Medical practices do not all have the same cash flow. Medical practices differ in size, location, specialty, how long they’ve been in business, number of patients, insurance providers, and overhead costs. The medical industry ebbs and flows with the economy, and is often affected by government regulations. These regulations can take a toll on the finances of individual medical practices. Add to that the delay in receiving payments from insurance companies, and it’s easy to see why doctors and their medical practices need financial assistance.
If you are like most doctors, you didn’t open a medical practice because you are a good businessman. You dreamed of opening your own practice because you wanted to provide excellent medical care to people. You are good at being a doctor. You have terrific bedside manner. You hire personable employees. You’re up-to-date on the latest medical best practices. Medicine is your expertise. Business is not your strong suit. You feel out of your comfort zone when it comes to making solid business decisions. Sure, you have patients, and there is money coming in. But there’s not quite enough cash flow to buy the new equipment or to expand into a bigger office.
So you’re thinking about taking out a small business loan for your medical practice.
Michael Kissinger is a business growth strategist based in the San Francisco area. “Poor cash management could end up putting a profitable practice or company out of business. Without cash on hand, a business may not be able to invest in assets that it needs, such as new equipment and inventory,” Kissinger writes in a lengthy LinkedIn post.
MISTAKES YOU DON’T WANT TO MAKE
When you’re considering a business loan, you don’t want to make the mistakes many doctors have made in the past. The pressure is on when you graduate from medical school. Those school loans come calling. You want to get your medical practice established fast so you can start generating that massive income.
It is around this time that many doctors start rushing decisions and don’t take the proper time to think through the best options. eVisit lists Five Mistakes To Avoid When Starting a Medical Practice:
1. You don’t start planning early enough.
2. You don’t shop around for a banker or business loan program.
3. You don’t do the math before making investments.
4. You don’t research the location for your practice.
5. You don’t surround yourself with the right staff.
These mistakes are all too common when doctors open a new medical practice. But perhaps your practice isn’t new. You have been in business for a while. You can’t go back in time and correct some of the mistakes of the past (but we all wish we could!). I listed these mistakes here because many doctors are bound to repeat past mistakes, without learning from them. Also, when doctors are preparing to take out a physician loan, they could be setting themselves up to make some of these mistakes (for the first time, or the second time, etc.).
So, what can you do now to get your medical practice ready for a small business loan?
THINK CAREFULLY ABOUT THE REASON YOU NEED A LOAN
MBA Health Group writes on their blog: “Undercapitalization is the number one reason for business failure.”
It is easy to lose sight of the business side of your medical practice. Physicians focus on their patients, giving 99% of their attention to medical needs, paperwork, and staff issues. How are you supposed to stay on top of marketing, cash flow, and accounting at the same time? It’s a pickle, no doubt about it. The job comes with a myriad of responsibilities, especially if you own your medical practice.
Don’t rush financial decisions. Small business loans exist to help you. But if you take out a loan carelessly, it can come with unintended consequences. You must think through the reasons you need a loan for your business.
Some of the most common reasons are:
• To purchase new equipment
• To make payroll
• To set up offices
• To remodel offices
• To purchase supplies
• To update old systems to modern ones
A note about borrowing money to make payroll: avoid it if possible. Insurance payments to your practice slow down cash flow when they don’t arrive on time. Doctors sometimes mismanage the timing of big chunks of money going out while little money comes in. This leads to gaps, which can lead to crises. Get a business loan to make payroll once, learn from the experience, and manage the cash flow better in the future so you don’t have to get a second loan for payroll.
The best advice anyone can give you before you apply for a business loan: Be absolutely certain about how you will spend the money. Clarity will help you identify why you’re in this position of needing a loan, how the loan will help you, and how long it will take you to pay off the loan.
If the business loan is for new equipment, ask yourself these questions:
• Do I really need this equipment?
• What will this equipment do for my medical practice?
• Will it bring in more patients?
• Will it allow me to charge more?
• Will it allow me to offer more services?
• Would my medical practice continue its success without it?
• How many times do I need to use this new equipment in order for it pay for itself?
• How long will it take to use the equipment that many times?
• Will the equipment become outdated before it pays for itself?
• What if the equipment breaks or needs maintenance? Is it costly to repair?
Use the approach above with any of the other reasons to get a small business loan. Ask lots of questions. Think through solid answers. Don’t go into the loan process without clarity. You want clarity for yourself and for your medical practice. No one else will scrutinize your decisions and fight for the success of your medical practice like you will. So take the time you need to consider your options and clarify your reasons for a loan.
CLARITY AND INTENT ARE THE ENEMY OF TEMPTATION
Has this ever happened to you? You dream of taking a trip to Italy or buying a new Mercedes-Benz, but you can’t pay for it. You even have an unselfish motive: you want to surprise your spouse or partner. So you start thinking about how you could get around the financial shortfall. You don’t want to dip into your retirement account. You would hate to touch your investment portfolio. And you really don’t want to borrow, again.
Then it hits you. Your small business loan for that new expensive equipment just came through. You haven’t purchased the equipment yet. That money is sitting there. You could use some of it for your dream, and then pay it back in plenty of time, right? Besides (you rationalize), you don’t need that equipment immediately. Just put it off for a little while. Go for the dream. Your wife will thank you later.
Never mind that your medical practice will suffer for it! Never mind that it will hurt you in the long run. Just lean in to your dream. Consequences are for suckers.
You don’t believe that, but you might have been tempted in this way before. You might feel tempted now—to get a business loan for your “medical practice”—and then use it for something personal. You don’t want to do this. In your heart, you don’t want to be this careless with finances and your livelihood. As much as you might want to surprise your spouse, you know logically that you can’t cut corners. Doing so would put your medical practice in a deeper hole. It is not worth the risk. Be honest with yourself about the real reason you need a loan.
Don’t forget—you have a small business. Your business affects people’s lives. Your life. Your family. Your employees. Your patients. Your vendors. Your community. Treat your medical practice like a business. Get advice when you need it. Ask advice from people you trust, and then you can consider asking an expert you don’t know, but only if necessary. Your best bet in getting that trip to Italy is to have a successful medical practice. Everybody wins if your business is successful.
THINK CAREFULLY ABOUT THE KIND OF LOAN YOU NEED
Just as you must think through the reasons you need a loan at this time, you also want to consider the different kinds of loans available to you. Considering your reasons first will frame your answers to these questions:
• What kind of loan suits this current need?
• How much do you plan to borrow?
• How quickly will you pay off the loan?
• Can you foresee when you might need to borrow again?
Lenders have different application questions, but if you expect their questions, then you enter the loan process already prepared with your answers. Look for a lender that does not require any application fees or upfront fees. Why pay extra even before you are approved? Let the lender serve you by finding the right type of business loan for your medical practice.
SHOP AROUND FOR THE BEST LOAN FOR YOUR BUSINESS
Finally, the time has come to apply for a business loan. You did your homework. You asked the tough questions (If you didn’t ask the tough questions, go back to the previous sections and review. You don’t want to get to this stage without taking the time to think carefully how you will use the loan and what kind of loan you need.). You talked with your business partners. You are ready to approach a lender.
Shopping for a loan can be similar to shopping for anything else. Keep in mind your priorities for your business. Talk with different lenders. Interview them. Treat it like hiring a new employee. This new loan might be with you for a while. You wouldn’t rush to hire the first live body that comes in the door for a key position in your medical practice, right? So don’t jump at the first lender you see. Take some time to get acquainted with each lender. Look at their loan programs. Consider at least two to three lenders before you make a decision.
Emily Berry writes in an article for American Medical News, “Experts say physicians run into trouble not in qualifying for small business loans, but in shopping for the best terms and the best service, and paying attention to the details associated with borrowing.”
If you have this in mind, then you will keep a level head if a lender comes calling with enthusiasm and a “really great deal.” Of course lenders want your business. But you’re not going to hurry, because you care deeply about your business. Some questions you need to ask at this stage are:
• What are the terms of the loan?
• What kind of lender is offering the loan?
• Does the lender have longevity in the loan business?
• What is the interest rate?
• How will I pay back the loan?
• Are there any hidden fees?
• How does this lender compare to another lender?
• Does anyone I know have experience with this lender?
• What is the social opinion of this lender? What is this lender’s rating on business review websites?
Get to know your lender and let them get to know you. The more you build that trust relationship will only help you get what your medical practice needs. Don’t take a small business loan lightly, no matter what size. Although a loan might be easy to get and is generally safe, there is no such thing as a business transaction without some risk. So be a detective and learn the clues of a lender which genuinely wants to help you succeed. Don’t neglect the time and research before you borrow. If you do this right, you can go through the business loan process with very few bumps along the way and help your medical practice acquire the funding it needs.