Financing for Frontline Health Care Providers:
Three Reasons to Use the SBA 504 Program

Health care providers in private practice wear many hats. In addition to being a critical part of our health care system, they are also small business owners.

The SBA 504 loan program is a great option for individual and group health care provider practices looking for more office or treatment space and the ability to personalize it to meet the highest level of patient care. This includes doctors, dentists, optometrists, physical therapists, mental health practitioners, and chiropractors. (SomerCor client example: H&H Family Dental)

Unfortunately, over the last nine months many providers have been affected by COVID-19, not just in terms of patient care, but also as it relates to the financial impact on their practice. According to a survey by The Physicians Foundation, 8% of respondents closed their practices (an estimation of 16,000 medical practices), while 43% have reduced staff. Another 4% said they plan to close their practices within 12 months because of COVID-19.

Below are three ways the SBA 504 program can help reverse this trend by providing health care professionals access capital to build a stronger practice going forward.

Reduce Your Monthly Payments

The SBA 504 loan program provides a long-term fixed rate lending solution for small business owners to buy, expand or refinance major fixed assets – such as land, commercial real estate, and certain equipment. The program requires three key players – a small business borrower, a Certified Development Company (CDC), like SomerCor, and a third party lender (i.e. bank or credit union). 

For an individual provider or group looking to purchase a facility, the final loan structure typically requires the third party lender provide 50% of the financing, the CDC to provide up to 40% of the financing backed by a 100% SBA-guaranteed debenture, and the applicant puts down 10% of the financing. These borrower-friendly terms provide health care professionals a pathway to facility ownership and growth:

  • Low down payment – up to 90% financing for established practices
  • Below-market interest rates – lower and more affordable monthly mortgage payments, freeing up capital reinvest in the business (rates currently among the lowest in program history!)
  • Long-term rates 10, 20, or 25 year fixed – no surprise balloon payments

Flexibility to Personalize and Renovate

Building ownership is just the start of the SBA 504 loan. The structure of the program allows health care providers to not only purchase commercial real estate, but to make critical updates to meet new safety protocols and provide high quality care in a state of the art facility. 504 loans funds can be used for:

  • Expansion, construction, and renovation of a new or existing facility – personalized for optimum efficiency, safety, and flexibility to grow
  • New equipment purchases to expand capacity and streamline patient care (as part of a real estate transaction)
  • Upgrades and modernizations to reduce energy use or offset that consumption through renewable energy

As with all SBA 504 real estate purchases, the borrower’s practice must occupy at least 51 percent of the building purchased. If the financing is for the construction of a new building, the business must occupy 60 percent of the building.

Leverage Equity for Cash Out

As noted above, COVID-19 has negatively impacted the cash flow of individual and group health care practices. For those professionals who already own an office or facility through a conventional loan (mortgage must be at least two years old and borrower must be current on payment), the SBA 504 Refi is a great option to save and improve cash flow.

In addition to the lower monthly mortgage payments, fixed 20 or 25 year low interest rate, and payment predictability of the 504 loan, Refi clients can take cash out for eligible expenses. The cash out piece ranges up to 20% of the appraised value of the property. Eligible expenses for cash out funds include:

  • Salaries (non-owners)
  • Rent
  • Utilities
  • Inventory
  • Business line of credit and business credit card debts

Download the program flyer and connect with a member of SomerCor’s loan origination team to learn more about how the SBA 504 loan program is a great fit for health care providers.

Brian Comiskey
Chief Lending Officer
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Elisabeth Williams
VP, Loan Officer
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Eric Bacon
VP, Loan Officer
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Joseph Bailey
AVP, Loan Officer
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