Medical Practice Loans: Options for Small Business Financing
- August 10, 2018
- Posted by: Jeff Gitlen
- Category: Small Business Loans
Between 2016 and 2017, the healthcare sector saw more than a 75 percent increase in consolidation. Larger, consolidated medical practices mean that profits are concentrated among a few and that there is less competition in the sector. Still, many health-care providers are opening privately-run medical practices.
To compete for a piece of the industry, doctors and physicians may need to consider medical practice loans from small business lenders to help expand their practice.
Opening your own practice requires a good deal of start-up capital. On average, most new medical practices require $100,000 for the initial infrastructure and equipment, David J. Zetter, lead consultant at Zetter Healthcare Management Consultants, told Business News Daily. Most will need another $100,000 to cover the first few months of operational costs as the business gets underway.
Despite the high costs of starting a private medical practice, the payoffs can be substantial if the entrepreneur succeeds. The average gross profit margins for private practice are 97.5 percent, and the net profit is 13 percent on average. For physicians and other health-care providers considering opening up their own practice, it's time to crunch the numbers and identify possibilities for financial aid to get a lucrative business underway.
Lets take a look at medical practice loans from small business lenders that could help your practice.
- Medical Practice Loans for Small Businesses
- Common Medical Practice Costs
- Medical Practice Financing Challenges
Medical Practice Loans for Small Businesses
Despite the common struggle of sourcing financing before opening a new medical practice, some lenders target the health-care startup market. After all, physicians typically make a significant salary, and medical practices generally make good profits. These are both attractive reasons why some lenders are willing to offer medical practice loans.
Here are some examples of lenders offering business loans for doctors:
With no lengthy delay in approval or a complicated application process, Kabbage provides lines of credit of up to $250,000 to medical practitioners looking to expand. Their loans operate under an innovative format of six- to 12-month terms, for which they charge a 4 percent fee on a six-month loan, and a 3 percent monthly fee on a 12-month term. Every month, you pay back an equal portion of the loan principal plus the monthly fee.
GUD Capital is another lender providing small business loan solutions for physicians. This application requires a bit of paperwork, including any business tax returns, financial statements, schedules of liabilities, personal tax returns, and personal financial statement. Depending on credit and financial liabilities, rates range from five to 15 percent, with terms from one to 25 years. Good credit is generally required, and funding can take from 30 to 90 days to issue.
Established banking giant Wells Fargo also specializes in funding private practices. The bank has specialized loans for those just starting their practice or acquiring new practices. It also offers more general lines of credit. Application requirements vary, but most loans come with a 10-year term. Small business loans are available, but there may be additional requirements for loans over $850,000. Speak with a Wells Fargo Financial Specialist to get the full scope of application and current interest rates.
Common Costs for a Medical Practice
In the medical industry, costs can be significant. From labor to medical record storage, to office space, expenses are specialized and often come at a premium. The prices will vary amid different region and specializations, but each medical entrepreneur can determine their own numbers before getting started.
Here are some expenses to consider as you launch your medical practice.
- Rent - Rent varies according to location, even within the same city. To help you crunch the numbers, explore the average cost per square foot in the area you are targeting. A typical practice needs at least 1,200 square feet.
- Annual Insurance – Annual insurance is a significant percentage of the yearly budget of most medical practices. Insurance costs vary from one practice to another. The highest premiums are paid by OB/GYNs, who typically pay over $200,000 each year.
- Renovations - Most practices will take over old spaces, which will then require extensive renovations before opening. Experts advise budgeting around $40 to $60 per square foot of office space for a typical medical practice renovation.
- Office Furniture and Basic Equipment - If you are buying brand new equipment, including furniture, expect to pay at least $50,000 for the essentials including a new computer system, diagnostic equipment, and some basic office furniture like desks, waiting room chairs, and decor. Obviously, this is one of the areas where costs can quickly skyrocket, but it’s also an area where you can save money by purchasing gently used equipment.
These are only a small example of the start-up costs to consider before jumping head first into private practice. Day-to-day operational costs like utilities, licensing fees, monthly wages, and annual taxes also need funding.
Financing Challenges for a Medical Practice
Similar to dental practices, it can be more difficult to find medical practice financing. Part of the reason is that financing a new private practice is a massive financial undertaking. Medical practices usually require significant funding, which means the lender takes on a higher risk.
- Doctors Are Commonly in Debt - New physicians, just out of school, typically carry student loan debt that can easily reach hundreds of thousands of dollars. Getting a new small business loan for the same amount before the student loans are paid off isn’t always an option.
- Months Between Application and Receipt - Although the initial approval for funding may only take days, medical practices might not receive the financing for over 120 days. Covering the costs of renovation or development during this period is not always feasible.
- Doctors are Not Always Business Oriented - Just because physicians excel in treating challenging health issues, does not mean they also excel in business. If the doctor is also the one opening the practice, they are already under pressure. Finding the time to develop a detailed and accurate budget can be difficult. The number one reason why private practices fail is due to undercapitalization.