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Interest Rates Aside: 5 Other Things to Consider When Looking for a Medical Practice Loan

Are you seeking financing for a healthcare practice? Interest rate is important... but it's not the only thing to consider.

When shopping for a medical practice loan, many doctors consider the loan’s interest rate the most important factor. After all, the interest rate is the main determinant of the cost of the loan, so it’s logical to make this a primary consideration in deciding which one to choose.

 

But there are a number of other factors to also take into account when making a decision about healthcare financing. In fact, the loan with the lowest interest rate isn’t always the best option. Here are five other things to consider when looking for a medical practice loan:

 

1. The loan’s eligibility requirements

 

Different banks have different eligibility requirements for medical practice loans. This should be an important factor in your decision — because if your practice can’t qualify for a loan at the bank that’s offering the lowest interest rate, you'll waste a lot of time going through the application and review process with them.

 

Before starting the loan application process, ask the bank detailed questions about their eligibility criteria. For example:

 

Is there a minimum number of years a practice must have been open to qualify for a loan?

 
Must a practice meet specific financial requirements, such as a minimum debt service coverage ratio or working capital level, to receive loan approval?

 

2. The length (or term) of the loan

 

Loan terms — or the number of years until the loan must be repaid in full — can vary significantly from one bank to the next. For example, some banks cap the length of a healthcare loan at three to five years, while other banks might offer healthcare loans with 10 year terms or longer.

 

Ask the bank about this before applying for a medical practice loan. Keep in mind the bank might ask you questions about your intended purpose for the loan and then suggest a loan term that's most appropriate. Try to be flexible about loan terms; your bank probably (and hopefully) has experience in healthcare financing and can usually suggest the best term for your intended borrowing purpose.

 

3. The loan’s prepayment options

 

After obtaining a medical practice loan, you might decide that you want to pay off the balance sooner than the full length of the loan term. But some banks charge prepayment penalties if a practice pays off the balance early. Be sure to ask about prepayment options before making a final decision.

 

4. The bank’s customization capabilities

 

Sometimes, a practice’s financing needs don’t fit neatly inside the box of a bank’s standard medical practice loans. In these situations, you’ll want to work with a bank that can customize financing solutions to fit your practice’s specific needs.

 

For example, maybe your practice needs a longer term loan than what a bank typically offers. Or maybe you need a higher credit limit or more flexible repayment options on a line of credit. Working with a bank that has the ability to offer customized healthcare financing solutions can sometimes be more important than choosing a bank that offers a slightly lower interest rate.

 

5. The bank’s breadth of financial services

 

If yours is like most medical practices, you rely on a wide range of banking and financial services beyond healthcare loans. These typically include business checking accounts and treasury management, insurance, institutional trust, private banking, and merchant card processing services.

 

Before choosing a bank for healthcare financing, do a little research to find out which of these other services the bank offers. Many practices find it beneficial to consolidate all of their banking and financial business with one institution. Not only can this make banking more convenient, but it may also lead to discounts on some services. So if a bank is offering a healthcare loan with a slightly higher interest rate than other banks, ask them if they might be able to lower the rate if you use other banking services.

 

Look for the right fit

 

In the end, strive to obtain a medical practice loan from a bank that you feel will be the best fit for your practice over the long term. Cadence Bank offers healthcare loans as well as a suite of small business tools and solutions to help you grow your medical practice. 

 

For more in-depth insight into opening a medical practice, download our free ebook, “The 5 Biggest Mistakes to Avoid When Opening a Healthcare Practice.” We cover obtaining a medical practice loan and several other important factors. 

 

Click here to download the ebook for free.
 

 

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.



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