Medical practices usually pay for equipment with equipment financing secured by the equipment, for a second office with a term loan for the build-out, and for the months before the new office earns its keep with working capital or a credit line. The pieces are financed separately.
An article from Flintview Business Capital in San Luis Obispo, California on how physician practices finance exam-room equipment, a second office and a buy-in, with San Luis Obispo County, CA practice counts and an invented budget.
Medical Equipment Financing: Exam-Room Equipment and Claim Delays
The direct answer: equipment financing for the equipment, a term loan for the space, and working capital for the gap. Exam tables, diagnostic equipment and imaging are long-lived and well understood by equipment lenders, so they can secure their own payments. Claim delays are a separate, short-term gap that suits working capital or a line.
Illustration only, invented figures: $36,000 of exam-room equipment financed over 60 months at an annual rate of 9.75% is about $760 a month (our arithmetic).
County Business Patterns counted 341 offices of physicians with paid employees in San Luis Obispo County, CA for 2023, with 1,789 paid employees; 63.6% had fewer than five employees. See equipment financing.
The reason to keep the pieces apart is the term. Equipment financed over its working life, a build-out financed over the length of the lease, and a payroll gap covered over a few months each have a payment that matches how long the cost lasts. Rolling all three into one long loan stretches the short cost over years; rolling them into one short loan makes the payment on the long-lived items too large.
Medical Office Build Outs: Ultrasound Units and a Clinic Build-Out
A medical office build-out is construction: walls, plumbing for exam-room sinks, electrical, HVAC, accessibility work and finishes. An ultrasound unit or an X-ray room adds equipment with its own installation needs. A partner reads the contractor's bid, the lease and the equipment quotes separately.
Illustration only, invented figures: a $210,000 build-out over 120 months at 9.5% costs about $2,717 a month; a $48,000 ultrasound unit over 60 months at 9.25% adds about $1,002 (our arithmetic).
Timing matters too. The build-out is paid in stages as the contractor bills, the equipment is paid on delivery, and payroll for new staff often starts before the office opens for training. A partner may fund the build-out in draws matched to the contractor's progress billing rather than in one lump sum, which keeps interest down during construction.
Buying into a Medical Practice: What San Luis Obispo, CA Physician Practices Should Know
Buying into a medical practice is a term loan to the physician buying in, supported by the practice's collections and the share of them the buyer will receive. A partner reads the practice's financial statements, the valuation behind the buy-in price and the agreement that sets the buyer's share.
Illustration only, invented figures: a $175,000 buy-in over 84 months at 9.5% costs about $2,860 a month (our arithmetic). See business term loans.
A buy-in also changes the practice's own finances: profits are split differently, and some agreements have the practice pay part of the price over time. A partner reading the buyer's request will want to see how the buyer's share of profit compares with the loan payment and the buyer's other obligations.
Working Capital for Medical Practices: Diagnostic Equipment and a Practice Buy-In
Working capital carries a practice between doing the work and getting paid for it, and between hiring a provider and the provider's collections reaching full speed. Diagnostic equipment bought at the same time is better financed as equipment, so the working capital stays available for payroll.
Illustration only, invented figures: borrowing $40,000 of working capital for 12 months at an annual rate of 12.5% means a payment near $3,563 each month (our arithmetic). See working capital loans.
Credentialing can stretch the gap. A new provider may see few insured patients until credentialing with each payer is complete, and the first claims then take their own time to pay. Building that period into the working capital request, with the expected dates, gives a partner a realistic picture.
An Invented Second-Office Budget for a San Luis Obispo County, CA Family Practice
Illustration only, invented figures: a family practice opening a second office sets out its budget in four lines.
| Item | Cost | Funding type |
|---|---|---|
| Build-out of the new space | $210,000 | Term loan |
| Exam-room equipment | $36,000 | Equipment financing |
| Ultrasound unit | $48,000 | Equipment financing |
| Payroll before collections catch up | $40,000 | Working capital |
The total is $334,000 (our sum). Monthly payments on the three loans and the equipment agreement add up to about $8,043 in the first year (our arithmetic), which the practice sets against the collections both offices are expected to bring.
- Collections by month for the existing office.
- Accounts receivable aging and payer mix.
- The lease and build-out bid for the new office.
- Equipment quotes.
- The new provider's start date and compensation.
See medical practice loans and the San Luis Obispo, CA page.
By Flintview Business Capital · Updated
