A regular loan differs from a merchant cash advance. Each has its advantages. So which one should a physician in need of capital choose to help their practice? Timing could be the answer.
When physicians require additional working capital for their practices, they generally weigh two financial options: a traditional loan or a merchant cash advance. A merchant cash advance is a lump sum payment made to a physician in exchange for a portion of future revenue. Unlike a traditional loan, approval and funding can even be done the same day, which adds to its appeal.
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Here is why a merchant cash advance may be more advantageous in the physician lending world.
For many physicians, the time gap between reimbursements from insurance companies can be a stressful interval. There is no certainty when the practice will receive what it's owed. Some insurers pay out claims very slowly, which means less revenue to run the practice, pay staff salaries or lease or buy medical equipment. Insufficient cash flow and unavailable liquidity are among the primary reasons why doctors will seek additional financing.
Sometimes, the practice needs this capital immediately. A conventional SBA loan can take weeks, if not months, to be approved. By contrast, a merchant cash advance can be approved and funded often on the same day. Physicians can get access to a quick, reliable source of emergency capital. But it is not by any means the most feasible or healthy long-term fix for physicians seeking capital.
A merchant cash advance acts like a bridge loan for business and property owners. It can be a temporary measure that will offer only a short-term financial solution by which time the entire amount borrowed plus interest must be repaid. But it can also provide enough time for a practice to put a more feasible long-term financing scenario in place.
Certain debts, such as outstanding claims pursuant to reimbursement from insurers and types of medical equipment, cannot be paid off so soon.
...“laddering” or dividing debt according to the time when it will be paid off, could make a merchant cash advance appealing."
From an accounts receivable standpoint, it is not advisable for physicians to pursue a merchant cash advance on debt that currently has no settlement date. Insurers will pay certain claims but only if their conditions are verified, and this process can take time. If the insurance payouts have not been received by the specified financing repayment period, interest and penalties will add more debt and put further financial stress on the practice.
Therefore, “laddering” or dividing debt according to the time when it will be paid off, could make a merchant cash advance appealing. For short-term receivable debt, a merchant cash advance is perfect for helping physician practices. But for debt that is more long-term, conventional financing might prove to be a better fit.
Physicians may be seeking additional financing for many reasons. The type of financial product as well as the appropriate situation for that financing can make a big difference. Traditional loans have a longer turnaround and require more documentation compared to alternative lending options.
Our belief, as a leading alternative physician financing company, is to establish long-term financial relationships with our clients. With our lending scenarios, we look to improve the state of our clients’ businesses. We want to do more than offer the working capital their practice requires, but to help them take their business to the next level.
Talking with a lender to determine the right financing option for your business can clear up your misconceptions. A lender can also advise you about the best type of loan or financing solution that is appropriate for your short-term or long-term capital commitments. We stand ready to assist you in any way we can.