Providing quality healthcare coverage for employees remains a major challenge for small business owners. Medical loans allow small businesses to spread out upfront costs for things like group health insurance plans, opening onsite clinics, and other healthcare offerings.
Group Health Insurance Loans
Group health insurance for small businesses typically requires paying premiums for the full plan year upfront. Premium financing spreads these costs over time.
- Lenders provide loans specifically for group health insurance premiums that small business owners repay in installments.
- By breaking up premium payments, businesses ease the impact on cash flow from one large lump sum.
- Types of lenders include traditional banks, online lenders like Balboa Capital, and insurance brokers.
- Interest rates may be higher than standard commercial loans but lower than credit cards.
- Group premium loans typically take 1-2 weeks to fund and last 12 months until the next plan renewal.
Premium financing makes providing competitive employee health benefits more feasible.
401(k) Plan Loans
Some small businesses borrowing against existing 401(k) retirement funds helps cover medical costs.
- 401(k) plan holders can typically borrow up to 50% of their vested account balance, up to $50,000.
- Interest is paid back into the account rather than to a lender. If eligibility rules are met, loans aren’t taxed or penalized.
- Loans must be repaid in 5 years through automatic payroll deduction installments to avoid taxes and penalties.
- If the employee leaves the company, loans must be repaid in full immediately. Defaulted loans are taxed as withdrawals.
401(k) plan loans provide access to funds at relatively low costs but reduce retirement savings.
Medical Equipment Financing
Medical practices often rely on financing for major equipment purchases like MRIs, CT scanners, and dental x-ray machines.
- Total costs for high-end medical equipment can easily exceed $100,000. Financing allows more flexibility in acquiring needed items.
- Both equipment manufacturers and third-party lenders offer financing for terms of 5-7 years typically.
- Lenders consider factors like personal and business credit, time in operation, revenues, and collateral.
- Compare interest rates across lenders. Rates may be higher for startups or low revenue businesses.
Medical equipment loans make the latest healthcare technologies accessible for small practices.
Practice Expansion and Renovation Loans
Constructing or expanding a medical facility and purchasing furnishings requires significant capital that loans can provide.
- Practice expansion loans help finance new construction, renovations, expansions, or partner buyouts.
- Loan amounts range from $100,000 – $5 million+ from lenders like Credibility Capital.
- Lenders evaluate revenue history, credit scores, earnings projections, and assets/collateral pledged.
- Loan terms span 10-25 years for permanent structures and equipment.
Access to capital invests in the ideal facilities and capacity for serving patients.
Commercial Real Estate Loans
For medical practices buying rather than leasing real estate, commercial mortgages help cover purchasing and renovations.
- Small medical facilities like dentist offices, clinics, and specialty practices may require $500,000 – $5 million in real estate financing.
- Lenders base terms on factors like location, building type, asset value, down payment percentage, and financial history.
- Mortgage rates also vary based on amount, loan type, terms, and credit score.
- Typical repayment term lengths are 10, 15, 20, or 30 years.
Commercial real estate loans allow for ownership and customization of property.
Medical Receivables Financing
Medical businesses can take out financing secured against their accounts receivables to ease cash flow.
- Lenders advance a percentage of the practice’s outstanding patient invoices and insurance claim payments upfront.
- The business then repays the loan as payments from patients and payers come in.
- Rates vary greatly based on repayment terms, provider type, and perceived risk. Average APR ranges from 18-30%.
- Receivables financing helps handle payroll, equipment purchases, and lean periods without accruing debt.
Leveraging the future value of AR balances provides working capital.
Table: Medical Lending Options for Small Healthcare Businesses
| Loan Type | Typical Uses | Loan Amounts | Qualifying Factors | Considerations |
|---|---|---|---|---|
| Group Health Premium | Paying employee insurance premiums | $10K – $100K+ | Business finances, premium quote | Short 12 month term, higher interest |
| 401(k) Plan Loans | Any business purpose | Up to $50K or 50% of balance | Employee eligibility rules | Reduces retirement savings |
| Medical Equipment | Imaging machines, dental tools, etc. | $25K – $500K+ | Revenue and credit history | Allows keeping technology current |
| Practice Expansion | New construction, renovations | $100K – $5M+ | Financial projections, collateral | Long repayment term |
| Commercial Real Estate | Purchasing office space | $500K – $5M+ | Property appraisal, down payment | Owning can be more cost-effective |
| Medical Receivables | Flexible working capital | Varies greatly | Invoices and future AR balances | Quick access to cash |
Frequently Asked Questions
What types of group health insurance policies can be financed?
Most lenders can finance premiums for major medical, dental, vision, life, disability, and supplementary insurance policies. Simply provide a quote during underwriting.
Are there fees or down payments associated with medical equipment financing?
Most lenders charge 1-4% origination fees and may require 10-30% down payments. Compare options as fees greatly impact the total repayment cost.
What is the difference between SBA and conventional small business medical loans?
SBA-backed loans offer lower down payments and interest rates but have a lengthy application process. Conventional loans are simpler to originate but charge higher rates and fees.
What happens if my medical practice cannot make loan payments as scheduled?
Contact your lender immediately to explain the situation and request alternative repayment arrangements. They may grant extensions, but interest will continue accruing. Defaulting severely damages credit.
Can independent contractors or solopreneurs qualify for small business medical loans?
Traditional bank loans require formal business registration documents. But online alternative lenders may approve financing for sole proprietors using just personal credit data.
