If you work in the medical field, you’re likely dealing with a high student loan debt burden.
While your unique financial situation doesn’t preclude you from borrowing funds, you may be wondering where you can get financing for your doctor practice or career.
Luckily, there are several options available to you at every career stage.
Whether you’re fresh out of medical school or are currently planning to start a medical practice, this article reveals lending options you can leverage to meet your specific financial needs.
Key Takeaways
- Funding options for doctors include lines of credit, physician mortgage loans, SBA loans, small business alternative financing, and bank loans.
- A line of credit is similar to owning a credit card and is best for meeting immediate needs.
- Physician mortgage loan officers accept a low down payment and are more lenient compared to other financing options, offering a path to home ownership.
- Bank loans are best for doctors who own a medical business.
- The factors to consider when obtaining funds include your goals, available funds, and the presence of a debt refinancing clause.
Table of Contents
Available Financing Options for Doctors
If you need financial assistance to grow your practice while paying off your medical student loans, try one of these borrowing options for physicians:
1. Line of Credit
If you’re self-employed or in the process of building a practice, consider taking out a physician line of credit. This financing option provides access to cash when you need it urgently (e.g., for an upgrade to medical equipment). Similar to a credit card, you can borrow money up to a pre-approved sum.
To qualify for a line of credit, you’ll need to be:
- a resident or fellow; or
- a medical professional other than a doctor (e.g., a dentist).
Other qualification criteria for this financing method include:
- a debt-to-income ratio not exceeding 45%
- a minimum credit score of 700
- an employment contract
- a patient base; and
- a billing system.
Lines of credit of this nature typically cap borrowing amounts at $100,000 and offer fixed and variable interest rates. Depending on the rate you choose, the lending term can last for two years (with a variable rate) or between three and five years (with a fixed rate).
Although the approval process varies from one lender to the next, you can secure a line of credit quicker than other financing methods. In some cases, the lender can extend the line of credit on the same business day you apply for it.
How quickly your application is approved will depend on you meeting the lender’s eligibility requirements and providing all the documentation needed.
2. Physician Mortgage Loan
Physician mortgage loans are ideal for healthcare professionals who want to purchase property but are unable to get conventional loans. Thanks to this financing option, you can begin acquiring home ownership regardless of your debt-to-income (DTI) ratio and student loan payments.
Due to the number of years spent at medical school, medical professionals typically rack up a higher amount of student loan debt. This fact, along with a higher DTI, makes a conventional mortgage loan officer balk at the idea of lending you money.
Physician mortgages overlook an aspiring doctor’s initial financial challenges. Rather than calculate your DTI based on what’s left of your student loan, physician loans use your monthly payments as the baseline. This arrangement means the mortgage lender sees you as having a lower DTI.
As to why there’s more leniency with a doctor loan, the thinking is that medical professionals can potentially become high-income professionals. In other words, lenders bet on your future earnings. The trade-off to this finance method is you’ll have to contend with higher (variable) interest rates.
Also, when using a physician mortgage loan to finance a home purchase, you don’t have to worry about private mortgage insurance (PMI). If you don’t have a 20% down payment for the house required in conventional loans, you can still borrow.Some lenders will go as far as to waive the down payment altogether. They also provide higher loan limits.
The qualification criteria for a physician loan include:
- a medical degree.
- an employment contract or proof of employment.
- a 45% DTI (maximum).
You also must be a medical doctor, resident, dentist, veterinarian, or other medical professional to apply for doctor loans.
3. SBA Loan
The Small Business Administration is a US government agency that backs several loan options extended to small businesses (including medical practices).
These loans are excellent for practicing doctors who own and run a small business. You can choose between obtaining micro-loans or long-term loans, under its 504 and SBA 7(a) programs.
Loan amounts obtainable through this method range between $500 and $5 million. The SBA recognizes the following borrowing purposes:
- To get working capital: e.g., to refinance business debt.
- To acquire fixed assets: borrowing to buy machinery, real estate, and so on.
To qualify for an SBA loan, your business must be:
- for profit
- located in the US (and have operations there)
- creditworthy (though, in some cases, you can apply with bad credit).
The SBA also has size standards for specific businesses and you may have to provide a business plan that details the nature of your business.
Benefits you can enjoy by using this finance method include longer repayment periods and lower interest rates.
4. Small Business Alternative Financing
Companies like Greenbox Capital provide alternative financing for medical doctors and other professionals in the health industry. These alternate lenders aim to quickly provide access to financial products such as lines of credit.
In some cases, you can get funding no later than one business day, making them an excellent funding source if you run a medical practice.
The amounts you can borrow vary. Some lenders provide access to as much as $500,000 in funding and don’t impose any restrictions on how you use the money. You can secure cash advances and secured loans and sell your pending invoices for cash. Acknowledged use cases for the money include equipment purchases, staff hiring, and office renovations.
Although lender requirements vary, you can expect to need the following documents during the application process:
- bank statements dating back to three months (and similar documents).
- business records showing cash flow, vendor payment history, and more.
- company documents evidencing the number of years you’ve been in business; and so on.
Some lenders will also want to see your credit history, though they won’t base their decision to grant your loan application solely on it.
5. Bank Loan
If you run a private practice, you can obtain a business loan from a traditional bank.
Banks typically provide business loans with lower interest rates and lengthy payment terms. However, their application processes tend to be cumbersome and lengthy. In addition, they require plenty of paperwork, including personal guarantees and business plans in some cases.
The criteria for obtaining bank loans vary from one institution to the next. In general, the loan officer will inquire into your practice’s:
- annual revenue (at least $250,000 is required by some banks)
- business credit score
- financial history
- number of years in business; and
- loan proposal (that is, the document explaining how you intend to use the funds).
The industry you operate in may also determine whether you’ll receive the loan, as banks prefer lending to businesses that operate in stable industries. In some cases, the bank may require you to open an account there before allowing you to borrow money.
Regarding repayment, it’s common for loan terms to range between three and ten years. If you put up collateral and request for a large loan amount, you might get a twenty-year repayment window.
Factors to Consider When Exploring Financing Options
Keep the following factors in mind when seeking financing for your medical practice or doctor home loan:
Your Goals
The goal behind your loan determines everything from how much financing you’ll require to how long you’ll take to repay the debt.
For example, it’s possible to pay off a loan for medical equipment within a few years, whereas a physician loan for a primary residence will take longer. Thus, you need to be clear about how you’ll be using the borrowed funds before starting the application process.
Available Finances
Evaluate your current finances before seeking outside financing. Many borrowers will use your current debt-to-income ratio to determine whether to give you a loan.
You also need to consider your finances because of loan terms. Loans also have other lender fees you should know about, such as closing costs. Also, you’d do well to avoid financing methods with higher interest rates if you can’t afford them.
Refinancing
When seeking conventional mortgages or doctor home loans, ensure that they provide the option to refinance the debt. This loan contract clause accounts for increases in your property’s value and a drop in the national interest rate. In other words, it gives you leeway to lower your debt expenses in the future.
Frequently Asked Questions
What Is Practice Financing?
Practice financing is any type of funding a medical professional seeks to further their medical career or business. Doctors, dentists, optometrists, and others use such financing for projects like purchasing office space, medical equipment, or acquiring additional educational qualifications. They may also seek funding to refinance previously obtained loans.
What Are the Three Methods of Financing?
You have three options when seeking financing: short-term, medium-term, and long-term financing. Short-term financing typically has a repayment period of one year. Medium-term financing lasts between one and five years. Long-term financing is any financing method that allows for repayments within five or more years (e.g., doctor mortgages).
Where Can I Get Financing for My Medical Practice?
Examples of lenders that provide financing for medical practices and doctor loans include Huntington Bank, BankMD, TD Bank, First National Bank, Flagstar Bank, and BMO Bank. The SBA is the best place to get SBA loans.
Final Thoughts
Doctors and other medical workers have multiple borrowing options when kickstarting or furthering their careers. Good credit scores and existing pay stubs are some of the eligibility criteria many lenders look for when granting loans.
If you’re currently exploring your lending or mortgage options and are looking for the best lenders for your particular situation, we can help. Contact us to get in touch with specialists who can guide you through the lending process today.
