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Medical Practitioners - Where to Go to Obtain Working Capital

If you are like most medical practitioners you are constantly balancing business objectives and strategies with working capital availability. Whether it is having the capital for a new piece of equipment, office renovations, or opening up a new location most practitioners are faced with the same challenge; where can I get the sufficient funds to fuel my business?

Common Alternatives
An informal survey of our medical practitioner clients indicates three common alternatives when it comes to obtaining working capital: bank loans, venture capital and friends/family.

Bank Loans - Banks have the money but typically won't lend to the medical practitioners that really need it as these individuals have already sunk a good portion of personal cash and credit into their business and are viewed as highly leveraged.

Venture Capital - While this is a viable option, most venture capitalists desire investments in the $1 million plus range. Furthermore, these types of investors require equity ownership and, in many cases, control of the business.

Friends and Family - This option is always an alternative, but I have found it to be extremely risky. Besides the fact that often friends and family expect too much and contribute too little, mixing business with friends and family can be a dangerous formula.

New Alternative for Medical Practitioners - The Electronic Payment Advance
An electronic payment advance is an emerging alternative allowing a medical practitioner to receive an up-front cash advance that is paid back through future business receivables. It works as follows:

Assumption: A medical practitioner generates $4.2 million in annual gross revenues.

Qualification: Practitioner qualifies for an advance of $155,400
Electronic payment advance clients typically qualify for 3% - 5% of annual gross revenues - for the purpose of this example we have used 3.7%

Payback: Practitioner will pay back $214,452 or $1.38 per $1.00 advanced. While the "best practice" electronic payment advance providers will determine a daily fixed percentage payback that will not hurt your business' operating cash flow, the typical payback is 10% of daily gross revenues with a payback occurring over a six month period.
While we have used the $1.38 payback for this example the industry standard ranges from $1.35 to $1.42

Annual Gross Sales: $4.2 million
Advance: $155,400
Total Payback : $214,452
Daily Payback: $1,191

Medical practitioners are finding that the electronic payment advance is a viable working capital alternative as it is quick to close (receive funding within ten business days), with limited paperwork and no personal guarantee or asset collateral required. If you are considering an electronic payment advance I encourage you to carefully research your provider, taking into consideration factors such as track record, customer service and understanding of the medical practitioner business model. Additionally, look to partner with a working capital provider that has extensive knowledge on other products to provide you with other funding alternatives for comparison purposes.