Financing for medical practices: Four options

If you own a physician’s practice and you’re researching medical practice loans, you may be wondering whether secured or unsecured funding is the better choice. The short answer is that if you do not have any collateral to secure a medical practice loan, then you’ll need to apply for unsecured financing.

Today we’ll talk about unsecured medical practice loans and explore the different financing options for your practice. Let’s get started.

What Are Unsecured Medical Practice Loans?

Unsecured medical practice loans do not require you to offer any type of business asset as collateral, such as property or equipment. While some traditional lenders offer unsecured funding, most banks and SBA loan programs will require collateral in order to secure medical practice loans. Alternative online lenders, on the other hand, primarily offer “unsecured” medical practice loans that do not require collateral.

Since the risk of an unsecured loan is higher for the lender, unsecured medical practice loans may come with additional conditions, such as:

• Shorter loan terms
• Smaller loan amounts

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• Higher interest rates or fees
• Personal guarantees (if you default, the lender may come after your personal assets)
• UCC liens—a blanket lien that allows lenders to attach any or all of your practice’s assets if you default.

4 Types of Unsecured Medical Practice Loans

Unsecured medical practice loans are available from three types of lenders: banks and traditional lenders, alternative online lenders, and peer-to-peer lenders. Let’s take a closer look at four common types of unsecured medical practice loans:

1. Unsecured lines of credit

Available from banks and alternative lenders, lines of credit are the most flexible financing option, allowing physicians' practices to draw and repay from the line as needed.Traditional banks may require collateral or a personal guarantee for a line of credit, while alternative lenders typically do not. No matter the lender, unsecured lines of credit often have lower credit limits with higher rates than secured credit lines.

Unsecured lines of credit are ideal for:

• Covering unexpected expenses
• Financing growth initiative
• Practices that need a cash flow cushion or access to working capital

2. Business credit cards

Available from banks, business credit cards function like lines of credit, but tend to have much higher rates and lower credit limits—typically up to $50,000. There are no restrictions on how credit cards can be used and you can avoid interest altogether if you pay your balance in full each month, but there can be significant charges or fees for missed payments.

Because of higher interest rates and penalties for missed or late payments, credit cards are not ideal for funding larger growth initiatives. Business credit cards are ideal for:

• Covering day to day expenses
• Establishing business credit

3. Merchant cash advances

Available from alternative lenders like Greenbox Capital®, merchant cash advances (MCAs) are a form of asset purchase known as a purchase of future receivables. MCAs give you a cash advance in exchange for a portion of your practice’s future revenue. Lenders then take a portion of your daily or weekly debit and credit card sales until the advance has been repaid.

MCA approvals focus heavily on your practice’s monthly sales and revenue, and less on your credit or financial history. No collateral is required for MCAs.

Merchant cash advances are ideal for:

• Financing growth initiatives
• Practices that have a large number of card transactions
• Practices with lower credit
• Practices in need of flexible working capital

4. Invoice factoring

Available from some banks and alternative lenders, invoice factoring is another unsecured financing option that’s often called “accounts receivable financing.” Medical practices essentially sell their unpaid invoices to a lender, called a “factor,” who then “owns” the invoice(s). Factors will advance roughly 70-90% of the money that your clients already owe you, and the remainder of the invoice’s value (less any fees) will be paid once your client pays the invoice. In this case, the unpaid invoices essentially act as collateral to secure the loan.

Invoice factoring is ideal for:

• Accessing working capital by leveraging your unpaid invoices
• Practices with long accounts receivable periods and large invoice amounts.

Is an Unsecured Medical Practice Loan Right For You?

Just because you don’t have collateral doesn’t mean you don’t have options. Depending on your goals and needs, you could be approved for unsecured medical practice funding such as merchant cash advances, invoice factoring, alternative business loans, or a line of credit.

With over 25 years’ experience in financial services, Pamela Kohl has worked closely with banks, alternative finance, and other fintech platforms to develop core banking services, as well as establish new card programs, lending programs, and global payments platforms. She has been nationally recognized for creating innovative solutions, leveraging new markets, and developing winning strategic partnerships. Currently, Pamela serves as Vice President of Marketing at Greenbox Capital®. Pamela earned a B.A. from Marshall University, summa cum laude, and M.A. in International Economics from the University of Miami, where she graduated with Distinction.