Running your own medical practice requires sound financial knowledge and management skills, whether you’re just starting or have years of experience as a medical provider. Knowing your financing options can help you make the best financial decisions for your practice every step of the way.
Medical practice loans by lender
Check out these lenders that offer medical practice loans designed for healthcare professionals, including loan amounts, terms and APRs.
Medical practice loans are much like other business loans, but they’re offered by lenders that understand the medical industry and the needs of healthcare professionals. Loan proceeds are often used to buy real estate, rent offices, purchase equipment and cover cash flow needs or other business purposes.
How do medical practice loans work?
In general, medical practice loans work just like other types of business loans. Some loans — like term loans and equipment loans — are disbursed in one lump sum and paid back in equal monthly installments that include interest and principal payments. Lines of credit, on the other hand, are drawn on as needed and you only pay interest on what you borrow.
Other forms of medical practice funding, like invoice financing and short-term loans, offer lump sum financing, but you may have to repay the loan in weekly or daily installments, which can be more difficult to budget for.
It’s a good idea to talk to a loan counselor to find out exactly how each type of medical practice loan works to find the right fit for your business.
8 types of medical practice loans
What business loan does your medical practice need? We’ve honed in on eight financing options that align with how healthcare practices bring in revenue and their common expenses.
Business term loans
With a business term loan, medical practices can borrow a large lump sum and pay it back over time in equal monthly installments. Typically, business term loans have fixed interest rates, although some lenders may have a variable rate option.
Traditional banks, credit unions and online lenders offer term loans. However, you may need a good credit score to qualify. Some lenders require you to use collateral to secure the loan or offer a personal guarantee.
Pros
Large loan amounts
Longer repayment terms
Predictable monthly payments
Cons
May have strict requirements
Need a good to excellent credit score to get a good rate
May need collateral or a personal guarantee
Business lines of credit
Business lines of credit give your medical practice ongoing access to funding whenever you need it. You can use the line of credit on any business expense that comes up — or save it for emergencies — and you’ll only pay interest on the amount you borrow. And as you repay it, your available balance replenishes throughout the loan term.
But, on top of interest, you may be charged a draw fee each time you pull from the credit line. Or the loan might come with service fees that may be charged monthly or annually. Despite some similarities to credit cards, business lines of credit typically come with short loan terms.
Pros
Allows for flexible borrowing
Only pay interest on what you spend
Typically fast funding
Cons
Loan amounts are typically smaller than term loans
Loan terms are relatively short
May have additional fees on top of interest
Equipment loans
From a suite of office furniture for your lobby to a new X-ray machine, an equipment loan can finance nearly any expensive equipment your practice needs. And the equipment acts as collateral, which typically gives you access to lower rates than unsecured loans.
But by backing the loan with the purchase, you risk losing it. If you default on your equipment loan, the lender can collect the collateral to make up for the lost payments.
Pros
May have better rates than unsecured loans
May be easier to qualify for
Helps to build business credit
Cons
May require a downpayment
Risk of losing the equipment if you can’t make the payments
In some cases, leasing makes more sense than purchasing
Real estate loans
If you need an office to start your practice or a bigger space to expand, you’ll be in the market for a real estate loan. Commercial real estate loans are fairly comparable to residential mortgages, and the terms may be similar.
Depending on the size and success of your practice, you may qualify for a loan up to $5 million or more, but you’ll likely need a sizable down payment. As with equipment financing, real estate loans are secured by the property, which can get you a lower rate. But if you can’t make the payments, you put your business at risk of foreclosure.
Pros
Large loan amounts
Long repayment periods
Lower interest rates than some medical practice loans
Cons
Requirements to qualify can be stringent
Lengthy loan process
Risk of default
SBA loans
If your healthcare business qualifies, you may be able to take out a Small Business Administration (SBA) loan. SBA loans are backed by the government — which means you might get a more competitive rate.
However, they’re generally only available if you’ve exhausted other avenues of financing. Plus, SBA loans can take much longer to fund than most other types of business financing.
Pros
Lower rates than other loans
High borrowing limits
Long repayment terms
Cons
Can be hard to qualify for
Significant documentation required
Loan processing can take a long time
Invoice financing
Just because your practice has regular patients doesn’t mean you always get paid when you need it. Invoice financing is a way to get an advance based on a percentage of your outstanding invoices. As those invoices get paid, you’ll repay the advance plus a fee, which is usually around 1% to 5% of the loan amount.
As a short-term solution, invoice financing can help you free up some working capital. But the effective APRs are high, and more fees can get tacked on if patients delay paying their bills.
Pros
Fast funding
Easier approval process than other medical practice loans
Maintain control of customer invoices
Cons
Higher fees than other medical practice funding
Fees can increase if invoice payments are late
Lender may require evaluation of customers’ payment histories
Invoice factoring
Invoice factoring works similarly to invoice financing, but rather than receiving an advance on your invoices, you sell your invoice to a third party. A factor rate is applied — often determined by how long it takes for your patient to pay the invoice.
However, some factoring companies won’t work with patient billing, so check if your invoices qualify before you apply. While factoring can get your cash flow running a bit smoother, it usually requires turning over collection efforts to the factoring company, which could potentially damage your relationship with your patients.
Pros
Quick access to funding
Easier to get loan approval
Credit score typically not a factor
Cons
High fees
You typically give up control of your invoices
Not all factoring companies offer advances to medical practices
Short-term business loans
If you don’t need as much funding, these lump-sum loans with short terms ranging from three to 36 months may be a solution. They usually come with an easy application process and fast funding. Common uses include unexpected expenses or seasonal cash flow shortages.
But the APRs can get painfully high, some rocketing over 50%, and repayments can be daily or weekly instead of monthly. Unless you’re in desperate need and have exhausted all other options — or can pay it back early — you might want to consider other financing solutions.
Pros
Multiple loan options available
Typically fast funding
Provides working capital for a range of needs
Cons
APRs can be high
May require a daily or weekly repayment schedule
What can medical practice loans be used for?
Medical practice loans can be used for basically any business purpose, but here are some common healthcare facility costs covered by these types of loans:
Buying medical equipment
Stocking up on supplies and inventory
Renting or purchasing office space
Startup costs
Acquiring an existing practice
Refinancing existing debt
Working capital funds
How to get a medical practice loan
The process of getting a medical practice loan varies by loan type and lender. But there are some basic steps you’ll need to take to secure this type of financing.
Define your needs. Clearly define the loan’s purpose and how much you think you’ll need to accomplish your goal. And if you need a specific type of medical practice loan, you can further specify your search, for example, dental practice loans.
Examine your budget. Take a look at your finances to determine how and when you plan to repay the loan. Are you looking to pay it back over the course of years or as soon as possible?
Check your credit score. It’s a good idea to check your credit score before applying for a medical practice loan to make sure everything is accurate and up to date. It can also help steer you toward lenders that accept borrowers in your credit range.
Compare lenders and loan types. Decide which type of loan makes the most sense for your purpose and which lenders offer what you need. Once you’ve defined the best loan, compare rates, fees and terms from several lenders to find the best deal.
Research requirements. As you compare lenders, find out what the requirements are to qualify to make sure you can meet the criteria. For example, have you been in business long enough, do you meet or exceed the required minimum revenue?
Gather your documents. Depending on the loan type, documentation could be very minimal, but other loan types require extensive documentation. Be prepared.
Apply. Once you’re ready, choose a lender and apply for the loan, submitting any required documents.
Depending on the loan type, the underwriting could take some time and a decision may be delayed if the lender has further questions or requests additional documentation.
What will I need to apply?
The documentation needed to apply for a medical practice varies depending on the type of loan you’re seeking and the lenders that offer it. In general, here is a list of documents you may be required to submit.
Personal and business tax returns
Bank statements
Business financial statements such as income statements, balance sheets and cash flow reports
Business plan and/or loan proposal
Medical licenses and business permits
Legal documents like partnership agreements or articles of incorporation
What are the common requirements for medical practice loans
Again, exact requirements can vary, but here are some basics that lenders may expect:
Credit score. Most types of medical practice lenders check your score to determine your creditworthiness. A score of 700 or higher improves your odds, but some lenders accept lower scores.
Time in business. Some lenders only offer loans to businesses that have been operating for at least two or three years, but others accept six months in business. You may also qualify for a startup loan if you’re just getting up and running.
Revenue requirements. You’ll typically need to meet minimum revenue requirements to qualify — your practice likely needs to bring in at least $100,000 or more per year.
Other performance metrics. Depending on the lender, you may also need to provide evidence of profitability, cash flow and debt-to-income (DTI) ratio.
Business plan or loan proposal. Lenders may want to see your business plan and your plans for using the loan proceeds.
How to compare medical practice loans
Taking the time to analyze your loan options can benefit your business and save you money in the long run. Here are some of the top loan features you should compare.
Interest rates. Interest rates for medical practice loans can vary widely depending on the lender and the loan type. But in general, the longer the loan, the lower the rate. Be sure to check with multiple lenders to find the best rates.
Loan fees. Some business loans come with origination, service and other fees that your lender discusses with you during the application process. Avoiding unnecessary fees can help you reduce the loan’s cost.
Loan amounts. Most lenders have maximum loan amounts that it provides. Choose a lender that will fully cover your financial needs.
Loan terms. Some loans, like lines of credit, have short terms that last only a year or two. Other larger loans can last for many years. Longer terms often mean lower monthly payments — but more money paid in interest.
Timing. Not every loan type is available immediately. SBA loans can take months to fund, whereas invoice financing or other short-term loans can turn around within days.
Reputation of the lender. Reading online reviews can give you a better sense of how a lender works and what its customer service is like.
How much do medical practice loans cost?
Interest rates for medical practice loans can range from around 5% to 60% or more, depending on the loan type and lender, and the average is somewhere in the middle. You may also have to pay fees on top of interest rates which further adds to the loan’s cost. Fees may include origination fees, administrative charges, draw fees, processing fees and prepayment penalties.
Ultimately, the rate you qualify for depends on your creditworthiness and the financial health of your medical practice. The best rates are usually reserved for larger loan amounts or businesses with excellent credit and strong financials.
You can check out what a loan may cost you with different rates and terms by using our loan calculator.
Obtaining funding for your medical practice is an important way for your business to grow and succeed. But with so many types of medical practice loans to choose from, it can be difficult to pick the right one for your funding needs.
Some business loans for healthcare practices include term loans, lines or credit, real estate loans, SBA loans and invoice factoring. When comparing loan types and lenders, always be sure to consider rates and fees, loan terms and lender requirements.
Frequently asked questions
How long will it take to get funding for medical practice loans?
It depends on the loan. Some lenders can process and fund your application within a day or two. Others, like the SBA loans or real estate loans, could take months.
How does my personal debt affect my ability to get a medical practice loan?
If you need to take out a large loan or your lender requires a personal guarantee, your personal debt may prevent you from taking out higher loan amounts. But, if you have a strong business credit score, your personal debts may not be a factor.
Lacey Stark is a freelance personal finance writer for Finder, specializing
in banking, loans, investing, estate planning, and more. She has 20
years of experience writing and editing for magazines, newspapers, and
online publications. A word nerd from childhood, Lacey officially got her
start reporting on live sporting events and moved on to cover topics
such as construction, technology, and travel before finding her niche in
personal finance. Originally from New England, she received her
bachelor’s degree from the University of Denver and completed a
postgraduate journalism program at Metropolitan State University also
in Denver. She currently lives in Chicagoland with her dog Chunk and
likes to read and play golf. See full bio
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