Loans
5 Pointers for Obtaining Physician SBA Loans
One of the best programs in the United States for helping start new businesses is the SBA loan program. As with any government run program, it can be easily misunderstood. These 5 pointers will help you better understand what a SBA loan is and isn?t.
By far the most misunderstood method of financing in the U.S. is the SBA loan. Many people think a SBA (Small Business Association) loan is a low interest, non-collateralized loan issued by a government agency. In reality, a lending institution actually makes the loan to you, with the SBA guaranteeing a portion of it. The SBA limits its guarantee to loans over $150,000 to 75% of the loan value, so the lender is still on the hook for 25% of the loan if it goes into default. The primary benefit to a SBA backed loan is that the lending institution probably wouldn?t have done the loan otherwise.
SBA backed loans fill a void, helping new physicians start practices, or expand their existing practices. You can use SBA loan proceeds to purchase land, buildings, equipment, fixtures, supplies, construction costs, and provide working capital while you expand or get your practice up and running. The term is usually 10 years, longer if a building is included.
If you are considering a SBA guaranteed loan, here are 5 pointers to help you along the way.
1. Make sure you have lots of time and energy
If you are going to get a loan backed by the SBA, you are going to have to follow government generated procedures. Which means these loans are more paper intensive and take much longer than standard term loans. It?s not uncommon to see SBA loans drag out a month or two (or even longer). Before you even begin the SBA process, make sure you?ve completed a business plan with detailed pro forma financials. For more information, check out the SBA?s website on Business Plan Basics (http://www.sba.gov/starting_business/planning/basic.html)
2. Be prepared for all the fees
Many people don?t realize the SBA charges a guaranty fee that is typically around 3%. In addition, the lending institute will often pass on other third party costs, including: appraisal fees, legal fees, and a loan packaging fee. One fee the SBA doesn?t have for loans less than 15 years is a pre-payment penalty. This allows you to pay the loan off at any time without penalty.
3. Interest rates can be higher than traditional loans
Another myth is the SBA guaranteed loans have low interest rates. In most cases the SBA guaranteed loans interest rate will be higher than many traditional loans. The SBA does ensure the interest rate for loans over $50,000 does not exceed Prime Plus 2.25% for loans less than 7 years, and Prime Plus 2.75% for loans over 7 years. One of the benefits of the SBA loan, is the terms are often longer than traditional loans, for example 10 years versus 5 years for a traditional loan. The longer the term equates to lower monthly payments, which can help you as you build up your practice.
4. Additional collateral and a down payment will usually be required
SBA guaranteed loans usually require additional collateral if the business assets are not adequate to cover the loan. Physicians also generally only require a 10% down payment, thus giving them up to 90% financing.
5. You?ll have to wait to see all of the money
Once approved, the lender is not going to cut you a check for the full amount of the loan. What typically happens is you will need to submit vendor invoices, purchase orders, cancelled checks, or quotations before payment will be made. In some cases you may have to pay the vendor first, then get reimbursed from the lender. When the loan closes, your working capital will be disbursed in a lump sum to you.
The above 5 pointers should help you better understand how SBA guaranteed loans actually work for physicians, so you can be better prepared. SBA guaranteed loans are great for new physicians since it allows them to obtain 90% financing, but they should also evaluate all medical practice loan options before making a final decision.
For more information on the SBA and its loan guarantee programs, go to the agency's Web site (www.sba.gov) and click "Financing."
About Oakridge Healthcare Jeff Russell is the President and CEO of the Oakridge Healthcare, which provides turn-key healthcare financing solutions to medical practices and equipment vendors throughout North America. We have the capacity to finance everything from a single treatment table to an entire $20 million medical facility. Our programs include: equipment leasing ($250,000 application only), term loans (new and expanding medical practices), Physician SBA loans, practice debt consolidation loans and working capital financing for physicians. For additional information, visit our website: http://www.oakridgehealthcare.com Contact Information: Jeff Russell |
Jeff Russell
Tags: Physician, Practice, Medical, SBA, LoansSimilar articles
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