In this guide, you’ll learn:
- Types of mortgage loans for doctors
- Types of business loans for medical practices
- Where to go for a small business loan
If you’re a doctor looking for a mortgage loan or medical practice loan, you have a lot of options… and not a lot of time to evaluate them.
In this guide, you’ll learn how to find the best type of loan for your situation.
Let’s start by looking at mortgage loans.
What Type of Mortgage Loan is Best for a Doctor?
A physician loan is a mortgage that was designed to suit the needs of medical professionals. They are typically available to medical doctors with M.D. or D.O. degrees, and they are sometimes an option for dentists and orthodontists with D.D.S. or D.M.D. degrees.
Here’s how a physician loan works:
- They don’t require private mortgage insurance (PMI), even if the down payment is less than 20% of the value of the home.
- A physician loan is flexible with debt-to-income (DTI) ratios, as high private student loan debt levels from medical school would disqualify many doctors if that weren’t the case.
- Residency contracts are accepted as verification of employment.
- The borrower’s career stage impacts the lending criteria.
- A physician loan can only be used for buying or refinancing a primary residence, not a second home or vacation home.
In many cases, lenders offer doctors favorable loan terms because of their high earning potential – and the high likelihood of reaching that potential. If a doctor can make monthly loan payments in the first few years, they are likely to be a safe long-term bet for the financial institution.
Does this mean that a physician loan is always the best type of mortgage for doctors?
If you are able and willing to make a 20% down payment and your DTI ratio is on the lower end, you may be able to qualify for a conventional loan or jumbo loan. You should evaluate all of your options for a mortgage loan, as a small difference in loan terms can add up to a lot of money over the course of a 30-year mortgage.
What are the Types of Loans You Can Get for Your Medical Practice?
Do you need financing for your medical practice? Here are five types of loans to consider:
Small Business Administration (SBA) 7(a) Loans
An SBA (7a) loan is a loan that is issued by a private lender but backed by the U.S. Small Business Administration. SBA loans have long repayment terms, low interest rates, and high loan limits ($5 million). You can use an SBA loan for a variety of business needs including short-term and long-term working capital, real estate purchases, and the purchase of machinery, to name a few examples.
You may be thinking: that all sounds great, but what’s the catch?
Here’s one issue: it takes a long time to get approval for an SBA loan – sometimes months. So, this type of loan isn’t an option if you need a fast business loan.
But there’s another issue: qualifying for an SBA loan is difficult. Here are some requirements:
- Exhausted your financing options
- Excellent credit score
- Considered a small business by the SBA
- Have equity in the business
- Demonstrate a need for the loan
An SBA 7(a) loan is an excellent financing option for doctors who meet the above requirements and don’t mind waiting a long time for approval – but that’s a very small percentage of doctors.
Traditional Bank Loans
If you need financing for your medical practice, a bank is probably one of the first options that come to mind. A “traditional bank loan” isn’t an official type of loan, but many bank loans share similar characteristics, so it’s worth looking at them separately.
A bank loan is likely to have stringent requirements, as large financial institutions are often risk-averse with their loan portfolios. But the plus side is that borrowers who meet these requirements are deemed to be safe bets and often presented with lower interest rate loans. And unlike an SBA loan, you don’t need to have exhausted your financing options to get access to these favorable terms.
But here’s the unfortunate similarity to SBA loans: you typically have to wait a long time – possibly months – to get approved. The loan application process is unnecessarily complicated at many banks, and it takes a long time to make an approval or denial decision due to manual processes. So, if you’re going to use a traditional bank loan, ask the financial institution about the time to cash and see if they have a history of delivering on that timeline.
Some banks offer medical practice loans, with financing designed to meet the needs of doctors. So, if you want to go the traditional bank loan route, look for a bank that has experience helping other medical professionals.
A traditional bank loan is a type of term loan, but a term loan can also be provided by online lenders. In this section, we’ll focus on term loans provided by online lenders.
So, how does an online lender’s term loan differ from a traditional bank loan?
There are three major differences: accessibility, time to cash, and interest rates. Let’s look at these one-by-one:
While bank loans typically have strict standards, online lenders have more flexible eligibility requirements. Many banks are simply checking boxes; if you don’t check one or two boxes, you’re less likely to get approved – regardless of your overall creditworthiness. You can find online lenders, on the other hand, who are primarily focused on your ability to repay the loan.
Time to Cash
The approval process is usually much faster with an online lender than with a traditional bank. You may be able to fill out the application from your home in minutes instead of being asked to come into a branch and provide unnecessary information. Once your application is submitted, you are likely to get a faster decision because online lenders leverage technology to evaluate applicants. If you are approved, it shouldn’t take long to get the funds.
In many cases, online lenders approve borrowers who wouldn’t qualify for financing from other financial institutions. They also approve borrowers in less time.
Those two “features” combine to make term loans provided by online lenders riskier than term loans provided by banks. To account for that risk, online lenders typically offer small business loans with higher interest rates.
The interest rate varies depending on the borrower’s financial profile, though. A borrower who would have qualified for a loan with a bank, for example, could potentially pay a similar interest rate at the bank and online lender. The online lender’s term loan might be the better option in this scenario – even if the interest rate is a little higher – due to the easier and faster process.
As a healthcare professional, you probably need a lot of equipment, such as computers, tables, and beds. There are loans that are specifically designed for the purchase of equipment, aptly named equipment loans.
The qualifications for an equipment loan vary based on the lender. But as with other loans, they look at your credit score, time in business, and financial statements. You may be able to use the new equipment as collateral for the loan.
You can finance up to 100% of the value of the equipment, so equipment financing works well for small business owners who are low on cash. Many equipment loan lenders set the term of the loan based on the expected useful life of the equipment – for example, a computer is likely to have much shorter repayment terms than a table.
The interest rate can be anywhere between 8-30% – it depends on the specifics of your situation. As with the other loans, the time to cash can be anywhere from a few business days to a few months, depending on whether you use a bank or online lender.
Business Line of Credit
A business line of credit allows you to borrow any amount of money up to a certain limit, and you only have to pay interest on the amount you borrow, when you borrow it.
This type of financing option is flexible, as lenders typically don’t ask how you will use the funds. So, you can treat a business line of credit as a safety net for your business. Have an unexpected spike in demand? It’s there for you. Need cash because you have too many unpaid invoices? It’s there for you.
As with other loans, lenders want to make sure that you have a good credit history before agreeing to provide you with a business line of credit. You also need to meet a few other requirements to qualify for a business line of credit.
In many cases, a business line of credit has a variable rate, based on market rates. With interest rates still low by historical standards as of early 2022, you might not get the lowest rates when you apply – particularly if it’s a few years down the road.
The Bottom Line
As a doctor, you have several loan options for both your personal and professional needs. The best loan for a doctor depends on your situation.
Do you need a mortgage loan, but aren’t able and willing to make a 20% down payment? A physician loan is probably the right choice.
Let’s say you want to finance a new piece of equipment, but you need it next week. In this scenario, you should look at an equipment loan from an online lender.
In any case, you should use a lender that has a track record of helping doctors.
Biz2Credit, for example, helped Gaurav Patel, physician and owner of Mineola Medical Labs in New York, take his business to the next level. Patel wanted to purchase a building but didn’t want to wait a few months to get a commercial real estate loan from a traditional bank. So, he turned to Biz2Credit… and got “funded within one week.”
Patel has “already referred three or four” friends or colleagues in his shoes to Biz2Credit.
Learn how Biz2Credit can help your medical practice with a small business loan.