Seed money: Getting the funds to grow a new medical practice

This complex process must start with plotting your needs then finding the best place to go for financing.

By Katherine Vogt, AMNews staff. Dec. 15, 2003.

When Stephanie Mackey, MD, entered a bank and asked whether she would qualify for a loan to launch a new dermatology practice, the reply came almost immediately in the form of another question.

Before loan discussions could go any further, the banker wanted to know how much debt Dr. Mackey had from medical school.

Fortunately for Dr. Mackey, then three years out of residency, she had paid off her school costs and developed a solid business plan to prove to the bank that she could make enough money to repay what she wanted to borrow. She secured a loan of $70,000 and line of credit of $30,000 and was able to start her solo practice in Lancaster, Pa., a few years later.

Dr. Mackey is among the scores of physicians who have taken a financial risk to open a new medical practice. Whether starting a solo practice or collaborating with a few others, initial costs can tally hundreds of thousands of dollars in equipment, office space, employee costs and overhead. To pay those startup costs, most physicians need to take out a loan or use other financing strategies until the business starts earning money.

But the days of doctors getting money from a bank with a simple handshake are over. Now, with declining medical reimbursements, banks want more assurances that the money they lend physicians will be paid back. And with a variety of financing strategies available, like lines of credit and leasehold improvements, physicians have to do significant prep work to ensure that they can get the best deal.