Several types of low-interest and government-backed loans are available specifically for physicians and medical practices. For example, many doctors purchase their homes with physician loans rather than traditional mortgages.
Government-backed loans from the U.S. Small Business Administration and low-interest lines of credit from banks enable physicians to get the financing they need in order to purchase a practice, add a partner to an existing practice, purchase new equipment, or make up for revenue shortfalls. If thinking about what loan will be best for you and your practice, consider your options below.
Because banks benefit from the business of doctors and their medical practices, lenders have developed specific loans called physician loans or doctor loans. Similar to regular mortgages, these loans may be secured or unsecured and come with both fixed and adjustable rates. These rates are usually lower than those of regular loans, though they will vary by each individual borrower and lender.
- Many doctors use physician loans, rather than a traditional mortgage, in order to purchase a home, practice, or business property.
- The purpose of the physician loan is to enable doctors to meet the long-term financial needs of their practice while maintaining a low interest rate with little or no down payment required.
- Because rates and terms vary from bank to bank, doctors should shop around for the best terms and pay attention to the details of their loan offers. They should also re-assess their debt situation every few years; just because their current rates are lower than non-physician loans doesn’t mean they’re getting the best deal out there.
The U.S. Small Business Administration backs loans for small businesses, including medical practices. These loans are easier to get, and have lower interest rates, than many regular or physician loans. SBA loans to doctors reached $649.8 million in value in 2011, according to American Medical News.
- SBA-guaranteed loans are applied for and managed through your banking institution. Be sure that your lender is experienced in lending to medical practices as well as in managing the complexities of the SBA loan process.
- Like physician loans, government-backed long-term commonly used for purchasing a practice, adding a partner to your practice, or making an important change to your business structure or practice.
- Don’t use a long-term loan to make up for revenue or payroll shortfalls unless you have a plan for addressing the debt. If you don’t make a business change to prevent the cash shortfall from occurring again, your debt can quickly increase to an unmanageable amount.
Physician Lines of Credit
In addition to special bank loan rates and government-backed loans, doctors can also qualify for large lines of credit at low interest rates. These special lines of credit can help doctors manage the day-to-day, short term expenses that crop up in a medical practice.
- A line of credit is considered short-term debt that should be paid off once a year, in contrast to a multi-year loan that is paid over several years or decades.
- In general, you should use short-term debt to pay for short-term expenses and long-term debt to pay for long-term expenses. A line of credit is good to have on hand while awaiting payouts from insurance companies. Equipment should be leased or purchased on an installment plan, and property or practice ownership paid for with a long-term loan.
There are a number of reasons why doctors are increasingly pursuing loans. Factors that doctors cite include a consistent decline in insurance reimbursements, changes in regulations, and an increase in business, medical liability, and drug costs. The different loans available to physicians can help them start a practice, make large purchases, or cover everyday expenses while awaiting revenue payouts.