Find out all about the different medical loan options that can be used to meet your business needs.
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The private healthcare sector comprises of a diverse range of medical professionals - from dermatologists, dentists and pediatricians, to non-traditional practitioners like homeopathic doctors and reiki therapists. From time to time, these practitioners may require external financing to fund a variety of business needs. These include:
Manage cash flow gaps
Delays from billing departments at insurance companies, equipment malfunctions and late invoice payments are some of the reasons for a tightening cash flow in medical businesses. Quick and flexible financing options - such as a line of credit - can serve as a handy tool to help cover your short-term expenses.
Fund marketing activities
Medical practitioners typically rely on a combination of online and offline marketing strategies to get the word out about their business. Social media marketing campaigns, email marketing campaigns, content marketing campaigns, SEO optimisation, as well as encouraging patients to leave reviews on your Google Places listing and social media profiles are strategies that can help you build up a strong online presence.
Depending on the nature of your practice and your target audience, it could also be helpful to implement offline tactics - such as get involved in, or sponsoring local health fairs and community events.
Growth and expansion
Obtaining external financing can help fund the costs of your expansion strategy - whether that’s setting up a new branch, buying out a partner, bringing on additional practitioners or acquiring or merging with an existing practice.
Invest in technology
Investing in up-to-date tools and equipment can be a cost-intensive endeavour - yet it’s a necessary measure that can bring about greater efficiency and value to your practice.
Beyond medical technologies like health wearables, telemedicine equipment and electronic medical records, healthcare professionals also need to look into tools that create a seamless patient experience - such as practice management systems and online or cashless payment platforms.
Equipment purchases and maintenance
The equipment needs of a medical practitioner can span across a wide range - from obtaining new diagnostic equipment, to replacing malfunctioning tools and updating administrative equipment.
You may have to tap into a mix of financing options to meet your business needs. Asset leasing or hire purchase agreements are well-suited for larger purchases, while a flexible solution - such as a line of credit - makes a great option for funding unexpected expenses like equipment replacement or repairs.
With secured loans, borrowers are required to put up assets as collateral for the loan. Should the borrower default on the loan, the lender may sell off the assets to recover the amount owed. Secured loans typically obtained by medical practitioners include medical equipment financing and lines of credit.
Line of credit
A line of credit, also commonly known as revolving credit provides borrowers with access to a pre-approved sum of capital. Think of it as a credit card; it’s a facility you can draw from as and when you need, and interest is charged only on the amount that is drawn.
Due to its flexibility and versatility, a line of credit makes a great option for covering unexpected costs - such as replacing a malfunctioning equipment or managing seasonal fluctuations.
Medical receivables factoring
Waiting for a long time - a duration that typically lasts between 30 to 120 days - to get medical claims paid is a common challenge faced by healthcare practitioners. This time lag can result in cash flow issues, particularly for newer ventures and businesses that are experience rapid growth.
Medical receivables factoring, which involves the selling of invoices to a third party company (the factor) is a financing option you can tap on to free up cash tied to unpaid claims and other receivables. The factor will first advance a percentage - up to 80 - 90 percent - of the claims. Once the insurer has made a payment, the factor will pay out the remaining balance after deducting their factoring fee.
Asset leasing and hire purchase
A lease refers to an arrangement between the lessor (owner) and the lessee (user of the asset), where the lessor purchases an asset for the use of the lessee, in exchange for lease payments. In a hire purchase agreement, the hirer (user of the asset) makes payments to the vendor for the use of the asset.
One key difference between the two arrangements is that at the end of a lease, the asset is returned to the lessor (owner), while in a hire purchase agreement, the hirer (user) is given the option of acquiring ownership of the asset. These two arrangements also differ in terms of upfront payments, depreciation claims, debt levels and types of assets involved.
Short term and long term loans
Simply put, short term loans refer to financing options set to be repaid within six months, while long term loans often require multi-year payments, along with a more stringent application process.
You’ll need to weigh out the pros and cons of both these loans, and assess your business needs in order to determine the best solution for your venture. For example, a short term loan can be a great option in situations where you need to access funds quickly, due to its convenience and speedy funding process. But these loans typically have higher interest rates and short repayment terms too - so you’ll also need to be certain that your income will be sufficient to make repayments on time.
Draw up a solid business plan
To better your chances at getting your loan approved, you’ll need to map out a clear plan of action for your venture - one that provides your lender with a clear idea of where you’ll be at in six months or a year down the road. Here are a couple of action steps that can guide you in your planning process:
Tailor your plan to your target audience: The lending criterias of a bank will vastly differ from that of an alternative lender, so you’ll need to have a clear notion of the type of lenders you want to approach, and draw up a plan that aligns with their needs. Thorough research is key - you’ll need to find out about who they are, what their processes are like, as well as the type of businesses they’ve invested in or are looking to invest in.
Include industry research and statistics: This is especially relevant for newer ventures seeking financing, as potential lenders will want to assess your projections against supporting data and industry measures. And if you’re obtaining funding for a specific equipment or expansion project, it can be helpful include market research that demonstrates consumer demand for the products, services and activities you want to offer.
Outline your repayment strategy
Your lenders want to know that you’ll make consistent, timely payments throughout the duration of your loan - and one way to demonstrate your ability to do so is to map out a detailed repayment strategy.
In addition to your revenue forecast and cash flow projections, you’ll want to include a couple of alternative plans. This will serve well as backup options, should a potential lender raise doubts about the viability of the initial repayment strategy you’ve presented.
While lending criterias vary across different financial institutions, having an operational history of three years, a minimum annual revenue of at least $200,000 and an average daily balance of $10,000 to $20,000 maintained in your bank account are examples of requirements typically imposed by traditional lenders.
These requirements, combined with lengthy onboarding process can make obtaining external financing challenging for small medical businesses or independent healthcare practitioners - even if they have a healthy, well-managed practice.
With online lending platforms like Aspire, loan application processes are convenient, streamlined and speedy - submitting an application takes a matter of minutes, and you’ll be notified of your loan approval status in just 24 hours.