Top Sources of Medical Practice Finance

medical practice finance

Inaccurate estimates of the cost of medical practice launch and insufficient finances can be fatal mistakes as you launch a medical practice. Therefore, before you start a medical practice, you must evaluate how much you will need and what are the best sources of medical practice finance that serve your goals.

What are the Main Expenses in a Medical Practice Launch?

It’s estimated that you will require anywhere between $100,000 to $150,000 to launch a small primary care practice. In addition, industry experts recommend that you obtain a line of credit of $100,000 to meet the monthly expenses post-launch (at least until the practice revenue stream is established). A good line of credit will give you the confidence to make business decisions without being bogged down by short-term cash flow problems. A medical practice launch typically involves the following expenses:

  • Fee for registering a new business.
  • Malpractice insurance.
  • Credentialing.
  • Cost of renting a space.
  • Office renovations.
  • Purchasing equipment, furnishings, and technology.
  • Sales and marketing costs.
  • Business, tax, and legal advisors.
  • Medical office supplies.
  • Payroll.

Estimating the variable and overhead investment costs or the short-term and long-term expenditures can be a daunting task. Working with a professional financial planner, accountant, and attorney specializing in new practice launches will help you take a comprehensive view of likely financial obligations.

Popular Sources of Medical Practice Finance

Once you have worked through the estimated finance required to launch your practice, assess these potential sources of medical practice finance.      

Here are the top five sources for medical practice finance:

  • SBA Loan – US Small Business Administration does not directly offer loans, but it assesses borrowers and facilitates loans through banks. Being approved by the SBA as a worthy borrower makes it easier to acquire medical practice financing (rather than approaching banks directly). Also, SBA loans typically have lower monthly payments than traditional bank loans. Read more information on SBA 7(a) loans and the 504 Local Development Company Program.
  • Bank Loans – Institutions such as Bank of AmericaWells Fargo, and US Medical Funding offer loans to launch and acquire a medical practice. These loans are highly competitive and easier to obtain if you have an existing relationship with a commercial lender.
  • Online lenders – It is easier to obtain funds through an online lender as these lenders usually have a quick turnaround on the approval or rejection of your loan application. SBA and traditional bank loans can take weeks, while online lenders often give decisions in less than 24 hours. However, the rates are higher than most traditional forms of funding.
  • Lines of credit –  Rates are higher than bank loans, but the good news is that you only pay interest on the amount you borrow. You can use the line of credit to acquire equipment, facilities, inventory, fixtures, and other assets.
  • Equipment loans – These loans are specially for the purchase of expensive medical equipment such as MRI machines, diagnostic equipment, lab equipment, exam tables, computers, wheelchairs, etc. The equipment purchased serves as collateral, and a down payment may be required.

Note: Some business loans come with restrictions on how you can spend the money. So, understand the terms and conditions thoroughly.

Importance of a Pro-Forma when Applying for a Medical Practice Loan

At the time of loan application, you will be required to outline the expected income, expenses, and growth of your medical practice over the next three to five years. This is what is called Pro-forma financial statement, and it is a simpler version of a full-blown business plan. Here’s the basic information that you will need to share in Pro-forma:

  • Location of your medical practice.
  • The types of medical services.
  • Hours of service.
  • Existing and potential client base.
  • The number of patient visits, per day.
  • Revenue projections – for the first year and for the first three years.
  • Expected costs for your medical practice, which includes (a) staffing expenses (salary and other employee benefits), (b) annualized expenses ( medical billing, marketing, supplies, utilities, medical equipment, legal, accounting, insurance, rent, taxes, etc), and (c) startup expenses (enrolment fees, medical equipment, legal, marketing, supplies, insurance, accounting, EHR, computers, and other technologies)

Applying to multiple banks improves your chances of securing medical practice finance and allows you to shop for the best deal on repayment rates and amortization schedules. Remember – even if you are still repaying medical school debt, your high-earning potential makes you an ideal applicant for medical practice finance.

As a revenue cycle management company that’s been working with US providers for nearly two decades, we understand the common challenges faced by medical practice owners, especially just after launch. If you are looking to start your own medical practice, we would love to help you with credentialing, EHR selection and implementation, and medical coding and billing. Contact us for a free consult.

Parul Garg, CEO and co-founder of PracticeForces, has significantly contributed to the growth of over 1,000 U.S. medical practices through her expertise in medical billing and coding since the company’s inception in 2003. With a background in Computer Science and an MBA in Human Resources, her leadership and AAPC-certified coding skills have been pivotal in managing the company’s operations effectively.

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