Running your own medical practice may be the culmination of all your goals when you were studying medicine. What you may not have counted on was the headache of chasing down payment from both private payers, insurance companies and government programs. If your practice is dealing with cash issues there are several possible solutions. Two of those are medical factoring and physician loans. Here is a quick rundown comparing the two so you can make the best choice for your business.
If your primary issue is the speed, or lack thereof, with which you are paid, medical factoring may be the answer to your cash flow woes. Factoring, also called accounts receivable financing, is a solution to short-term cash issues. Your open invoices are sold to a third party for about 85% of their face value.
There are several upsides to medical factoring. First, there’s no loan to repay. The whole process moves much more quickly than a loan application, so your funding is available within days, not weeks or months. Once you’ve sold your invoices it is up to the factor to collect on them.
The downside is the cost. You need to look ahead and make sure that losing 15% to 20% of the value of the invoices isn’t going to get your business stuck in the loop of requiring repeated factoring to meet current needs. If the cost of medical factoring isn’t a factor in your decision, you can find a factoring company that will create a factoring line of credit that can grow with your practice.
A physician loan is a traditional loan, but because banks consider them a safe investment, you can get amazingly low interest rates. A physician loan can either be a term loan paid back over a set period of time or you can apply for a revolving line of credit, like a credit card, that you can borrow against and repay over time.
When you’re investing in your business and need funds for expansion, or when you are first starting out, a physician loan can take you to the next level. These loans aren’t for immediate cash flow problems. The traditional nature means you will be filling out copious paperwork and funding can take a long time. You’ll also need strong personal and business credit to qualify for the best interest rates.
Which one is better for you will depend on your needs right now and your goals long term. It’s always a good idea to check with your accountant before making a final decision.