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Physicians applying for a business loan for their practice should know what they are getting themselves into before starting the process.
Owning or running a medical practice is more challenging today than ever. Physicians must deal with increased regulation, mandatory equipment and technology upgrades, and slower insurance reimbursements.
These are the same reasons so many physicians need access to funding. Whether investing in the future - buying new medical devices or expanding an office - or looking to meet short-term obligations - by consolidating business debt or improving cash flow - having access to capital is critical.
A physician's time is nonrefundable and the last thing that should keep you from patients is paperwork. If you're considering applying for a business loan, be sure to understand common terminology to make the process as smooth as possible.
Five Commonly Misunderstood Terms
The paperwork you need to include in a loan application will vary, depending on the type of lender, loan and amount. In general, expect to be asked to produce two to three years of tax returns (personal and/or business), as well as possibly a profit and loss statement, balance sheet and/or paystub to show current earnings.
You might be confused and if so, you're not alone. In my experience, many physicians are unfamiliar with these terms, as often they rely on CPAs or office managers to handle the financial side of the practice, while they focus on the patients.
However, if you're completing the loan application yourself, a lack of understanding can slow down the process and delay transfer of funds. Let's review the five most common requests in a loan application.
P&L Statement: This is a listing of your practice's revenues and expenses (with values), ultimately arriving at a net income. A key point to note is that a P&L represents a period of time.
Balance Sheet: This is a listing or summary of your practice's assets, liabilities and equity at a specific point in time. This financial statement shows the lender what other loans you have outstanding, as well as what your current cash position is.
Debt Service: This is the amount of your income that is going out to pay debt each month. This is one of the biggest areas that a lender looks at, probably just below your FICO score.
Tax Returns: Everyone files personal tax returns (1040). Businesses can be filed within the 1040 (Schedule C – sole proprietorship, LLC or PLLC) or under their own return (1120S, 1120, or 1065 – corporations). Make sure to have all accessible.
Accounts Receivable: Simply put, this is what you are owed from insurance companies or patients for past services.
Time and Size Factors
If you don't have these materials ready, the timeframe will be stretched out and you risk passing the deadline of when you need the money by or missing out on a specific purchase. There are few other things to consider as well.
If you're working through a traditional bank, it could take six to eight weeks to process, if real estate is not involved. If you choose a specialty lender, you can apply as close to one to two weeks before you need the money.
Also, loan size impacts timing, as many lenders spend much more time in the due diligence phase for loans in excess of $200,000. Generally speaking, the larger the institution and/or the larger the loan request, the longer the turnaround time.
It's best to have your ducks in a row before applying for a loan. This, more than anything else, can set the timeframe for funding. If you are prepared and have everything you need when it's requested, you will expedite the application, approval and funding processes.
April Brissette is chief lending officer at Bankers Healthcare Group, the leading provider of financial solutions to healthcare professionals.