Summary of presentation from Alex Meyer with PCC for PMI's Certified Pediatric Office Executive (CPOE) program
When running a pediatric practice, there may come a time when you need outside financing to support growth, weather tough periods, or simply get started. This article summarizes key considerations and options for pediatric practices seeking loans or lines of credit. We’ll outline why practices may need financing, review the most common types of loans available, and provide guidance for making the right choice. We’ll also close with five practical takeaways for managing your office’s borrowing needs effectively.
It’s common for pediatric practices to seek loans from banks or lending institutions at different stages of their lifecycle. Financing might be needed to help start the business, expand into a new space, cover the costs of new equipment, or simply manage fluctuating income. The right financial infusion can mean the difference between growing your practice and struggling through temporary downturns. Understanding when and why to borrow can put your business on stable footing.
Every pediatric practice should work closely with a trusted Certified Public Accountant (CPA) before taking out any loans. An experienced CPA provides guidance about tax implications, compliance with rules, and the potential risks or benefits of different loan structures. Importantly, this CPA should be neutral and have no personal stake in any partner’s finances. Having separate accountants for each partner is also advised to navigate the impact on personal taxes. Before borrowing a cent, consult with your CPA and follow their expert advice.
A variety of financing options exist, but most fit into a few primary categories: traditional bank loans, Small Business Administration (SBA) loans, revolving lines of credit, cash advances, and business credit cards. Traditional bank loans involve getting a lump sum and paying it back in installments with interest. SBA loans offer special programs for small businesses, often making it easier for practices to access capital when traditional banks are hesitant. Revolving lines of credit allow your practice to draw needed funds up to a preset limit and only pay interest on what is used—well suited for smoothing out periodic cash crunches.
The loan type and structure you choose should fit your business’s specific needs. For instance, short-term loans help smooth over temporary cash-flow issues, while long-term loans might finance real estate purchases or major equipment buys. Accessing cash quickly (as with cash advances or merchant advances) can be costly due to higher interest rates and should generally be avoided unless you are in an urgent bind. Business credit cards can be useful for day-to-day expenses and even offer perks, but must be used carefully to prevent accumulating costly debt.
Before borrowing, it’s vital to assess how much money you need, how soon you need it, how long you’ll take to repay, and what you can afford in monthly payments. These four questions will help you and your lender determine which financing product works best. A detailed business plan demonstrating your expected cash flows and repayment schedule significantly improves your chances of getting approved.
Loan approval relies heavily on your practice’s (and often your personal) credit score, the length of time your practice has been operating, and your demonstrated ability to generate enough revenue to repay the debt. Lenders will expect to see a concrete, realistic plan for how borrowed funds will support your practice and how you will both use and repay them. Be ready to present a well-thought-out business plan and financial projections.
Take time to shop around for the loan that suits your circumstances. Compare interest rates, terms, requirements, and any additional fees or penalties like prepayment costs. It may be wise to have legal counsel review any loan documents before committing, as hidden terms could create complications down the road. Your CPA should also review financing agreements to ensure they align with your practice’s financial strategy.
Setting up a line of credit or identifying financing options during “good times” can save significant stress later. Lenders are more likely to approve and offer competitive rates when your business is strong, rather than waiting for a crisis. Proactively preparing for future borrowing needs allows your practice to move quickly whenever the need for extra funding arises.
Managing loans and credit wisely is essential for maintaining practice health. Use higher-interest options like cash advances or credit cards only as a last resort, and pay down these balances quickly. For significant and planned expenditures, stick to lower-interest, structured loans whenever possible. Regularly review your debt obligations, and keep detailed records of all borrowing and repayments.
#### 5 Practical Takeaways for Financing Your Pediatric Practice
1. **Build Relationships with Neutral CPAs:**
Work closely with an independent CPA for the practice and separate advisers for each partner to navigate complex tax and compliance matters related to borrowing.
2. **Choose the Right Financing for Your Situation:**
Match the loan type to your needs—use lines of credit for short-term issues, bank or SBA loans for major purchases or expansion, and avoid cash advances unless absolutely necessary.
3. **Plan and Prepare Before You Need Financing:**
Arrange credit lines or research lenders while your practice is financially healthy. You’ll get better rates and have more options when you’re not in a time crunch.
4. **Be Thorough in Documentation and Comparison:**
Prepare a thorough business plan, compare offers from several lenders, understand all terms, and seek legal review for loan documents to avoid unexpected pitfalls.
5. **Monitor and Manage Your Debt Diligently:**
Track all loan payments, avoid high-interest debt when possible, and maintain good records to ensure your borrowing benefits the health and growth of your practice—not the other way around.
Whether you’re starting up, planning expansion, or simply navigating temporary challenges, using smart financing strategies can make your pediatric practice resilient and successful. Consult with the right professionals and choose carefully to support your practice’s future.