The medical industry is expansive and complex. Far more than the doctor’s office or hospital, there’s dentistry, optometry, alternative medicine and other forms of medical practice, as well as support professions such as skilled nursing, pharmacy, speech therapy, occupational therapy, rehabilitation, and more.
Many of these practices are small businesses that might have trouble finding adequate financing. Thankfully, there are loan options as comprehensive as the medical industry itself, which can help the owners of small practices make the upgrades or expansions necessary to stay competitive and take better care of their patients.
Where to Find Financing for a Medical Practice
Most people think of a bank first when they think about securing a commercial loan. Banks may offer special programs for loans to medical professionals, but often have low approval rates. Applicants who succeed in securing a commercial loan from a bank may be enrolled in a program designed especially for medical practitioners. These programs have low down payments and adjustable rates starting with a limited-time special rate that remains considerably below market level for an initial period. Unfortunately, after the initial period has passed, the borrower will usually face a balloon payment, forcing them to refinance after several years.
Online lenders may be much more willing to lend, but they tend to charge much higher rates—no less than 7% and up to 30%—for medical practices. Specialized finance companies are often a better alternative, since their specialized knowledge and advocacy can help an applicant in many ways.
Franchising Your Medical Practice
The role of franchises in medical practices is often overlooked. Optometry franchises are well known through their advertising efforts, but dentists, speech therapists, assisted living facilities and most other medical practices have franchise businesses active in their fields.
Joining a franchise changes financing conditions considerably. The applicant is required to receive approval from the franchisor and from a financing organization, but there is often assistance available from the franchisor, and the lender will look at the franchisor as well as the individual applicant when making a lending decision.
Franchising has not quite reached residential care to the extent of other medical practices. While there are numerous finance companies that will work with assisted living or skilled nursing facilities, franchises are very rare. On the other hand, senior home care franchising is booming. Those businesses take up 58 places on the 2018 Entrepreneur 500 Ranking.
SBA 504 Loans for Medical Practices
The Small Business Administration (SBA) 504 loan program can provide financing for nearly all forms of medical practice, including franchises. The loan offers high accessibility as well. Conventional lenders—banks and credit unions—are partners in the 504 loan and receive low-risk guarantees that encourage them to lend more freely.
A 504 loan can be used to:
- purchase land or buildings
- construct, upgrade or renovate buildings
- purchase equipment with a service life of ten years or more
- refinance conventional debt
The 504 loan is ideal for practitioners who are looking to buy the facility they now rent or buy another facility. It can also be used to update premises or purchase major equipment.
A 504 loan comes in three parts:
- The first is a loan from a conventional lender for at least 50% of the total amount. The borrower and that lender determine the amount and conditions of that loan, which becomes the first mortgage.
- A Certified Development Company (CDC) facilitates a separate SBA loan of 40% of the total, up to $5 million ($5.5 million for projects eligible for the SBA’s Green Energy Program), at a fixed, below-market rate. This is the second mortgage.
- The borrower contributes 10-15% to the loan as a down payment. Certain types of facilities, like many medical facilities, are classified as single-purpose properties by the SBA and require a 15% down payment. Otherwise, the down payment is 10%.
The 504 loan has a 10- or 20-year term, with a 25-year option to be available soon. All 504 loans are fully amortized (which means they have no balloon payments), and are easy to apply for, especially if you prequalify first.
Medical Practice Success Stories
TMC Financing has helped clients in a variety of medical fields purchase their own properties or expand their practices with a 504 loan.
Atherton Healthcare is a full-service skilled nursing and rehabilitation facility serving seniors who need short-term or long term care. Husband-and-wife team David Dediachvili and Natalia Josseliani, immigrants from the country of Georgia, combined her medical background with his finance experience and bought a 60-bed facility in Menlo Park with a 504 loan. They then expanded it to accommodate 160 beds and now have 170 employees.
“It just makes good financial sense to own the property where you operate your business,” Dediachvili commented. He was impressed with the speed of the loan. “In the beginning, I was worried about time constraints, but they did everything possible to accommodate my needs before the deadline on the option to buy,” he said. The total cost of their project was $8.9 million.
Dr. Ahmad Abdollahi secured a 504 loan for $1.2 million to purchase the San Jose office of the dental practice he shares with his brother, Afshin. The brothers have been practicing in Mountain View since 1994 and in San Jose since 1997. They named the 4,194-square foot office in San Jose the Abdo Medical Building, and lease space to several other medical practices and businesses. Drs. Afshin and Ahmad Abdollahi offer a wide variety of dental services, ranging from full mouth reconstruction to tooth whitening. Their sister Azita is the operation’s office manager.
You can find out more about financing the expansion of your medical practice from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.