Obtaining a business loan for a medical practice is relatively straightforward and pretty simple. Almost all banks and lenders are willing to provide a medical practice or related corporate entity with all of the capital they need in order to come to commence operations. This is primarily due to the fact that medical businesses are almost completely immune from negative changes in the economy. Also, many medical service providers are able to receive their payments from insurance as well as publicly funded health systems. As such, the economically immune and highly stable nature of the revenues produced by physicians and surgeons allows them to very easily repay any underlying debt obligation. Additionally, doctors and surgeons are very well-paid professionals – and as such – they are able to earn a very high income whether or not they own a practice or if they work for a third-party service provider like a hospital or medical practice.
One of the key things when structuring a business loan specific for a medical practice is to make sure that the information regarding receivables is clearly outlined in any documentation or business plan that is presented to a financial institution. One of the ongoing issues that most medical service providers, medical practices, and related corporate entities have is that there is usually a lag of 90 to 120 days between the time that the services rendered to the patient and the physician gets paid. This is due to the fact that reimbursements need to be processed through both private insurance as well as publicly funded health care systems which take some time. As such, many medical businesses actually receive two forms of financing when they commence operations.
First, they receive a business loan in order to finance the initial start up cost of the business as it relates to acquiring a location, furniture, fixtures, equipment, and having small amounts of working capital on hand in order to finance the day-to-day expenses the business. Additionally, many medical practices will also take out a working capital line of credit that allows them to finance the ongoing receivables as they are generated. A very good practice manager can assist a medical practice with managing their cash flow issues. Beyond actually providing the services rendered to patients, managing the day-to-day cash flows of a medical practice is one of the more complicated aspects of these types of businesses operation.
Once a number of receivables have been received, the credit line can be repaid as these payments are made from publicly funded healthcare systems. Of course, the amount of money needed to finance the business on a day-to-day basis is typically far less than what is billed out to insurance and publicly funded healthcare systems. One of the things that is absolutely necessary when obtaining a business loan or a business line of credit for a medical practice is that a physician or surgeon should have their certified public accountant work very close with them in order to make sure that all documentation is properly put together for these types of loan packages. Beyond the loan application a business plan is typically required as well.
Unlike most other businesses, many banks and lenders are willing to extend substantially more as it relates to the start up costs relating to a medical practice. In some cases, some banks are willing to lend 100% of the total amount needed in order to commence revenue-generating operations. Unlike other businesses, most other companies typically are required to put up a 20% down payment for the total amount of money they will be borrowing. However, medical practices, dental practices, podiatry practices, and allied healthcare professionals are typically able to borrow much more from a down payment perspective given – again – be very economically secure nature of the revenues generated through these entities.
Of course, any time an individual takes on a substantial debt obligation there are going to be certain risks involved that must be dealt with on a day to day basis. As such, consultation with properly qualified business advisors as well as a certified public accountant is a must if an individual is going to be financing nearly 100% of their medical practice through a standard business loan and or line of credit.
Throughout this website we’re going to continue to showcase a number of different issues that revolve around obtaining business loans, lines of credit, and related debt instruments that can be used for the ongoing growth and expansion of any type of business imaginable.