Advantages vs. Disadvantages of SBA 7(a) Loans for Your Medical Practice

Medical practices need money for a variety of reasons: to lease or purchase equipment, finance start-up costs, refinance debt, buy real estate, compensate staff, renovate facilities, and much more. Physicians looking to fund significant expenditures like these often pursue loans from the Small Business Administration (SBA). Specifically, they seek to secure financing through 7(a) assistance, the most common loan program the SBA offers.

SBA 7(a) is designed for small businesses with special requirements. Loans can be obtained for as much as $5 million. In many cases, the 7(a) loan is an excellent choice for medical practices. In other instances, better options may be available.

Let’s take a quick look at the advantages and disadvantages of the 7(a) loan for medical practices. You can also learn more here.

Advantages

Although not specifically created for medical practices, the 7(a) loan is often the best option for many physician owners. Qualifying practices can use the loan to cover a wide variety of expenses, with great terms. Interest rates are lower and the SBA 7(a) has a longer repayment schedule than many other funding sources.

If money is needed for real estate purchases, the SBA 7(a) is considered one of the top loan options available today. But the flexibility of the loan means it can also be applied to any of the aforementioned expenditures a medical practice may face.

Because the 7(a) is so highly sought after, there is a lot of competition for approval. Prospective borrowers must have a strong credit background, steady finances, and a business history of at least 4 years. In light of these requirements, physicians in established practices are typically the strongest candidates for the 7(a) loan.

If you decide to apply for the loan, be prepared to complete a significant amount of paperwork and contend with the proverbial “red tape” as you pursue approval. Learn more about the loan application process with UFS here!

Disadvantages

The chief disadvantage of this loan is the long runway leading up to approval. Prospective borrowers will need a lot of time to apply for the loan and then must wait patiently while the SBA decides whether or not to approve their application. In addition, the myriad qualification requirements can be impediments—or even deal-breakers—for many practices.

For these reasons, the SBA 7(a) loan is not a great option for those medical practices that need fast access to funds. And in the case of startups, it may not even be a viable option. After all, how can an operation provide a 4-year business history if it is just getting started?

Alternative Sources of Funding

The good news for startups and practices needing funds quickly is that many alternative sources are available. These include:

  • Unsecured medical practice loans – borrowers with excellent credit and solid income often qualify for higher borrowing limits with these loans which are specifically created to cover the needs of medical practices
  • Equipment financing – if a practice requires capital for the purchase of new equipment, financing can be obtained using the new equipment itself as collateral, which reduces the risk for lender and borrower alike
  • Term loans – practices that expect to quickly experience positive cash flow are excellent candidates for these types of cash loans, which come with a fixed interest rate and shorter repayment periods compared with other loans
  • Unsecured business lines of credit – similar to a high-limit credit card, this option allows money to be borrowed against a line of credit and repaid on a revolving basis

“I have personal experience as a gastroenterologist in practice development and expansion. Decisions about funding practice growth are complex and are related to a number of locoregional factors. It is a stressful time but getting the financing does not have to be part of that stress. As a physician owner in this company, I strive for quick resolution of the process without hassle, headache, or heartache.” – Alan Savoy, MD and UFS Partner

Seek expert guidance

These are just some of the factors to consider when determining if the SBA 7(a) loan is right for your practice. Seek guidance from your financial institution and other loan experts. If you’d like to explore unsecured loans and/or lines of credit for your practice, the experts at UFS stand ready to help. They can potentially secure you access to up to $450,000 or more at interest rates starting around 6%. Contact us today!