Capital is one of the most crucial resources when it comes to starting and running a business. Whether you are a new doctor in medical school debt or an experienced healthcare practitioner seeking to expand on your own practice management, there are a variety of medical practice financing options available. This is also true if you need capital to hire more staff, lease medical equipment, refurbish the medical practice or manage cash flow as you wait to be reimbursed by patients.
However, there is one thing you need to do before you go out to seek funding, especially if you’re starting out in the healthcare industry: Build a stable and realistic pro forma.
Essentially, this pro forma outlines what your revenue will be for the first three years. It also describes the startup costs, lease cost per square foot, the cost of the electronic health record system, medical supplies and office supplies. Once that is done, you will be ready to move on to the next step.
Here are five of the most accessible medical practice financial options available:
Financing Option #1: Traditional Bank Loans
This is one of the medical practice loans designed to provide financing to doctors and other specialists in the medical field. It is acquired from traditional lending institutions such as banks. It’s an ideal long-term financing option for, say, leasing real estate or buying into an already existing practice.
It also tends to be relatively inexpensive and offer specialized loan products for medical practice financing. Such bank loans are quite difficult to receive as the borrowers are expected to be creditworthy individuals. They should also have an excellent financial history, have a clear business plan, and have collateral to back up the loan.
Bank loans may also prove to be ineffective, more so when you need quick money, due to the tedious and time-consuming application process one has to go through. Even after attaining the loan approval, obtaining the actual funds could take a few more months.
You are advised to submit your loan request to at least 5-10 banks to increase your chances of receiving a loan. Go through each offer you receive and analyze all the terms to select the one you deem most suitable. Don’t forget to carry your pro forma with you.
Financing Option #2: Term Loans
A term loan is similar to a regular bank loan in the sense that a lender loans you a particular sum of money, which you repay with interest over a specific period. These loans may also be tailored to the needs of specific medical professionals as in traditional bank loans.
Contrary to borrowing directly from a conventional bank, the term loan option involves acquiring funds from an alternative online lender that solely serves the medical community. The fact that alternative online lending has opened up the funding options for small-scale borrowers is just one of the reasons for its newfound popularity.
All the same, these loans sometimes demand more substantial interest than bank loans to balance their easy access and exposure to higher risk.
Financing Option #3: The Canada Small Business Financing Program
This medical practice financing program makes it easier for small businesses to get loans. You’re eligible if you have gross annual revenues under $10 million. You can get a maximum of $1,000,000.
You apply for this loan via financial institutions, which are the ones responsible for approving the loans. You’ll discuss your business goals with a financial officer and have them review your business proposal and application. If approved, the interest rate will be determined by the bank and may be either fixed or variable.
You can use this type of financing for land or building costs, and equipment. However, you can’t use it for working capital or inventory.
Financing Option #4: Equipment Loans
Equipment loans are meant to cater to any expenses incurred in the updating or buying of new medical equipment and gear. Unlike the regular everyday shopping we do, these equipment loans only account for the purchase of those items listed in the quote given to the lender.
Such loans are perfect for the purchase of large medical equipment as the same equipment is used as collateral for the loan itself. This also translates into lower risks for both the lender and borrower, as well as low loan costs.
As limited as they may be, equipment loans are easier to qualify for than other term and bank loans. No extra collateral besides the equipment itself is needed.
Financing Option #5: Business Lines of Credit
Like business credit cards, a lender approves a certain credit amount on a business line of credit that you can access at any time, even if the funds remain untouched for a while. Moreover, you are obligated to pay interest on only the funds you actually borrow.
After the initial loan, you can borrow again as soon as you finish paying back the funds. This type of medical practice financing is highly flexible and cost effective as it allows one to access capital when required quickly. It also enables one to repay the amount borrowed and re-access the money when required.
When choosing the best medical practice financing option, the ideal fit depends on your specific needs and the lender’s requirements. Remember to factor in how accessible the funds need to be and the most favourable loan repayment terms. Consider also if you can provide collateral if asked to.
The six options outlined in this article are a great way to begin the journey towards building your dream practice.
