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About six months ago, a vet in Texas called me. His partner was retiring, and she owned half of their practice. A traditional bank told him he had about 90 days to buy out her share or they'd sell the practice to an outside party. They also told him the SBA loan route might take 60 to 90 days, and even then, there was no guarantee he'd qualify on the timeline he needed. Within a week, we got him a term loan that funded the buyout, and he kept the practice they had built together.
Medical practice financing is built for situations like that. Maybe you need to cover staff salaries until insurance carriers pay you back for work you've already done, you just bought a new piece of imaging equipment, you're opening a second location, or, like the case above, you're buying out a partner's share. The loan options below are the ones I see physicians, veterinarians, optometrists, chiropractors, and other providers reach for most often.
After years of helping healthcare professionals get funded, I've picked up a feel for which loans work in which situations. Here, I'll go over the loan types that tend to fit medical practices, what each one costs, how long it takes to get the money, and how to figure out which one's the right call for your situation.
What Is a Medical Practice Loan?
A medical practice loan is business financing for health care providers who own or run their own practice. The money can go toward almost anything a practice spends on, including payroll, medical equipment, real estate, expansion, debt consolidation, or working capital while you wait on insurance reimbursements.
Below, I've broken down the most common types of financing for medical practices.
| Loan type | Best for | Loan amount | Rate | Term | Funded in |
|---|---|---|---|---|---|
| Term loan | Acquisitions, build-outs, renovations | $10K to $5M | Starting at 6% APR | 6 to 36 months | As fast as same-day |
| Business line of credit | Cash flow gaps, insurance reimbursement delays | Up to $5M | Starting at 6% APR | 6 to 36 months, revolving | As fast as same-day |
| Equipment financing | Imaging, dental chairs, tech upgrades | Up to 100% of equipment value | Starting at 6% APR | 12 to 72 months | 1 to 5 days |
| SBA 7(a) loan | Acquisition, real estate, general business needs | Up to $5M | Starting at 6.75% APR | 10 to 25 years | Typically 30 to 90 days |
| Working capital loan | Payroll gaps, seasonal dips | Up to $5M | Starting at 6% APR | 6 to 36 months | As fast as same-day |
| Invoice factoring | Slow-paying insurers and payers | Up to 100% of invoice value | 0.5% to 5% per invoice per month | Tied to when the invoice is paid | 1 to 2 weeks |
Financing for Medical Practices
I've compiled a list of the financing options available to medical practices so you can make the best decision for your small business.
Term Loans
A term loan is the most common type of loan for a business. When you get a term loan, you get a single large sum of money up front. Then you pay back the loan plus interest in equal monthly installments over a set period of time.
From what I've seen, term loans tend to fit best for a business with one major expense that wants to pay the same amount each month. For example, a dentist opening two new treatment rooms or a medical clinic renovating its waiting room. In either case, you know the total cost and what your monthly payment will be.
Business Lines of Credit
A business line of credit is similar to a credit card. The bank gives you a maximum dollar amount approval. Once you've got that approval, you can pull funds from that amount as you need them. You only get charged interest on the amount you've actually pulled out.
This comes in handy for medical practices because of how slow insurers can be to pay. An insurer usually takes at least one month to make a payment. A line of credit lets a practice keep covering payroll and rent while waiting on reimbursement.
If your practice gets a significant amount of its income from insurance payments, then a line of credit can act as a safety net when the payment process slows down.
Equipment Financing
Equipment financing is a loan made specifically to buy equipment. The equipment you buy becomes collateral for the loan. So if you can't pay the loan back, the lender has the right to take the equipment.
Because of that, many find equipment financing easier to qualify for than a typical term loan. It's especially useful for big-ticket items like imaging machines, dental chairs, surgical lasers, exam tables, and sterilizers.
When I tell clients about equipment, I point out that the equipment can often generate enough income to justify the cost. A lot of times, new equipment lets a client do procedures they couldn't do before. Those extra procedures can bring in a lot more income than what the equipment cost.
SBA Loans
An SBA loan is backed by the U.S. Small Business Administration, which insures part of the loan if a borrower defaults. That guarantee lowers the lender's risk, which lets the lender offer better terms to borrowers.
There are two main types of SBA loans that medical practices use:
SBA 7(a) loans. Can be used for almost any business purpose, like working capital, buying a practice, buying or leasing equipment, buying real estate, or paying off earlier debt.
SBA 504 loans. Only for larger, long-term purchases like real estate or major pieces of equipment. These loans fit well if you want to buy the building your practice is in.
SBA loans can be good options for some medical practice owners, but they can be slow. If you need money fast, an SBA loan might not make sense for you.
There is also another program available through the SBA called SBA Microloans. The goal of a Microloan is to help small businesses with startup costs. Each loan is capped at $50,000. Expect to provide collateral, a personal guarantee, or both.
Working Capital Loans
Working capital loans let you cover day-to-day operating costs. These loans can be used for payroll, rent, utilities, and supplies. A working capital loan can be a good option when your revenue drops because of seasonal swings or slow insurance reimbursements. Working capital loans let a practice keep operating normally even during a downturn.
These loans are short-term solutions. If you keep reaching for one to cover expenses, you may have a deeper issue with cash flow.
Invoice Factoring
With invoice factoring, you sell your unpaid invoices to a factoring company. Then the factoring company advances most of the face value right away and handles collections from the insurer on your behalf.
Invoice factoring can be a good option for medical practices dealing with slow reimbursement from insurers. Instead of waiting on unpaid claims, invoice factoring lets you turn those claims into cash without taking out a regular loan.
Common Uses for Medical Practice Loans
I've seen practices put loans toward just about anything. Here are some common ones.
Buying an existing practice
Buying an established medical practice from an owner who's retiring or selling.
New equipment
Imaging machines, dental chairs, surgical lasers, exam tables, and tech upgrades.
Office space
Buying or improving a building that houses your medical practice.
Staffing costs
Salaries for physicians and support staff like dental hygienists, dental assistants, lab technicians, and front-office staff.
Insurance bridging
Covering operating costs while you wait on insurance reimbursement.
Expansion
Opening a second location or adding services like cosmetic dentistry.
Office improvements
Updating exam rooms, waiting area seating, lighting, and signage.
Emergency funding
A source of cash for unexpected costs that need to be handled fast.
Loans for New Medical Practices
At Clarify, our network of 75+ lenders wants to see at least six months of operating history and $10,000 a month in gross revenue before they'll approve your loan application. Most newly opened medical offices don't meet that bar.
But new medical offices have options:
SBA 7(a) loans
These loans can sometimes be an option for new medical offices, but you need a strong business plan and may pay up to a 20% down payment (depending on the lender).
SBA Microloans
Microloans can cover launch costs up to $50,000. Lenders usually ask for collateral, a personal guarantee, or both.
