Updated January 5, 2022
On This Page:
Loans for doctors, dentists, and other healthcare providers fall into a specialized lending and underwriting category with most lenders. More specifically, medical practice business loans offer several funding options to cover financing needs. There is a good reason that healthcare professionals will receive favorable treatment from both traditional lenders as well as online lenders; it’s because a medical practice has a very high probability of success.
Data shows that medical practice loans rarely default whether they are for a new practice or an existing practice. That’s good news for lenders and medical professionals. For borrowers that translates into better loan terms, more loan options, and better repayment terms. Medical practitioners seeking medical practice financing for new equipment, expenses for a medical office, commercial real estate financing, or working capital should consider the following loan programs.
Medical Practice Business Loans
Loan Options: Types of Loans for Doctors
Like most small business owners each practice will be different, as will the financing needs of each business owner in private practice. Understanding what type of business financing fits the need is an important first step. From financing equipment loans for medical equipment, consolidating or refinancing medical school loans, or staffing a new location, there are loans that can be tailored accordingly.
One of the biggest expenses for medical practitioners in private practice is acquiring diagnostic or other medical equipment. Many times it is nearly impossible or impractical to pay for this equipment out-of-pocket. Similarly, purchasing equipment outright is not the best option.
Equipment financing is a type of financing that works like a lease. You may have the option of purchasing the equipment at the end of the lease (not unlike a car lease) or you can extend the lease or trade-up to newer equipment.
Advantages of Equipment Financing
- The biggest advantage of leasing medical equipment is that you get the equipment with relatively lower monthly payments (as opposed to an equipment finance purchase), which boosts monthly cash flow.
- In many cases, operating costs will be substantially lower and leases often come with a maintenance plan as part of the lease or with an additional nominal monthly fee. This reduces downtime and loss of revenue.
- Since technology changes rapidly in the medical industry, it’s important to offer your patients the most up-to-date services. An equipment lease often provides an option to upgrade to newer equipment.
- As opposed to financing for the purchase, there is usually no down payment associated with medical equipment leasing. The advantage here is increased cash flow for your medical practice.
Disadvantages of Equipment Leasing
Leasing equipment means that you will never really own the equipment and will always have a monthly payment.
Purchasing medical equipment or technology for your medical practice can have some significant tax advantages to help lower taxable income for high earners. In particular, A Section 179 tax deduction may allow a medical practice to take a tax deduction for the cost of qualifying purchases, such as new equipment and technology, in the year it is purchased into service. Section 179 can result in a tax deduction for up to $1,050,000, help lower your taxable income, and increase cash flow. Contact your personal tax advisor as every situation is different.
Working Capital: Business Lines of Credit for Doctors and Health Professionals
A business line of credit (“BOL”) is ready cash for both large and small business owners. It is similar to a business credit card in some ways, in that there is a pre-set limit for the amount of credit and you only pay interest on the amount you use until it’s paid off.
A BOL is a powerful asset to any small business owner and as mentioned above, it’s ready to cash in times of need or additional working capital.
A business line of credit should be a priority for any size medical practice and it is often recommended that medical professionals open a line of credit, use it, and build it up as a “best practice” for the financial health of the practice.
A BOL was once exclusive to traditional banks but many alternative lenders now offer this loan type for medical professionals.
Real Estate Loans and Physician Mortgage loans
Unlike small business loans, real estate loans for physicians are offered in loan amounts much higher than typical bank loans for small businesses. Like business lines of credit, real estate loans are offered by traditional banks like Bank of America as well as alternative lenders.
Depending on the type of real estate and its use (rentable space for other medical practitioners), borrowers may even qualify for loan amounts above the value of the property. This is important because real estate loans carry substantially lower interest rates than unsecured loans and have longer repayment terms.
Physician mortgage loans
Due to underwriting classifications, many medical professionals are eligible for special mortgage programs for the purchase or refinancing of a primary residence. They are not offered investment properties or vacation homes. A medical professional with an M.D or a D.O. (some eligibility for D.P.M degree holders) is generally eligible for these loan types as are dentists (D.D.S or D.M.D).
Physician loans for mortgages include the elimination of private mortgage insurance and relaxed requirements regarding personal credit scores.
A physician mortgage loan is different from an FHA or conventional mortgage in several ways. Physician mortgages are designed to help doctors get home loans without costly fees and rejection for high debt-to-income (DTI). The rationale is that lenders and underwriters understand that medical professionals usually carry high education debt and have low default rates on loans, therefore, they make special accommodations.
Physician mortgage loans allow doctors to get home loans without private mortgage insurance (PMI), which can be costly, adding up to thousands of dollars over the course of the mortgage loan. PMI is usually required for any home loan with a down payment of less than 20% of the total loan amount, but doctors are able to obtain a mortgage with no private mortgage insurance regardless of the down payment amount.
Small Business Administration (SBA) Loans for Physicians
The U.S. Small Business Administration (SBA) is a governmental agency that provides loan guarantees to lenders that lend to small businesses. The SBA does not lend to borrowers; they provide guarantees to lenders to encourage them to make loans.
While there are no specific loan programs designed for medical professionals, many loan programs are available to medical practitioners through the SBA. Visiting the SBA website will provide complete information on available programs and lenders authorized to work with the SBA.
You may wish to contact your lender to determine whether they can make SBA loans. An authorized institution submits your SBA loan application.
These are business loans with a term no longer than one and a half years. While these loans are easy to qualify for, they tend to have fast shorter schedules and high-interest rates.
This works as a form of cash advance. Instead of waiting for client invoices to be paid, you receive capital immediately and pay a factor fee to receive the funds faster.
What can a Medical Professional Loan Be Used for?
A general-purpose loan or a business line of credit can be used for virtually any purpose. In contrast, an equipment loan would be used to acquire a specific piece of equipment and is generally paid directly to the equipment manufacturer or distributor. Similarly, the proceeds of a real estate loan would be paid directly to the seller or the escrow account of the seller, with any other proceeds being dispersed to the relevant parties.
Hiring New Staff
If your workload is growing faster than your revenue stream, getting a business loan can help you hire the staff you need while your income catches up in the meantime.
Opening New Practices
New practices and buildings can help grow a business by giving your patients another place to receive care.
Digital Medical Record Upgrades
Changing to digital records over paper can save headaches on storage, management, and efficiency.
An older practice can use a physician loan to update equipment that improves the care you provide or services you offer to patients at your practice.
Paying-off or Consolidating Medical School Loans
In many cases, medical professionals can get started researching loan options by speaking with a qualified financing consultant. Be sure that when you are exploring your financing options that your loan advisor presents you with a comprehensive list of borrowing and financing options.
Be sure to ensure that you are not subject to a “hard pull” of your credit report in the early stages of exploring your financing options. A “hard pull” on your credit report in technical terms will result in the credit reporting agencies reporting an “inquiry” on your personal credit report which will likely lower your credit score.
Top 3 Things to Look For When Applying for A Loan for Doctors and Physicians
Save time with a fast, free, and no credit search application process
No Credit Inquiry
Funding decisions are made without affecting your credit profile
We’ll offer the best working capital for your business within 4 hours