Small Business Guide to Healthcare and Medical Practice Loans

A medical practice loan provides financing to physicians, specialists, and other healthcare professionals. Depending on the loan product, you can use this financing for a range of practice needs, including operational costs, purchasing inventory or equipment, acquiring an existing practice, and starting a new practice.

From a lender’s perspective, doctors have three qualities that make them great potential loan candidates: strong earning potential, high net worth, and stable income. In particular, doctors who already own a medical practice and are looking to expand will typically find themselves in an excellent financial position to be eligible for a medical practice loan.

There are several options for healthcare professionals seeking funding. Your best fit will depend on your specific needs, as well as the lender’s requirements. Some important factors to consider when shopping for a medical practice loan include:

• How quickly you need access to funds
• How fast you can repay the loan
• How flexible you need the repayment schedule to be
• Whether you’re able to provide any collateral for the financing

While you have several options to choose from, each product has its own pros and cons. We’ll detail these to help you find the best match for your medical financing needs.

In general, SBA loans are among the best small business loans available. These financing products are funded through intermediary lenders and guaranteed by the U.S. Small Business Administration. The SBA 7(a) loan is highly sought after because of its use-case flexibility and great terms. These loans are available in amounts up to $5 million and carry some of the lowest interest rates, and longest repayment terms. 

You can also apply for an SBA 504 loan, which has stricter requirements on how the financing can be used: to purchase or upgrade major assets such as equipment or real estate. 

Because SBA loans are coveted, they’re competitive. You’ll need to prove you have a high credit score, strong finances, and at least a couple of years of business history. It’s also important to know that the SBA loan timeline can take weeks or even months. The SBA loan application itself requires a great deal of paperwork, so there can be a lot of back and forth—especially for borrowers who don’t have organized financial records. For this reason, SBA loans aren’t a great option for doctors and specialists who need fast access to funds.

A term loan is likely what you think of when you think of a traditional business loan. A lender loans you a lump sum, which you repay over time, including interest, for a set term.

Term loans are issued by banks and credit unions as well as online, alternative lenders. You’ll often find that many lenders offer term loans that exclusively serve the medical community.

You’ll generally find that term loans from banks and credit unions will come with some of the lowest interest rates available and some of the longest and most favorable terms for repayment. Of course, that comes at a cost. To qualify for term loans from traditional lenders, you’ll need to have good to excellent credit, at least a couple of years of established business history, and strong business finances (that is, a high annual revenue). This may be reasonable for a high-earning, established medical professional.

If you’re just starting up your practice, however, you’re likely to have more success getting a term loan from an online lender. These lenders typically have a quicker application process and can often fund your account within a few days after approval. You also won’t need as high of a personal credit score or as much time in business as with a bank term loan to qualify. The tradeoff will be much higher interest rates and often shorter repayment terms.

Unlike a term loan, a business line of credit functions more like a business credit card. A lender—either a bank or an online lender—approves you for a line of credit for a set amount. 

Two key benefits of a business line of credit that you don’t get with a term loan: 

• You only pay interest on the funds that you actually borrow. 
• Once you’ve established a line of credit, the funds are quickly accessible. 

For example, let’s say that you open a line of credit of $100,000 for your medical practice. In the short-term, you only need to withdraw $10,000 for immediate expenses. This means you’ll only pay interest on that $10,000 while still reserving the option to take out the additional $90,000 as needed. And, once you’ve repaid the funds you’ve borrowed, they replenish—it’s called a “revolving” line.

Given its flexibility and cost-effectiveness, a business line of credit is widely considered one of the best loan options. Interest rates, line amounts, fees and payment schedules will vary depending on the lender as well as whether the line is secured (backed by collateral) or unsecured.

If you need financing for the specific purpose of updating or buying tools, equipment, or gear, you may want to consider equipment financing. These types of medical practice loans can be great if you have specific equipment needs—say, an MRI machine—because the equipment is used as collateral for the loan itself. 

This lowers the risk for the lender, which means that you rarely have to submit a down payment or use any personal property as collateral. It also means that equipment financing is often easier to qualify for than other types of business loans, particularly if you take out an equipment loan from an online lender.

If you’re ready to explore your options for medical practice financing, Fundera can help. We work with SBA lenders, online lenders, and equipment financing companies. Just answer a few questions for us, and we can match you with financing you qualify for.