Starting and growing your medical practice is an expensive undertaking. Between the cost of equipment, staff, rent, and other operating costs, many medical professionals find themselves in need of additional funding. That’s where loans for medical practices come in.
Of course, with so many different business loans for doctors available, it can be hard to decide which one is best for your practice.
In this article, we break down what physician-owned practice financing is, how it can be used, and the five best loans for a physician practice. We’ll cover things like loan amounts, interest rates, repayment terms, and the application process to help you make an informed decision.
What Is A Medical Practice Loan?
Medical practice financing is specifically designed to meet the financial needs of medical practices. Any healthcare provider can qualify for one, whether you’re a doctor, dentist, chiropractor, psychologist, or another medical services provider.
Compared to other loan types, medical practice funding is unique in that it offers specific features tailored to the needs of healthcare providers. This includes things like longer repayment terms and lower down payment requirements.
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Nevertheless, terms and interest rates will vary depending on the lender you choose, the size and financial health of your practice, and your particular spending needs.
What Is a Healthcare Business Loan Used for?
Now that we understand what healthcare practice financing is, let’s look at some of the things you might need it for.
1. Purchase an Existing Practice
If you’re looking to expand your practice, you might consider purchasing one that already exists. Many retired—or nearly retired—healthcare professionals opt to sell their business to other professionals in the field.
In cases like this, you’re not only buying the infrastructure and equipment; you’re also buying the skills of the staff, as well as the patient roster. This makes it an excellent investment but certainly not an inexpensive one.
2. Equipment Costs
The cost of medical equipment is perhaps the steepest investment you’ll have to make. And it’s not just sophisticated items like x-ray machines, ECG equipment, or defibrillators. Even bits and pieces like printer ink, staples, and tongue depressors can rapidly add up.
3. Advertising and Marketing
Competition in today’s healthcare market is fierce. And much of it is driven by digital marketing and consumer reviews. To succeed, you’ll need both the savvy and the money to invest into targeted marketing campaigns. By advertising your services clearly to the right demographic, you’ll quickly gain traction.
For example, consider purchasing a Google Ads campaign and take the time to respond to Google Reviews. You’ll also want to maintain an active social media presence and invest in a search engine optimization (SEO) strategy. If all that sounds like a lot, well—it is. Hiring someone to do the job is a worthwhile investment.
4. Salary and Benefits
Few medical practices are a one-person show. Many businesses require additional doctors and nurses, in addition to supporting staff like secretaries. A business loan for doctors can dramatically reduce the financial strain of covering salaries, benefits, and other employee costs.
5. Business Renovations
As your business grows or trends change, you may find your medical practice in need of some updates. Whether it’s an interior design facelift or a labor-heavy office expansion, physician practice loans offer the financial flexibility you need to get the job done.
6. Debt Refinancing
Business loans for physicians and other healthcare professionals can be used to help repay existing debts. If you can secure a lower interest rate, this will help you pay off high-interest debts. Alternatively, you may be able to refinance your debt to get a more manageable repayment schedule.
The Best 5 Business Loans for Healthcare Professionals
Keep in mind that there is no single best business loan for your medical practice. The funding option you choose will ultimately reflect if you need to hire new staff or acquire a new practice. With this in mind, let’s look at the top five business loans for medical practices in 2023.
1. Equipment Financing
As the name implies, equipment financing is a type of loan specifically designed for the purchase or upgrade of your medical equipment. These loans can help you finance expensive items like X-ray machines, surgical instruments, diagnostic equipment, and much more.
Loan terms vary depending on the lender, but typically range from two to seven years, with either fixed or adjustable interest rates. Depending on the size of your medical practice and the equipment being purchased, the loan amount can range from a few thousand to hundreds of thousands of dollars.
Keep in mind that the loan is secured by the equipment being purchased. This means the lender typically holds a lien on the equipment until the loan is fully repaid.
Pros
- Maintain working capital
- Reduced upfront costs
- Flexible repayment terms
- Helps you stay ahead of the technological curve
Cons
- Interest expenses on equipment
- Risk of equipment obsolescence
- Requires a good credit score
2. Term Loan
A term loan is simply a traditional loan with fixed monthly payments, over a set period of time. In other words, you’ll get a lump sum of money subject to fixed payments of principal and interest.
These types of loans are most commonly used by medical professionals looking to finance capital expenditures, such as equipment and renovations. The loan amount, interest rate, and repayment term all vary based on the lender you choose, the size of your practice, and the purpose of the loan.
As a result, the amount can vary wildly, from a few thousand to several hundred thousand dollars. Additionally, your repayment term can range from one to 10 years. Interest rates can be either fixed or adjustable, but this will mostly be a function of your business’ creditworthiness and market conditions at the time of the loan.
Pros
- Large loan amount delivered in lump sum
- Fixed repayment terms
- Longer repayment terms
- Tax benefits
Cons
- Higher interest rates
- Strict repayment terms
- Risk of defaulting
- Large debt burden
3. Physician Line of Credit
Business lines of credit are a very flexible loan option. Similar to a business credit card, the medical practice will be approved for a certain amount of credit, and can borrow up to that amount, repay the borrowed funds, and then re-borrow as needed.
Lines of credit for medical practices can be either secured or unsecured, and can be used for a variety of purposes, including working capital, equipment purchases, and facility renovations. The interest rate on an LOC is typically based on the creditworthiness of the medical practice and market conditions.
Pros
- Flexible funding
- Lower interest rates
- Easy access to funds
- No penalties for undrawn funds
Cons
- Revolving debt
- Credit limit
- Potential for over-borrowing
4. Medical Practice Acquisition Loan
Medical practice acquisition loans are a type of financing used to purchase an existing practice. This type of loan helps to finance the acquisition of assets, equipment, and operations.
One of the main advantages of this type of loan is the fast approval process. This is due to the fact that the loan is secured by the assets and revenue generated by the existing practice. When successful, this type of loan allows you to maintain working capital while expanding your operations and market share.
Pros
- Access to an established practice
- Ability to expand operations
- Streamlined approval process
Cons
- May have to take on a high debt-to-finance ratio for acquisition
- Risk of underperforming practice
- Integration challenges can lead to financial setbacks
5. Small Business Administration (SBA)
SBA loans provide financial assistance that can be used to start or grow your medical practice. The SBA partners with participating lenders to provide loan guarantees, making it easier for small businesses to access financing.
Plus, their attractive terms and lower down payment requirements make them a popular choice among medical practices. In particular, the SBA 7(a) and SBA 504 loans are specifically designed as physician business loans.
SBA 7(a)
These loans are very flexible, with an interest rate determined by the lender. This type of loan is a great way to increase working capital. Down payment is typically set at 10% of the loan amount.
SBA 504
In contrast to 7(a), SBA 504 loans provide fixed-rate financing. This is intended for larger purchases, such as new equipment or real estate acquisitions. Down payment is usually set at 10% of the project cost.
Pros
- Lower down payment requirement
- Attractive terms
- Increased accessibility
- Flexible use cases
Cons
- Strict eligibility requirements (especially for SBA 504 loans)
- Collateral requirement
- Limited loan amount
Things to Consider When Shopping for Healthcare Business Loans
Once you’ve decided which doctor practice financing is right for your healthcare business, it’s time to shop around. Compare interest rates, loan terms, and repayment schedules available from various lenders. If you’re still unsure, we recommend seeking the advice of a financial advisor. They’ll help you decide which option is the best fit for your practice.
Want to learn more about how to get a loan to start a medical practice? We teach small business owners like you to secure funding in this article.
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