From the perspective of a lender, business loans for healthcare professionals, including physicians, specialists, and medical facilities are a great investment.
In general, they have high rates of success and very rarely default on their loans. Additionally, the healthcare industry grows at a stable rate. To choose the best small business loan for your practice, identify how you might use the money in order to determine which of the loans listed below might work best.
Common Use of Small Business Loans for Healthcare Professionals
The individual loans discussed in this article each have their own criteria. However, here is a brief overview of how you might use small business loans for your medical practice:
- startup costs or acquiring an existing practice,
- expanding your location or purchasing new commercial real estate,
- purchasing inventory or equipment,
- working capital for standard operational costs,
- or debt refinancing.
Loans for healthcare can be molded to fit a variety of needs, and lenders can even help guide new borrowers through the process of acquiring and using the money.Â
Medical Practice Acquisition Loan
A medical practice acquisition loan is ideal for a new medical practice. Banks and lenders that offer this type of loan typically have experience in evaluating healthcare facilities and are well-versed in their needs. The capital can be used for equipment, inventory, expenses for operation, renovations, or debt consolidation. Established practices often use this loan to expand the business.Â
Qualifications and Terms
For this loan, lenders routinely require at least three components to qualify. You must provide collateral. If you intend to use your loan to purchase equipment, that can typically act as an asset for collateral. Even if this is your first time opening a private practice, they will evaluate your experience as a medical practitioner. Finally, you must have a personal credit score of 680 or higher.
The terms for a medical practice acquisition loan are fairly standard. The length can be anywhere from 2 to 10 years with a monetary amount of up to two million dollars. Interest rates range from approximately 6 to 16 percent, and payments are made monthly.
Pros and Cons
Pros include low origination fees, favorable interest rates, and great terms overall. Additionally, the process from start to acceptance usually only takes a week. The cons include:
- strict financial standards,
- proven time in the field of interest,
- high credit score for qualification,
- and lower approval rates than most other options.
If you have experience in your field and excellent credit history, this is a viable financing option.
Business Lines of Credit and Credit Cards
A business line of credit is different from a conventional business loan; it is essentially the same as a credit card. Upon approval, you are provided with a specific limit from which you can withdraw as needed rather than getting all the money upfront. With a line of credit, you only pay the fees laid out in your terms on the money that has been withdrawn. A line of credit is to be used at your discretion for anything from equipment to emergency cash flow.
Qualifications and Terms
To qualify for a line of credit, you typically must have a minimum of three years in business and be able to present two years of tax returns. Your finances must be in good standing with a minimum credit score of 680 and above. You must also bring in annual revenue above $250,000.
Pros and Cons
The pros are simple. The terms are great, particularly the rates, fees, and easy access to money. Repayment is typically more flexible, and the process usually only takes a few days. The cons are:
- must have several years in business,
- credit and financial standards are high,
- and approval rates for a line of credit are lower than those of business credit cards and short-term loans.
The cons are important to consider, but the ease of access to a line of credit is its greatest selling point.
Short-Term Small Business Advances
Short-term small business advances for healthcare are a viable option for those who are unable to meet the higher qualification standards of the aforementioned loans. The costs are fixed and based on factor rates rather than interest rates. Funders generally take more risk with short-term advances and base their decisions on credit and cash flow without requiring an excessive amount of financial statements or tax returns.Â
Qualifications and Terms
To qualify for a short-term small business advance, you must prove an annual revenue of $180,000 or more and have a credit score of 500 or higher. Advance usually requires at least six months’ time in business. The estimated terms are fairly standard. Short-term equates to a time of 6 to 18 months with weekly or even daily payments.Â
Pros and Cons
There are several pros to this type of loan, including:
- low credit and documentation requirements,
- a short process of only a day or two,
- and high approval rates.
The cons are lower in quantity but significant in effect. Costs are higher for this advance and often require frequent payments.
Equipment Loan or Lease
Equipment loans and leases are used to purchase equipment. Under the terms of a loan, ownership of the equipment is transferred to you immediately and is used as collateral. Under a lease, you have the option to purchase the equipment at the end of the lease.
Qualifications and Terms
To qualify for an equipment loan or lease, you need a minimum credit score of 680 or higher and must prove an annual revenue of $180,000 or above. The terms can range from 2 to 10 years and be for up to two million dollars. Monthly payments are made for both loans and leases, and interest rates are used for loans and factor rates for leases.Â
Pros and Cons
Pros for both include excellent rates and low fees. The process is quick, and the overall terms are typically very favorable. The cons are few, but they do require a higher credit score, and approval rates are lower than other conventional loans.Â
Financing your practice does not have to be a stressful process. You can get everything you need to succeed with help from financing experts. For more information, contact Platform Funding.
