Doctors that own their own practice can generally qualify for most small business loans because of their high earning potential, strong net worth, and the business’s stable revenue. An SBA loan will typically give a medical practice low rates with the lowest monthly payment of most term loans. However, an SBA loan requires a lengthy application process, large amounts of documentation, and multiple layers of approvals from your lender. Alternative small business lenders can get you funded for medical practice loans much more quickly with far less paperwork.
In this article we will take an in-depth look at an SBA loan vs alternative business loans so you can decide which is best for your medical practice’s current financing needs.
Our thanks to OnDeck, who sponsored this article. If you can’t wait for the 2-3 months for an SBA loan or don’t want to deal with all the paperwork, consider a short-term loan from OnDeck. OnDeck offers prime borrowers rates as low as 6.99% and can get you funded in as fast as 1 day. Apply for up to $ 500K with a simple online application.
SBA Loans vs Alternative Loans for Doctors
When you’re looking for a loan for your medical practice you typically have two options:
- SBA Loan (long term loan)
- Alternative Loans
The table below compares these two types of loans by their general qualifications, terms, timelines, and application process.
Medical Practice Loans: SBA vs Alternative Business Loans
|Alternative Loan||SBA Loan|
|Time For Initial Approval||1 Day||1 week +|
|Time to Receive Funds||1-3 Business Days||30 – 90 Days|
|Loan Amounts||$ 5,000 – $ 500,000||$ 30,000 – $ 5,000,000|
|Payback Time Period||3 Months – 3 Years||10 years|
|Average APR Range||30% – 50%||6% – 9.5%|
|Annual Gross Revenue||$ 100,000||$ 120,000+|
|Time in Business||12+ Months||2+ Years|
|Visit OnDeck||Apply for an SBA Loan|
Now let’s look at how an SBA loan compares to an alternative loan in detail. Since there are many alternative loan providers out there with varying rates & terms, we’ll look at just one provider, OnDeck.
SBA vs Alternative Loan Funding Speed
- Prequalification: 1 Week
- Time for Approval: 1 – 2 Weeks
- Time to Receive Funds: 30 – 90+ Days
Alternative Loan with OnDeck:
- Prequalification: A few minutes
- Time for Approval: 1 Day
- Time to Receive Funds: 2 – 3 Days
Obtaining an SBA loan can take a very long time. Especially if you have multiple businesses or properties in your name. It’s not uncommon for the process to take 2 – 3 months before you’re funded. That may limit an SBA loan’s usefulness for time-sensitive financing needs.
OnDeck can typically get you funded in 2-3 business days. If you need the funds for an immediate need, like purchasing new scopes and processors, a fast business loan from OnDeck is could be a good choice for your medical practice.
SBA vs Alternative Loan Application Process
- Application: Often requires many trips to the bank
- Document Collection: Emailing, faxing, and turning in hard copies at a physical branch location
- Underwriting: Lots of follow up from your loan officer and the lender’s underwriting team
- Closing: Requires review of 90+ pages of loan documents, if closing documents are approved by the lender.
Alternative Loan with OnDeck:
- Application: 100% online
- Document Collection: Full integration with accounting software and bank account is done 100% online
- Underwriting: Automated
- Closing: 100% online and is done quickly after you’re approved
SBA Application Process In Detail
Getting an SBA loan is going to require a lot of documentation, and your lender will likely have a lot of questions for you and your business. The more complicated or involved your financial situation is, the longer it is likely to take for you to get funded. After your initial application submission your SBA lender will typically need the following documents for each business you own:
- Ownership Information
- YTD Balance Sheet
- YTD P&L Statements
- Projected Financials (1-3 years)
- Business Licenses
- Business History & Overview
- All Business Leases
- Business Tax Returns (Last 2 years)
- Personal Tax Returns for all 20%+ Owners (Last 2 years)
- Resumes for all 20%+ Owners
Additionally, if you plan to purchase another medical practice with the SBA loan proceeds, you will be required to provide the following information about the medical practice being purchased:
- Purchase Agreement
- Current Balance Sheet
- YTD P&L Statement
- Federal Tax Returns (Last 2 years)
- Schedule of Inventory, Equipment, Fixtures, and Other Assets
Once you submit all of the required documentation your lender will underwrite the loan and request the SBA’s approval in order to receive the SBA guarantee. The entire process can easily take up to 90 days. It can take long if you have multiple legal entities for multiple medical practices, investment properties, etc.
OnDeck Application Process
Applying for an OnDeck loan requires some basic personal and business information, which is submitted entirely online. OnDeck analyzes your business cash flow by syncing with your accounting software and bank account.
If convenience is important to you, OnDeck might be a good choice for your medical practice. OnDeck can lend you up to $ 500,000 for various business needs, and they can get you funded in 2-3 days without any of the headaches that an SBA loan provides. Your bank statements and basic personal and business information is enough information to get you approved. Visit them today to see how much you might qualify for.
SBA vs Alternative Loan Costs
- Origination Fee: 0 – 4% of the total loan. An additional SBA guarantee fee of 3-3.5% applies on loans above $ 150,000
- Typical APR Range: 6% – 9.5%
- Typical Repayment Terms: 10 Years
- Calculate Your Costs: You can use our SBA Loan Calculator to determine your potential SBA loan costs.
Alternative Loan with OnDeck:
- Origination Fee: 5% of the total loan
- Typical APR Range: 30% – 50%
- Repayment Terms: 3 Months – 3 Years
- Calculate Your Costs: You can use our OnDeck loan calculator to determine your potential OnDeck loan costs.
With an SBA loan you can expect to get the lowest monthly payment, but a short term loan with a lender like OnDeck will likely have a lower total cost of capital. This is because, depending upon your loan purpose, you can repay the OnDeck loan within 3 years (terms of 3 months to 3 years are available), and you may be paying interest on an SBA loan for up to 10 years. OnDeck’s rates start at 6.99% for prime borrowers but the typical APR ranges from 30% – 50%.
SBA vs Alternative Loan Minimum Qualifications
- Credit Score: 680+
- Annual Gross Revenue: $ 120,000+
- Time in Business: 2+ Years
Alternative Loan with OnDeck:
- Credit Score: 500+
- Annual Gross Revenue: $ 100,000+
- Time in Business: 12+ Months
As a doctor with a very high earnings potential, you will generally have your pick of loans. Minimum requirements for a loan won’t often be your top concern unless you’re just out of medical school and have limited income history and student loans.
Most Common Needs for Medical Practice Loans
Physicians have many different uses and reasons for obtaining financing. The reasons you may want to obtain a loan for your medical practice include:
- Use as Cash Flow While Waiting on Payments
- Acquire a Medical Practice or Partner Buyout
- Purchase Equipment for Your Practice
- Buy Commercial Property for Your Medical Practice
- Marketing & Advertising to Grow Your Medical Practice
Let’s look at each of these reasons in more detail to understand why you might obtain a small business loan for your medical practice, and what loan characteristics are generally right for each one.
1. Financing to Help Manage Cash Flow While Waiting on Payments
Many medical practices, whether generalists or specialists, can occasionally run into trouble receiving timely payments for the services they provide. Because of slow payers, bounced checks, problems with billing departments at insurance companies – even a healthy practice with a steady stream of patients can have moments A/Rs are aging and cash flow is tight.
Having the right financing available to help manage cash flow is critical. While it might make sense to charge some regular expenses to a small business credit card, other expenses will require cash in the bank. From making sure that payroll is met to covering your lease, it’s helpful to have access to quick capital.
A good example is treating individuals involved in a lawsuit. These types of treatments are generally provided in advance of payment because the bills are covered by a legal settlement. Court proceedings can drag on, and make it difficult to predict when you will be paid for your services.
A long term loan, like an SBA loan, is an okay tool for this job. But because it can take upwards of 3 months to obtain, you need to have it in place before you have an issue. Then, despite that low APR, you’re potentially sitting on unused capital and getting charged interest the whole time. At the end of the day, that will significantly increase your total cost of capital.
In that situation, a line of credit may be could be a better alternative. A small business line of credit is a good tool to help manage cash flow. OnDeck offers a line of credit product that has a very easy online application. You can get a line of up to $ 100K with rates as low as 13.99% in just a couple days.
With an OnDeck line of credit you only pay interest on the amount you draw, and you have 6 months to repay your balance after each draw. Having access to a line of credit before you need the funds means you’re never in danger of coming up short because delays in A/R.
2. Acquire Another Medical Practice or Buyout a Partner
Acquiring a competing medical practice or buying out a partner can be a great way for you to grow your business. It can mean serving new territories, offering new services, and much more.
While some of these opportunities planned out long in advance, others are the result of completely unforeseeable circumstances. How long you’ve had to plan for the opportunity will have a large impact on what financing will best enable you to move forward with the deal.
If the acquisition or buyout has been part of a plan being developed with other partners or mentors, you will likely have time to organize long term, low rate financing with an SBA loan. While SBA 7a loans often take 2-3 month to obtain and require a great deal of paperwork and effort during the application process, you can borrow up to $ 5MM at great rates.
But not every acquisition or buyout is the result of a well planned transition. Sometimes opportunities present themselves quite suddenly (think death, divorce, etc.) and delays in funding time can mean losing out to a competitor. In these cases, the ease and speed of obtaining financing with OnDeck are hard to beat. While the borrowing limit of $ 500K may limit certain deals, they should be able to facilitate the purchase or buyout of most practices.
3. Purchase Equipment for Your Practice
Having the right equipment for your office is critical. If an important piece of equipment goes down, you’re losing revenue. If you’re not investing in new equipment, you’re limiting your capabilities and the range of patients you can diagnose and treat.
If you need equipment to fill out your new office, or an expansion location, then you probably have enough time to work through the process and time period of an SBA loan. However, if some of your expensive equipment, like your x-ray system, breaks suddenly you may find that you need funds much quicker to prevent a loss in business.
The best way to deal with a broken infusion pump, or other large equipment, is by having a small business line of credit on hand to prepare for these events. If you do not have a LOC at your fingertips, then you likely will need to access a small business loan quickly.
In addition to medical equipment your medical practice is also going to typically have a large yearly expense in IT equipment and software. The HIPAA laws are very strict these days, and it is more important than ever to keep your patient’s health information secure. You can expect to spend as much as 10-12% of your gross revenues every year just on your IT expenses. Luckily, this is an expense that you can take the time to prepare for in advance, which makes an SBA loan hard to beat if you need to borrow to meet his demand.
If you have time to prepare for larger purchases, like upgrading your IT software or purchasing equipment for your new office, then you may want to look into an SBA loan. However, if you have equipment that breaks and you need funds to replace it quickly then you likely can’t wait the 30-90 days an SBA loan typically takes to fund. In these special cases you should visit OnDeck to see how much you can get funded for this week.
4. Buy Commercial Property for Your Medical Practice
Purchasing commercial real estate for a medical practice is a great way to for doctors to grow their net worth.
“The majority of doctors do not like to lease office space” said Dr. Vik Tarugu, owner of Detox of South Florida “We like to see everything in our business grow in value, and leasing does not help us do that. The downside is that our business continues to grow and we need more space, but buying new real estate is expensive. A loan is ideal to help us to grow at the right rate.”
When the right real estate location comes along to expand your business you do not want to have to pass on it because of a lack of funds. Like SBA loan, most commercial real estate loans have lengthy application processes and can take a long time to fund. If the purchase of your next office or clinic is planned far enough in advance, timing shouldn’t be an issue. On the other hand, if an unexpected opportunity arises and you need funding quickly, and alternative loan from OnDeck may be a good fit.
5. Marketing & Advertising to Grow Your Medical Practice
You might need money for various marketing activities when you want to grow your practice, after you’ve acquired another medical practice, after relocating your practice, or expand and open up a satellite office. Marketing a medical practice is generally done in two ways:
- Online Marketing
- Offline Marketing
Online Marketing & Advertising Activities For Medical Practices
Offline Marketing & Advertising Activities For Medical Practices
If your medical practice is fairly new then you may not have the working capital funds to give your marketing efforts what they really need to help your business grow. Getting quick access to capital from a lender like OnDeck can get you financing when you need it so that you don’t miss a growth opportunity.
Three Benefits of an Alternative Loan for Medical Practices
Alternative loans have three primary benefits for those running a medical practice.
- Alternative Loans are Fast & Easy: Alternative loan providers can get you funded in as little as one business day (and seldom longer than 10 business days). They also have much simpler application processes. All of this means that you have more time to treat patients, manage your medical practice, and grow your business.
- Alternatives Lenders May Take a 2nd Position: While doctors can often have their pick of financing, many traditional lenders (bank and credit unions, SBA loan providers, etc) will want to be in a 1st position on all collateral. Sometimes it feels like lenders just want an excuse to have to refinance all your debt with their bank. Some alternative lenders are comfortable taking a second position to other lenders.
- Alternative Lenders are Offering Competitive Rates for Prime Borrowers: More and more, alternative lenders are offering prime borrowers rates that are as competitive as most bank financing. For example, OnDeck is offering rates as low as 6.99% to well qualified borrowers.
Doctors that own their own practice will generally have no shortage of borrowing options. SBA loans, with their low rate and long repayment terms are a very attractive option. But their lengthy, involved applications can make SBA loans feel like too much work. This is especially true when you’re juggling the day-to-day operations of your practice.
Alternative loan providers, like OnDeck, are doing more and more to meet the needs of prime borrowers, like Doctors looking for medical practice loans. By offering rates as low as 6.99%, creating an application process that takes minutes rather than months, and getting loan approved and funded in a matter of days, they are are becoming more competitive with traditional financing options. Qualify for up to $ 500K with OnDeck.