One of the advantages of being a medical doctor is that you usually have financial options. If your medical practice runs into cash flow problems, you can choose from a number of solutions such as medical factoring, doctor loans, conventional loans, or an SBA loan. The option you choose depends on the type of problem, its severity, how much money you need, and how quickly you need the funds.
In this article, we compare doctor loans and medical receivables factoring.
What is a doctor loan?
A doctor loan, also referred to as a physician loan, is a type of loan that is offered by many banks and financial institutions. These loans are offered specifically to doctors and are often structured as term loans. The institution gives you the full borrowing amount, and then you pay back monthly. However, some loans are also structured as lines of credit that allow you to borrow and pay back as needed (like a credit card).
The highly competitive cost of these loans can make them exceptionally attractive to doctors who are just starting out, growing a practice, or just experiencing slight cash flow problems.
Doctor loans often have a maximum cap. The cap is related to the number of years you have of training, the number of years you have been practising, and, in some cases, your specialty.
What is medical factoring?
Medical factoring is a financial product designed specifically to help healthcare practices with cash flow problems due to slow-paying medical insurance claims. Factoring provides an advance on your slow-paying claims, which gives you the operating capital to cover expenses. Here is a detailed explanation of how medical factoring works. You can also watch an explanation on this video.
Factoring lines usually have a flexible cap, which is determined by how much you bill on a monthly basis. Most lines can be structured to grow automatically, as your practice grows.
Which solution is better?
Determining the better solution depends on a number of factors. Overall, neither product is better than the other. Instead, either product can be the better solution given specific circumstances. Here are some guidelines.
Problem: You have cash flow problems due to slow-paying HMOs, PPOs, Medicare, Medicaid payments
This problem is common for new and growing medical practices. They run into cash flow problems because medical insurance companies can take 60, 90, or even 120 days to pay an insurance claim. Few practices can afford to wait this long to get paid. Furthermore, this problem tends to recur. The best solution for this type of problem is medical factoring.
Problem: You need less than $100,000 to solve a one-time problem (e.g., expanding)
If you have a problem that requires a one-time expense less than $100,000, you are probably better off with a doctor loan. These loans can be useful if you need funds to expand your office, purchase certain types of equipment, or retire some high-cost debt. Generally, you can use this solution if your cash flow problems are small, or if they are not related to slow-paying claims.
A word of caution
If you, or your medical practice, has cash flow problems, consider seeking expert advice. Like most businesses, a medical practice can have complex financial issues which are best handled by a professional.