All medical practices can benefit from funding and business loan options. However, many physicians are unsure of which options are best suited to increase their practice’s working capital. While some might benefit most from Small Business Administration (SBA) loans, others might be better off with new funding sources.
SBA loans exist in a variety of forms, including the 7(a) Guaranteed Loan Program, express loans, microloans, and 504 Local Development Company Program Loans. Physicians benefit from SBA loans in many ways, such as longest terms, often lowest rates, and up to $5 million in loan amounts—the greatest amount offered from any funding option. Unfortunately, their desirability makes SBA loans the most challenging to procure, as the quest for an SBA loan is burdened with laborious paperwork requirements and an extremely time-consuming application process. Physicians seeking an SBA loan must be prepared to offer collateral or a personal guarantee, as well as business and personal financial records that span over several years. SBA loans are the best option for physicians who require a long-term loan, provided they have stellar credit.
Many physicians find that obtaining a bank loan is more realistic option, especially if they have a pre-established partnership with a lender. Nonetheless, even a pre-existing rapport with a lender guarantees neither a brief approval process nor loan approval. Like SBA loans, bank loans often necessitate collateral or a personal guarantee. Some banks have loan options that are tailored to physicians, considering physician-specific issues like student debt or low cash savings. New practices searching for a funding option that takes student debt into account and seasoned, financially robust practices with an established plan for how to use funding can both benefit from bank loans.
Alternative lenders offer non-loan options like a merchant cash advance (MCA). Such lenders, like Greenbox Capital®, OnDeck, and Kabbage, provide a cash advance to physicians in exchange for a percentage of the physician’s debt and credit card sales, continuing until the physicians has repaid the cash advance. According to Alfredo Rosing, vice president of marketing at Greenbox Capital®, flexible lending requirements and a relatively smooth application process offset MCA rates, which are typically higher than those from either SBA loans or bank loans. MCAs are best suited for physicians who need fast funding or the ability to immediately get working capital, physicians with low credit scores, and physicians who need short-term, smaller loans.
For physicians with a robust credit history who are seeking to remedy cash-flow shortages, a business line of credit, either from a bank or from an alternative lender, is a superb option. Business lines of credit are also a solid option for physicians requiring flexible access to working capital, as they permit physicians to access and repay funds when needed, solely paying interest on the amount borrowed.
Regarding physicians seeking to either acquire another practice in full or purchase a partnership stake, practice acquisition loans are ideal. Those looking to obtain a practice acquisition loan must present collateral or a personal guarantee. They must be either established practices with a robust financial record or new practices intending to purchase a retiring physician’s practice.