Growth strategies for medical practices: VC/PE investment vs. long-term loan
Venture capital (VC) or private equity (PE) investment is an opportunity worth exploring for physicians looking to grow their already-successful practices. Essentially, in exchange for funding, physicians offer investors a percentage of ownership and may need to make other concessions to close a deal.
This is a relatively new but rather substantial source of funding within the healthcare sector that allows medical professionals to take their businesses to the next level—fast.
Alternatively, long-term loans and more specialized medical practice loans are tried-and-tested approaches that help physicians cover expenses, improve their facilities and patient experiences, and expand their operations—without sharing equity and profit with outside investors. As with any loan, you are responsible for repaying the principal amount plus interest within a specific timeframe.
What is a VC/PE investment?
VC/PE firms inject capital into small businesses with highly predictable cash flow—a category that medical practices fit into exceedingly well—with the intent to scale up. Typically, the goals of these firms are as follows: to quickly expand operations, to increase profitability, and then, to divest.
Let’s review what differentiates VC from PE investments:
Venture capital funding comes from wealthy investors, investment banks, and specialized funds. It’s generally given to medical practices with high potential and high growth projections. VC investors usually seek minority ownership within the practice.
Private equity investors are high-net-worth individuals and/or firms, generally interested in buying shares in a successful medical practice. In some cases, investors may seek a controlling stake, making the physician owner an employee post-transaction. PE investors generally have a short-term outlook and are likely to resell quickly.
VC/PE investments can work well in various situations and be quite lucrative for practice owners. For example, for older physicians on the cusp of retirement, it’s a viable succession strategy. For younger physicians, it’s a way to become part of a larger medical group, to leave the administrative responsibilities behind, and to refocus on what matters most—the patients.
However, in exchange for the substantial funding your practice will receive, you’ll inevitably have to make concessions.
After all: There is no such thing as a free lunch.
For instance, by engaging with VC/PE firms, you may give up seats on the board, decision-making power, practice independence (clinical and operational), equity in the practice, or even compensation. You may also find yourself working closely with investors who are inexperienced in the healthcare space.
Did you know? The American Medical Association offers great resources to those looking to learn more about the topic, including a two-page snapshot that you can access here.
If you move forward with VC/PE investments beyond initial research, be sure to take into account all strategic implications when considering such deals. The key—at all times—is to fully understand the goals of potential partners, the terms of any investment opportunity, and an exit route, if necessary.
You should also carefully research alternative sources of funding for growing your practice before turning to venture capital and private equity firms. You may find that other avenues better suit your goals for business expansion.
Advantages of BHG Money’s Medical Practice Loans
As an owner of an established practice, you’ve likely used one or multiple forms of financing—credit cards, revolving lines of credit, and loans—to cover expenses.
But with the right long-term financial solution, you can look beyond day-to-day expenditures to exponential growth.
Compared to other lenders that offer low amounts and/or short repayment periods, BHG Money provides Medical Practice Loans up to $500,0001,2 coupled with extended terms of up to 12 years1, making it more affordable than ever to achieve your greatest goals.
Since our inception in 2001, we have funded over 100,000 healthcare providers who have used our loans for growth initiatives such as:
Relocating their practice to a premier location to attract new patients or moving into a more affordable space that has the potential for capital appreciation
Outfitting an existing office with highly specialized equipment
Securing next-generation technology to provide better imaging and diagnostic information
Upgrading patient services with features such as online booking, online paperwork, live wait times, and extended hours
Buying a medical practice in addition to their own
Freeing up funds with business debt consolidation
You can also view your personalized estimate without affecting your credit score by using our online payment estimator. It only takes 30 seconds.
¹ Terms subject to credit approval upon completion of an application. Loan sizes, interest rates, and loan terms vary based on the applicant's credit profile. Finance amount may vary depending on the applicant's state of residence. Call for complete program details.
² BHG Money business loans typically range from $20,000 to $250,000; however, well-qualified borrowers may be eligible for business loans up to $500,000.
For California Residents: BHG Money loans made or arranged pursuant to a California Financing Law license - Number 603G493.
No application fees, commitment, or impact on personal credit to estimate your payment.