By Gerri Detweiler
Whether you’re opening a plastic surgery clinic or simply looking to expand your staff to keep up with the increase in patients you’re seeing, these changes require money. If you don’t have it available, you likely would consider a business loan.
But what happens if you haven’t been running your medical facility that long, or if you haven’t yet built up your business credit scores? You may not qualify for a traditional loan, but thankfully, you still have other financing options.
The U.S. Small Business Administration doesn’t make small business loans; it guarantees them. There are a number of different SBA loan programs, but two, in particular, may be of interest to medical practice owners: the 7(a) and 504 loan programs.
If you’re looking to expand your practice or renovate, buy equipment or start your practice, a 7(a) loan could be a good fit. You can borrow up to $5 million with a maximum repayment of 10 years (25 years for equipment or real estate).
If you need capital to purchase office space, consider the 504 loan. There’s no project size limit for 504 loans, but the maximum SBA loan debenture (loan amount) is $5 million.
SBA loans are designed to fill a gap when business owners can’t get similar financing elsewhere. Rates and terms are excellent. A free guide to SBA loans is available from SCORE, an SBA resource partner offering free mentoring.
Business Credit Cards
If you just need access to money to buy supplies, or to pay for everyday expenses, a business credit card could fit the bill. Not only will you be able to buy what you need, but you’ll also start to build your business’ credit history, which can help you qualify for better financing options down the road.
And many business credit cards offer rewards programs that give cash back or let you accrue points you can redeem for travel and gift cards. For many medical practices, these rewards can be quite lucrative.
Insurance companies can be painfully slow at paying on your claims, and that can put you in a cash flow crunch. But invoice factoring (also called healthcare factoring) could help you stay financially secure.
Essentially, you get a cash advance based on the value of your outstanding invoices (typically 50-80% of that value). The financing company you work with takes over the accounts receivable and charges a fee accordingly.
If you don’t qualify for an SBA or another traditional bank loan, you may find online lenders easier to qualify with. While loans from alternative lenders online charge more than traditional banks, they often have less stringent requirements for applicants and look less at your credit scores and history and more at your revenues and how long you’ve been in business (one to two years or more is often required).
Important to note: alternative loans tend to have shorter payback periods. If you’re looking for a little cash to help you buy equipment or tide you over until those insurance claims get paid, and are okay with paying the loan back within a few months, it could be a good option.
Merchant Cash Advance
Another option if you don’t qualify for traditional financing is the merchant cash advance, and if you do a high volume of credit and debit card transactions in your practice, it could be a good fit.
You’ll be able to get an advance of funds based on your previous card transaction volume, and payments will be taken out of future sales using cards, often as frequently as daily. Typically, you have to pay the advance back within three to 18 months. Keep in mind the cost of this funding is often high, but isn’t often clear— they use “factor rates” instead of APRs— and the cost is front-loaded. That means as soon as you sign on the dotted line you’re on the hook for the advance plus all fees, no matter how quickly you pay it back.
Before you take out any financing for your medical business, consider what you plan to do with the funds, and how quickly you will be able to pay back your loan. Make sure you understand the cost. (You can use these free small business calculators to translate costs to an APR.) Ideally, you will take out financing with the lowest cost, but if you don’t qualify for a good rate now, focus on building your business credit so that, down the road, you do.
About the Author:
Gerri’s been guiding individuals through the confusing world of finance and credit for 20+ years. She is the author or coauthor of five books, including her most recent, Finance Your Own Business: Get on the Financing Fast Track. Today, Gerri serves as the Education Director for Nav, an online platform that matches small business owners to their best financing options and gives free access to personal and business credit scores.