It’s true that many banks look favorably on physicians and dentists. Everyone needs to maintain good health, and no one wants their teeth to rot.
Medical services, as we all know, can be expensive. Because such services are always in demand, banks figure doctors will have a much easier time paying back their small business loans in full compared to other kinds of businesses.
But just because common sense might tell you that a bank is your practice’s best bet for securing a business loan doesn’t mean it actually is. In fact, one of the biggest mistakes doctors make when applying for business loans is failing to understand the variety of financing options that are available to them.
Before you go ahead and apply for a physician loan for your business at a bank, here are five things you need to consider:
- The application process takes forever.
Your medical practice is doing well. You have a lot of revenue, but you’re anticipating an upcoming cash gap. You might think you’d be able to waltz into a bank and waltz right back out with a fistful of cash. But you’d be wrong.
Believe it or not, the business loan application process at banks can easily extend beyond 30 days. Thirty days! Who has time to wait that long?
- You need to provide a detailed business plan as well.
Even if your practice is doing fantastic, there’s a chance you won’t be able to repay your business loan, however small it may be.
If there’s one thing banks are good at, it’s collecting money that’s owed to them. Before they lend you any cash, they expect you to give them a thorough business plan that outlines your bank and tax records, your collateral, and your other business records. Do you have enough time (and energy) to prepare all of that?
- You’ll probably have to put up your personal guarantee.
Banks almost always require borrowers to put up personal guarantee. This means that in the event you default on your small business loan, the bank will hold you—and any other partners—personally liable.
In other words, should you default, the bank will be able to go after your personal assets, as well as those of your partners, until it is repaid. Or until you all are bankrupt.
- It doesn’t always make sense to sign on to long-term debt.
Generally speaking, banks offer long-term loans. That’s exactly what they want: The longer you’re borrowing money, the more interest the lending financial institution will accrue.
But it doesn’t always make sense to sign onto long-term debt. Sometimes physicians might need some extra cash to make payroll for two months or to cover the costs associated with office renovations, for example. In other instances, doctors need to invest money in pricey machinery and equipment which they believe will generate significant chunks of revenue down the road.
In situations like this, short-term borrowing probably makes more sense.
- If your practice is new, it will likely be harder to secure a loan.
For the most part, banks require businesses to submit three years of tax returns during the business loan application process. Suffice is to say that if your business is just starting out, you won’t have three years of returns to fork over. Quite simply, banks hesitate to help newer practices because they view them as riskier borrowers.
The good news is that, when it comes to financing, physicians have more than one option. Instead of going through a bank, doctors can seek alternative financiers that offer considerably more favorable rates and terms than traditional financial institutions.
The application and approval process for these kinds of physician loans is simple as can be. And you don’t have to put up any collateral, either. It doesn’t even matter if you have a bad credit score; business financing is based on the performance of your medical practice.
It doesn’t make a whole lot of sense to take out a long-term loan for what you hope will be short-term needs. Instead of risking your own collateral—and being personally reliable for the business loan in the event of default—consider applying for an unsecured doctor loan for your business.
Assuming you’re approved—and there’s virtually no reason you wouldn’t be—you’ll have the money you need to grow your practice in a matter of a few business days. What’s not to like?