Although many medical practices can still qualify for a business loan or line of credit, many are finding that traditional banking products don’t always solve their cash flow concerns in the long term. Why? Well, traditional business loans have to be paid within a few years and lines of credit have fixed maximum limits.
Basically, neither product is very flexible and both are hard to get, unless you run a medium sized medical practice.
Medical factoring presents an interesting financing alternative. It provides you with financing that is tied to your insurance claims. If you file more claims this month than last month, your financing goes up accordingly. It provides you with predictable cash flow, ensuring that you are able to meet your office expenses. You’ll have predictable money to pay rent, meet payroll and invest in growth.
The medical factoring process is fairly simple. Once a factoring arrangement is established, your office sends its weekly receivables to the factoring company for immediate financing. The factoring company will calculate the actual amount paid by insurance companies (called the net collectibles) and advance you up to 80% of that amount.
If the lease period is too long, you could be locked into an agreement for an office that no longer serves your purpose. Leasing never builds up equity.
Setting up a factoring account can take a couple of weeks, mostly because the medical factoring company will need to perform their due diligence and audits. However, once the account is set up, the financing is continuous. You can usually get your claims funded within 24 hours of submitting them to the factoring company.
Leasing an office space is not for everyone, just as buying is not for everyone. Carefully consider your current and projected needs to find a solution that works best for you.
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