Written By Kevin Payne
Doctors are used to taking out loans. Most medical school graduates will leave school with considerable student loan debt. What are you supposed to do if you’re still paying off student loans but want to start your own medical practice?
One possible solution could involve taking out a medical business loan. Let’s take a closer look at what a medical practice loan is and how it can be used to fund your new practice or existing business.
What are medical practice loans?
Medical practice loans are loans taken out by practicing physicians. They are physician business loans that provide funding doctors may need to operate or grow their business in the long-term. Sometimes physicians seek outside funding to start a practice, expand a practice or even acquire an existing practice. Medical practice loans can finance various aspects of a business, including:
- Construction
- Equipment purchases
- Project expenses
- Location expansion
- Remodeling
- Transition costs
- Working capital
Loans can range from as little as $500 to upwards of $5 million. For physicians looking to start a business or expand an existing business, medical business loans can provide the funding necessary to move forward.
Why doctors take out medical practice loans
Sometimes doctors need the help of medical practice financing to get started or advance plans for their business. New doctors typically have little to no assets but they have plenty of debt from medical school.
Medical practice loans can provide necessary funding at a critical career point. Medical practices rely on insurance companies for payments, which can take time to process. Smaller practices run at lower profit margins, too. Taking out a medical practice loan can allow physicians to make progress instead of waiting until they have enough cash or capital.
What should you consider when looking into medical loans?
As you look into medical practice financing, it’s important to pay attention to details concerning any loans you want to take out for your business, such as any minimum credit score requirements, underwriting criteria, etc. Here’s what you need to know if you are thinking about getting a medical practice loan.
Origination fees
Most lenders charge origination fees on medical practice loans. Sometimes this is a flat fee, but typically its a percentage of the loan amount. Origination fees are paid upfront out of your loan total. Take time to understand any origination fees charged by lenders during this process so that your total loan cost doesn’t surprise you later.
Prepayment penalties
Medical practice loans sometimes come with prepayment penalties. Some lenders price loans based on the entire term, which means they plan to make a certain amount of money in interest over the life of the loan. Borrowers paying off loans early disrupts lenders’ plans and can cost lenders money. By charging a fee for paying off a loan early, lenders discourage early payoffs. Check if your lender charges prepayment fees and consider how this could impact the total cost of your loan over its entire term before making your decision.
Interest rates
Interest rates are always important to consider when looking at any loan. Your rate affects how much interest is charged on your loan balance every month. The difference between a low interest rate and a high interest rate could be thousands of dollars more in debt. Compare rates as you shop around for medical practice financing. Your credit score could have an impact and lead to a higher interest rate on medical practice business loans.
Terms
A loan term is the amount of time specified for paying off the loan. Standard medical practice loans have 10-year terms, but loan terms can vary between five and 25 years or more depending on the type of practice and the loan amount. Shorter repayment terms typically have higher monthly payments but you will pay less in interest. Longer repayment terms can have lower monthly payments but be more costly.
Business benefits
Some lenders simply offer a way to finance your medical practice. Others offer more comprehensive business help, which can be extremely beneficial. This assistance can include business coaching, help setting up your business and various accounts, business plan reviews, project monitoring, and more. Find out what your lender offers and whether those extra services would be useful to you. There may be differences between a traditional lender and online lenders, so look at all of the benefits and qualifications of all the lenders you're considering.
A lot goes into a medical practice loan. It’s not a decision to make without doing your research. Take time to look at all of these aspects of lenders and loans and find one that fits your needs the best.
Where can you go for medical practice loans?
Medical practice loans can come from a variety of sources. Typically, doctors can turn to traditional banks for these loans. Other private lenders offer general loan options for small businesses or loans specifically for medical practices. Below we'll discuss a few places to check out if you’re looking for medical practice loans.
You can also fill out the form below so we can connect you with some lenders to start the preapproval process.
Practice Loan Quote Form
Small Business Administration
One of the best sources of physician business loans is the Small Business Administration (SBA). The SBA doesn’t supply medical practitioners small business loans directly, but instead partners with lenders that do. SBA loans are federally backed, which lessens risks for lenders to loan to small businesses.
SBA loans typically have competitive rates and terms, lower down payments, and other unique benefits. Some SBA loans don’t require any collateral. These medical practice loans come in all sizes, providing physicians with the necessary funds to achieve their business goals.
If you’re having a difficult time getting a loan from other lenders, SBA loans could be a great option to explore.
Bank of America
Bank of America offers a variety of medical practice loans. We reached out to Bank of America (BofA) for information on the loans it offers. Most of the details on BofA rates, terms and fees aren’t listed online unlike other traditional bank loans. To get detailed information on loans, it's best to talk to a BofA loan specialist at (800) 497-6076.
Here’s what we do know about BofA’s medical practice loans.
BofA takes a big-picture approach to loans for medical practices. It’s not just about the loan itself, but providing comprehensive business help to borrowers. There are even team members who meet face to face with physicians throughout the process.
BofA loans don’t feature a traditional origination fee, but there is a $600 administration fee tied to most loans. I was told this fee could be waived in some cases, such as if you’re affiliated with select professional organizations.
Medical practice financing through BofA does come with prepayment penalties, which are paid for five years, depending on specific aspects of your loan.
Taking out a credit line loan has a $200 activation fee, but no administrative fee.
Typical BofA medical practice loans are between 10 and 15 years, but terms can be shorter or longer based on the specific loan you receive.
Wells Fargo
Wells Fargo offers fixed-rate medical practice loans. The bank has competitive rates and a host of repayment options to choose from.
Along with the loan, doctors receive business support, like coaching, business tracking, vendor invoicing and payment coordination, and more. Loans available through Wells Fargo include:
- Startup loans
- Acquisition loans for practice acquisition
- Equipment loans
- Expansion loans
- Equity loans
- Refinance loans
- Business lines of credit
Wells Fargo also has business planning calculators so you can explore loan payment costs, overhead, return on investment and more.
Live Oak Bank
Live Oak Bank is another lender that offers medical practice loans. This online bank is based in North Carolina. Live Oak specializes in real estate and construction financing for doctors expanding their practices.
The bank has dedicated staff who only work with doctors on medical practice financing. Live Oak offers 25-year terms on medical real estate projects, and there is no prepayment penalty on loans over 15 years. The bank is also known for accepting lower down payments than other lenders and offers appraisal flexibility on construction projects.
Take time to speak to lenders about what they offer with their medical practice loans. It’s a big investment on your part and not something to go into without all the facts. Find a lender that has your success in mind when it approves a physician's business loan application.
Applying for medical practice loans
The approval process for medical practice financing doesn’t have to take a long time, but you want to be as prepared as possible when you get started to avoid any delays.
The process begins with submitting an application. You’ll need to gather personal and business information so your lender can make an informed decision.
Requirements vary among lenders, but it’s good to have the following information on hand as you move forward:
- Tax returns
- Practice profile
- Profit/loss statements
- Formal business plan
As you go through the process, your lender will guide you as to any other information you will need.
Are medical practice loans right for you?
If you’re just starting or looking to expand your current medical practice, taking out a medical practice loan could be the key that unlocks a more successful future. Take time to weigh the decision, talk to colleagues and mentors, and compare all of your loan options.
If taking out a loan will lead to a profitable business plan, it might be the right choice. If it’s going to become more of a burden than a benefit, it might not be the right time to expand your business or start new projects.
Practice Loan Quote Form
