If you’re planning to expand your practice, you’ll be happy to know that banks generally consider physicians and medical practices great credit risks.
“Bankers are usually very willing to loan money to physicians for expenses related to their practice,” says Katherine Watts, partner in charge of healthcare services at Horne, LLP.
However, the array of options can be overwhelming when it comes to getting a loan for your new location or expansion of your current one. Like medicine, banking has terminology and practices that can be confusing to non-experts. Fortunately, the basics are pretty simple.
There are several types of loans you may qualify for. An SBA loan can be a great option. These are funded through a bank or other lender but are partially guaranteed by the U.S. Small Business Administration. SBA loans usually have the lowest interest rates and longest repayment terms around. However, SBA loans are highly competitive, so your finances will need to be in excellent shape to qualify. Also, it can take some time to get through the approval process.
If you decide to go a more traditional route, you can still get some very good deals. Many banks have loan officers who have experience working with medical practices.
Loans for business real estate typically have shorter amortization than home loans. Your real estate loan will probably be amortized over 10 to 20 years. The rate will depend on several factors, including your credit history, annual revenue, and the age of your practice. Unlike home loans, you aren’t likely to get a fixed rate for the entire term of the loan. “It may be hard to get a fixed rate for longer than five to seven years,” Watts says. However, that may not be a bad thing. Your rate might come down.
When it comes to which partner pays how much of the repayment, things can get complicated, particularly in a multispecialty practice where some physicians generate more revenue than others. Much of the repayment formula will depend on how your practice is set up.
Watts says the practice’s compensation formula usually dictates repayment arrangements. Compensation and liability arrangements must be in keeping with Stark Law, a set of regulations that govern the financial arrangements of medical practices. This can get complicated, so you should consult a healthcare lawyer before settling on a repayment formula, even if all the members of the practice agree.
When you’re ready to talk with your bank about a loan—regardless of type—make sure you are well prepared. You’ll need to bring financial statements, tax returns, and similar documentation. Watts recommends asking your accountant to attend the meeting as well. Your CPA can help you choose a loan product that best suits your particular needs. Also, having him or her along will demonstrate to the bank that you’re doing due diligence, Watts says.
Securing a real estate loan to finance a practice expansion—whether a new location or an upgrade to the existing one—is a big deal. But you don't need to be intimidated. Do your homework, go the bank prepared, and remember: you are a good credit risk. Your bank should be willing and eager to help you get the right loan for your needs.