How to Refinance Internal Medicine Practice Debt
Over time, many practices build up a mix of obligations: an acquisition loan, equipment notes, a line of credit, a build-out loan and sometimes higher-cost short-term financing taken on during a cash crunch. Owners who want to refinance internal medicine practice debt are usually looking for lower payments, simpler administration or better terms that fit the practice today.
Refinancing can help in the right situation, but it is not automatically the best choice. This guide explains when refinancing may make sense, what lenders review and how to evaluate an offer. Every practice’s situation is different, and nothing here is legal, tax or accounting advice.
Why Owners Refinance Internal Medicine Practice Debt
Practices consider refinancing for several reasons:
- Lower monthly payments: extending terms or improving rates may free up cash flow
- Consolidation: combining several loans into one payment can simplify bookkeeping
- Replacing short-term debt: moving expensive short-term obligations into longer-term financing
- Changing rate structure: moving between fixed and variable interest
- Releasing collateral or guarantees: sometimes possible after a practice has grown
- Funding a new goal: combining a refinance with an expansion, buyout or real estate purchase
Owners should be clear about their primary goal, because the best structure for lowering payments may differ from the best structure for reducing total interest cost.
Signs It May Be Time to Review Your Debt
Owners do not need to wait for a crisis to review their obligations. It may be worth evaluating a refinance when:
- Several loans with different due dates make cash flow hard to manage
- Short-term financing is being used to cover regular operating expenses
- The practice’s earnings and credit profile have improved since the original loans
- A major loan is approaching maturity or a balloon payment
- You are planning a buyout, expansion or real estate purchase and want one coordinated structure
Types of Debt That May Be Refinanced
Depending on terms and lender review, a refinance may include:
- Practice acquisition loans
- Equipment loans and some leases
- Lines of credit with outstanding balances
- Leasehold improvement or build-out loans
- Business credit cards and other short-term obligations
- Merchant cash advances and similar receivables-based products
There is no guarantee that every obligation, including every merchant cash advance, can be consolidated or refinanced, and whether a particular obligation can be included depends on its terms, the business’s cash flow, program rules and lender review.
Financing Options for Refinancing
Several loan types may be used, alone or together, depending on the practice’s profile and goals. Our overview of internal medicine practice refinancing and debt consolidation summarizes how these options can fit together.
SBA loans
SBA 7(a) loans may be used to refinance certain existing business debt when program requirements are met, such as showing that the refinance provides a benefit to the business. Eligibility and terms depend on the business, the borrower, use of proceeds, program rules and lender review. Every loan is subject to approval, and nothing here is a commitment to lend.
Conventional loans
Conventional practice loans follow each lender’s own underwriting standards and may suit practices with strong, documented cash flow and good credit. You can estimate payments under different terms with our conventional loan calculator. Estimates are for planning purposes only and do not represent an offer or approval.
Real estate refinancing
Practices that own their building may consider refinancing the property separately. Our article on a cash-out refinance of a medical office building explains the pros and cons.
Replacing a line of credit
If a line of credit has been used for long-term purposes and the balance rarely goes down, it may make sense to term out the balance and keep the line available for short-term needs. Our guide on when an internal medicine practice line of credit makes sense explains how lines are typically intended to work.
What Lenders Review
When evaluating a request to refinance internal medicine practice debt, lenders typically review:
- Several years of tax returns and current financial statements
- A complete debt schedule with balances, payments, rates and maturity dates
- Payment history on existing obligations
- Payer mix, collections and accounts receivable
- Owner credit and personal financial statements
- Prepayment penalties or payoff terms on existing loans
A clear explanation of how the debt was incurred and how the refinance will improve the practice’s position can strengthen the request.
How to Evaluate a Refinance Offer
A lower payment is not always a better deal. Before accepting an offer, owners should compare:
- Total interest cost over the life of the new loan versus existing loans
- Fees, closing costs and any prepayment penalties on current debt
- Collateral and guarantee requirements
- Covenants and reporting requirements
- Whether the term fits the useful life of what was originally financed
Extending the term on short-lived assets can reduce payments now but increase total cost. Our article explaining why the lowest rate isn’t always the best medical practice loan covers how to weigh these trade-offs.
Preparing to Refinance
Before applying, it can help to gather recent statements for every obligation, request payoff letters, review any personal guarantees and work with an accountant to update financial statements. Addressing the reasons debt built up, such as slow collections or uneven cash flow, can also make the refinance more effective over time.
Mistakes to Avoid
- Focusing only on the monthly payment
- Overlooking prepayment penalties or fees on current loans
- Refinancing without addressing the cash flow issue that created the debt
- Running balances back up on lines or cards after consolidating
Final Thoughts
Choosing to refinance internal medicine practice debt can improve cash flow and simplify a practice’s finances when the new structure fits its needs. Careful comparison of total cost, terms and the reasons behind the existing debt can help owners make a decision that supports the practice long term.
US Medical Funding helps internal medicine practice owners explore refinancing and debt consolidation options. Not every existing obligation will qualify to be refinanced, but we can help you understand which options may fit.
