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Physician loans: Loans and financing for doctors

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When it comes to financing a medical practice, there are plenty of options to consider. It’s important to understand the differences between and requirements for the loan and financing products available to you.

Here is a guide to the most popular loans and financing options for doctors.

 

Private practice loans and financing options for doctors

Depending on your goals, there are several financing options available for medical practices. The first step to getting any financing is to define your goal–do you need to cover operational expenses, get new equipment, or maybe expand your location? Your use case can help you determine how much financing you need.

You should also take a look at your current finances. What terms can you afford to take on? But bBe careful not to borrow in ways that end up compromising your future finances or prevent you from fully benefiting from the capital. Here are some of the loan and other financing options available to help fund your medical practice.

 

Bank loans for doctors

Bank loans are often a great option for private practice doctors because banks will want to work with your business. You may find that bank loans have lower interest rates, longer payment terms or other perks.

However, banks typically require a lengthy application process that takes at least 30 days to complete. The lender will likely require a personal guarantee for a small practice loan, so be aware of the possible repercussions.

If you have a business partner, your loan may include a “joint and several” clause, which holds each partner within the practice individually liable for the loan if it goes into default. Never assume that leaving the practice releases you of that loan obligation. You should only choose long-term debt (loan lasting more than one year) for long-term needs.

You will also need to provide a detailed business plan outlining your business, tax and bank records, and collateral in case you cannot repay the loan. Some banks say no to new start-up practices, so check if there is a time- in -business requirement for a certain loan or financing option.

 

Lines of credit for doctors

A line of credit is a good solution for a physician’s short-term funding needs. You can use a business line of credit to purchase equipment, meet immediate business needs or hire more staff.

While a line of credit is flexible, a longer-term loan should be used for anything that requires extended payments, like buying out a medical practice or purchasing real estate property for the practice. To avoid hefty interest payments, lines of credit typically should be paid off within a year.

 

Small Business Administration (SBA) loans for doctors

Loans for medical practices backed by the SBA, a government-backed agency, are on the rise. The SBA offers several types of lending to small businesses and physician practices. These SBA loans can have lower interest rates and longer repayment terms than other loan options, even bank loans.

According to the SBA, borrowers need to provide more documentation than private lenders require and express a clear business need. You must provide a detailed business plan, which includes a current overview of your business as well as the future projections and goals.

For example, if you are borrowing money to purchase a new diagnostic device, you need to show the figures of exactly how much income it will generate and how this will affect your bottom line in the years to come. Your personal finances, resume, and ability to manage the practice may also be scrutinized as part of the approval criteria.

In addition, it can take 90 days or longer to close on your loan. Collateral and liability vary depending on which loan product you choose, so it is vital that you read all the fine print regarding what you will be liable for if the loan goes into default.

 

Alternative lenders

Small business alternative financing can offer useful flexibility in how you satisfy your loan or other financing options and financing providers typically have many creative loan options to choose from.

For example, some may offer terms that allow your daily or weekly remittances to fluctuate in accordance with your sales volume or provide a shorter time frames to satisfy your financing at a lower amount than a bank might be willing to offer. If flexibility and ease are important, alternative lending is a perfect funding solution.

Small business financing provided by alternative lenders typically take less time to apply and approval process may be easier to successfully navigate. Alternative lenders also tend to look at your business potential more than your past credit history, so having less than perfect credit is not an issue.

However, alternative lenders typically mitigate this added risk for the lender withby requiring higher rates or shorter term repayment periods. It is important to understand how your monthly or remittances will impact your current revenue and expenses.

 

Physician mortgage loans

A physician mortgage loan, also known as a doctor loan, is a specialized type of mortgage designed to meet the unique financial needs of physicians. These loans are tailored to account for the specific financial circumstances that often accompany a medical career, such as high levels of student loan debt and delayed entry into the workforce due to extended education and residency periods.

Physician mortgages allow medical professionals to get a mortgage without private mortgage insurance, even with six-figure student loan debt.

 

Who can get a physician mortgage loan?

Doctors with an M.D. or a D.O. are eligible for a physician mortgage loan. Some loans are also available for doctors with a D.P.M. degree or dentists (D.D.S. or D.M.D.). If you hold any doctorate in the medical field, it is worth asking your mortgage lender about physician loans to see what your options are.

Physician mortgages are only available for the purchase or refinance of a primary residence. You cannot purchase an investment property or a second vacation home with a doctor loan.

Read more about loans for dentists here.

 

How do physician loans work?

A physician mortgage loan is different from an FHA or conventional mortgage in several beneficial ways. Physician mortgages are designed to help doctors get home loans without costly fees like for private mortgage insurance (PMI) andor rejection for high debt-to-income (DTI).

PMI is usually required for any home loan with a down payment less than 20% of the total loan amount, but doctors are able to obtain a mortgage with no private mortgage insurance regardless of the down payment amount.

Doctors can face significant obstacles to home ownership due to with large amounts of student loan debt. However, Physician loans make it possible to qualify for a home loan even if your debt-to-income ratio is less than ideal. Even if your student loans are in deferral, your lender may ignore them when determining your eligibility.

While physician loans have huge perks, remember that you are still taking out another loan and will have additional expenses related to home ownership.

You will need to make monthly mortgage payments on the principal and interest, in addition to any student loan payments. You will need to have enough money saved to cover closing costs, which includes expenses like underwriting and origination fees.

Unlike rent, you are responsible for property taxes and home repairs. Furthermore, if you might move in the near future, you will have to sell the house, or you will still be responsible for the mortgages, taxes and maintenance. Consider whether home ownership is right for you before taking out a physician mortgage.

 

Pros and cons of mortgage loans for physicians

Pros

  • Lenient employment standards: Instead of requiring years of employment history, many lenders accept an employment contract as proof of income and job stability, which is ideal for new physicians or those relocating for work.
  • Flexible credit and Debt-to-Income (DTI) qualifications: Compared to conventional mortgages, doctor loans often have more lenient criteria for credit scores and DTI ratios, making approval easier.
  • No down payment: These loans eliminate the initial financial burden often faced when buying a home. This aspect is particularly beneficial for physicians who may have significant student debt.

Cons

  • Usage restrictions: These loans are generally restricted to financing single-family, primary residences.
  • Variable interest rates: Physician loans are typically offered as adjustable-rate mortgages (ARMs), which means the interest rate may fluctuate over time, potentially increasing monthly payments.
  • Potentially higher interest rates: The interest rates on these loans may be higher than those of conventional loans, leading to increased costs over the loan’s lifetime.

 

How to get a loan for your practice with Credibly

While we do not offer mortgages for residential purposes, we can help you upgrade your practice with a small business loan so you can to deliver the best in patient care. Just  fill out a financing application and submit the last three months of your practice’s business bank statements.

 

Physician loan requirements

Whether you are applying for a private practice loan or a physician mortgage loan, you will need to provide the loan officer with some proof that you are able to repay your debt obligation. If you are applying for a physician mortgage, you will need to provide typical personal documents for mortgage application, like your pay stubs, employment verification, credit score, assets and liabilities.

If you are applying for a business loan for private practice, you will need business financial documents, revenue, debt obligations and credit history.

All of this documentation is standard for mortgages or business loans, but lenders may be more willing to trust in your future. Since healthcare businesses are reliable and have a proven business model, you may not need to “prove” yourself to the lender.

If you are looking for a medical practice loan, talk to a Credibly business specialist about your options. Learn more by completing an online application.

Read more: How to conduct a financial stress test of a medical practice?