What are the Types of Medical Practice Loans?

There are several types of medical practice loans, including business term loans, medical equipment loans, real estate loans, SBA loans, invoice financing, and short-term medical business loans. These loans are used for specific needs like buying equipment and property, covering gaps in cash flow, and other purposes with unique benefits and considerations.

Types of Medical Practice Loans

Here are the types of medical practice loans:

Business term loans

Business term loans help medical practices to borrow a large portion of funds and repay them over time in equal monthly installments. The interest rates for business term loans usually are fixed, but some lenders may offer variable rate options. Traditional banks, credit unions, and online lenders offer loans, although you may require a good credit score to qualify. 

Pros

1. Large loan amounts
2. Longer repayment terms
3. Predictable monthly payments

Cons

1. May have strict requirements
2. Need a good to excellent credit score to get a good rate
3. May need collateral or a personal guarantee

Equipment Loans

From new office furniture for your lobby to a new X-ray machine, equipment loans can finance almost any expensive piece of equipment your practice may need. The equipment serves as collateral, usually giving you access to more favorable interest rates than unsecured loans do.

However, the purchase may result in a loss of securing the loan. If you default on the loan, you will lose your equipment since the lender can seize the collateral to recover the lost payments.

Pros

1. May have better rates than unsecured loans
2. May be easier to qualify for
3. Helps to build business credit

Cons

1. May require a down payment
2. Risk of losing the equipment if you can’t make payments
3. Leasing makes more sense than purchasing

Real Estate Loans

When you need an office to start up your practice or a bigger space to expand, you will come into the market seeking a real estate loan. Commercial real estate loans are reasonably similar to residential mortgages and may have similar terms.

Depending on the size and success of your practice, you may qualify for up to $5 million in a single loan or more, but you’ll likely need a substantial down payment. The property is secure, similar to equipment financing and real estate loans; thus, you can negotiate for a more favorable rate. However, if you default on the payments, you risk putting your business in danger of losing it due to foreclosure.

Pros

1. Large loan amounts
2. Long repayment periods
3. Lower interest rates than some small business loans for medical practice

Cons

1. Requirements to qualify can be stringent
2. Lengthy loan process
3. Risk of default

SBA Loans

If your health care business qualifies, then you can get an SBA loan. That is because the government guarantees these loans, so it’s possible that you would qualify for a better rate.

These, however, usually become available only if you have exhausted other sources of funds first. Additionally, the SBA loans take much longer funding time than most other types of financing for business.

Pros

1. Lower rates than other loans
2. High borrowing limits
3. Long repayment terms

Cons

1. Can be hard to qualify for
2. Significant documentation required
3. Loan processing can take a long time

Invoice financing

The reason you get consistent patients to see doesn’t mean you get paid promptly. Invoice financing allows you to receive an advance upon a percentage of outstanding invoices. As those invoices are collected, you’ll pay back the advance and a fee, usually around 1% to 5% of the loan amount.

Invoice financing can be used as a short-term solution to free up some working capital, but the effective APRs are high and additional fees are added if patients delay paying their bills.

Pros

1. Fast funding
2. Easier approval process than other medical practice loans
3. Maintain control of customer invoices

Cons

1. Higher fees than other medical practice financing
2. Fees can increase if invoice payments are late
3. Lender may require an evaluation of customers’ payment histories

Short-Term Business Loans for Medical Professionals

If you do not have a huge need for funds, lump sum loans with short terms between three and 36 months may just do the trick. They also tend to offer easy application processes and often speedy funding. Common needs include unexpected expenses or seasonal cash flow shortages when using lump sum loans.

However, the APRs can be simply agonizing. Some reach dizzying heights of more than 50%, and repayments might be forced to be made daily or weekly instead of monthly. And unless you find yourself in such dire necessity and exhaust all possible alternatives or can repay earlier, you might look elsewhere for financing solutions.

Pros

1. Multiple loan options available
2. Typically, fast funding
3. Provides working capital for a range of needs

Cons

1. APRs can be high
2. May require a daily or weekly repayment schedule

You can also learn about the Pros & Cons of Medical Practice Loans.

Conclusion

In conclusion, the best medical practice business loans depend on your respective finance requirements, practice objectives, and repayment abilities. Every loan type, whether business term loan, equipment loan, real estate loan, SBA loan, invoice financing, or short-term business loans for healthcare professionals, has different advantages and disadvantages. Always compare lenders and weigh out the costs as they meet long-term objectives for your practice.

At Purple Tree Funding, we provide business loans for medical professionals with customized solutions to ensure the best competitive rates and feasible terms. Let us help you achieve your goals. Learn more about Business Capital Funding now!