms that fit your needs.
The Takeaway
From government-backed SBA loans to conventional business financing and equipment loans, there are multiple financing options for medical practices that fit a wide range of business goals. With careful planning, the right financing can help position your practice for long-term success.
Ready to grow your business? SoFi Small Business Loans can give you fast access to the capital you need. Check your eligibility in minutes.
FAQ
What types of health care providers can get a practice loan?
A variety of doctors and health care providers may qualify for a practice loan, including traditional physicians, dental practitioners, and behavioral health providers (such as therapists), among others.
How much can you borrow with a medical practice loan?
You can typically find loans that might allow you to borrow up to $5 million. SBA 504 loans offer up to $5.5 million dollars and are typically used to purchase or improve real estate.
Can a new physician get a practice loan without an established practice?
Lenders usually view doctors and other health care practitioners as low risk, so it’s typically possible to get a practice loan without an established practice.
Are SBA loans a good option for medical practice financing?
SBA loans can be a good option for medical practice financing. They can potentially provide a significant amount of funding that can be used for a wide variety of purposes.
How do practice loans differ from standard small business loans?
Practice loans take into account the unique financial situations of health care practices, including revenue models. They’re also designed to account for the specific costs the industry faces, such as the purchase of big-ticket medical equipment. Loan structure can be tailored to a practice’s needs in terms of loan use and repayment schedules.
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