Like most small and medium-sized businesses, your medical practice may, at times, require a line of credit or a loan. But you present a lender with a much different set of circumstances than most other types of businesses. Net income and cash flow are critical factors in evaluating the financial strength and ability for a business to make payments. As a medical practice, these primarily depend on your efficiency in collecting funds from insurers. The more your practice maximizes the effectiveness of your billing systems and mitigates the built-in financial risks of this business model, the more attractive you will be to a lender.
Where do you turn for this financial support? If you do some searching for medical practice loans, you’re sure to find a number of national or regional online lenders that can provide you with funds virtually sight unseen. However, like many small businesses, you may need more than just immediate access to funds. You may benefit from having a long-term lender that can also act as a financial adviser because it understands the unique nature of your business and the specific characteristics of the market you serve.
One option is a community bank where your practice is located. Community banks pay close attention to local demographics and economic conditions, likely the same factors that influence the makeup of your patient load and payment mix. When these elements shift, community banks can anticipate the impact on their customers, including your medical practice.
However, being local does not make every community bank equal in its ability to serve you. Whether you are approaching a bank or they are approaching you, you need to conduct your due diligence to evaluate how well a bank is positioned to serve you. Here are five questions you should ask during the early stages of your discussions.
1. Do the bank’s commercial loan officers have experience working with medical practices like yours?
A bank that already provides financing to medical practices deserves consideration. However, medical practices in the same community can differ in terms of the demographic markets they serve, their patient loads, payer mixes, and overhead—all of which impact their need for and allocation of funds. A bank that has worked with practices similar to yours in terms of size or specialty is likely to have a better understanding of your anticipated cash flow, ongoing financial requirements, and revenue stream.
2. Does the loan officer understand that your claims payment and net income is largely impacted by your particular patient profile and payer mix?
The claims evaluation procedures and reimbursement levels among the insurers you accept may vary greatly and can frequently change. If you serve patients covered by Medicare, Medicaid, supplemental, employer, or private insurance plans, you are most likely submitting hundreds if not thousands of claims monthly to multiple payers and monitoring those collectibles. If your patients are primarily covered by private insurance, the claim payments could be larger but require more time. This impacts your cash flow.
Your bank must understand how effectively your practice manages claims submissions and monitors collection rates. It must also recognize that your approach cannot automatically be compared to a similar practice in a different neighborhood or perhaps a practice in a different specialty.