Lines of Credit for Medical Practices: Managing Insurance Reimbursement Delays

Healthcare practices face a cash flow challenge that most businesses do not: you provide services today but may not receive payment for 30, 60, or even 90 days. Insurance reimbursement delays, claim denials, and patient collections create timing gaps that a business line of credit can smooth.

This guide explains how lines of credit work for medical and dental practices and when they make sense for managing healthcare cash flow.

The Healthcare Cash Flow Problem

Unlike retail businesses that collect payment at the point of sale, healthcare practices extend credit by default. You treat patients and then wait:

• Insurance claim processing — 15-45 days for clean claims, longer with issues
• Claim denials and resubmissions — Add weeks or months to collection timeline
• Patient responsibility portions — Copays, deductibles, coinsurance often collected later
• Medicare/Medicaid timing — Government payers have their own processing schedules
• Prior authorization delays — Treatment may be delivered before authorization is confirmed

How Lines of Credit Bridge the Gap

A business line of credit provides flexible access to capital that you draw only when needed. For healthcare practices, this typically works as follows:

• Draw during slow collection periods — Cover payroll and expenses while waiting for insurance payments
• Pay down when reimbursements arrive — Reduce balance and interest costs
• Maintain for unexpected delays — Claim processing issues, payer system outages, audit delays
• Use for timing mismatches — Large supply orders, quarterly payments, seasonal variations

Unlike a term loan where you borrow a lump sum and pay fixed monthly payments, a line of credit lets you borrow and repay flexibly. You only pay interest on what you have drawn.

Line of Credit vs. Term Loan: What Fits Healthcare

Both products have roles in practice financing. Here is how they differ for healthcare:

Typical Terms for Healthcare Practice Lines

Line of credit terms vary by lender and practice qualifications. Here is what medical and dental practices typically see:

• Credit limits — $25,000 to $250,000 for most practices; larger practices may access more
• Interest rates — 8-18% APR depending on creditworthiness and lender type
• Annual fees — $0-$500 per year to maintain the line
• Draw fees — Some lenders charge per-draw fees; others do not
• Repayment terms — Interest-only with periodic balance paydowns, or fixed minimum payments
• Renewal — Annual review with most lenders; strong performers may get automatic renewal

What Lenders Evaluate

Line of credit underwriting focuses on ability to repay and overall practice health:

• Monthly revenue consistency — Stable collections demonstrate reliable repayment capacity
• Time in business — Most lenders want 2+ years of operating history
• Banking relationship — Existing deposit relationship may help with approvals
• Personal credit — Owner FICO scores typically need to be 650+ minimum
• Accounts receivable aging — How quickly do you collect? High AR over 90 days is a red flag
• Existing debt — Total debt service relative to cash flow

Real-World Scenario: Managing Seasonal Variation

The situation: A pediatric dental practice experiences significant seasonal variation. Summer months (kids out of school) generate 40% higher volume than winter months. Payroll and fixed costs remain constant.

The challenge: November through February cash flow dips below comfortable operating levels. The practice owner was transferring personal funds to cover gaps.

The solution: $75,000 business line of credit with local community bank. 10.5% interest rate, $250 annual fee, no draw fees.

How it works: Practice draws $20,000-$40,000 during slow months, pays down aggressively during summer busy season. Annual interest cost: approximately $1,200-$2,000 depending on draw timing.

Result: Owner stopped using personal funds for business gaps. Cash flow became predictable and manageable. The credit line renews annually with minimal documentation.

Disciplined Use: The Key to Success

Lines of credit can become a trap if used poorly. Healthcare practices should establish clear guidelines:

• Use for timing, not deficits — If you draw every month and never pay down, you have a profitability problem, not a timing problem
• Track draw reasons — Know why you are borrowing and when you expect to repay
• Set internal limits — Just because you can draw $100,000 does not mean you should
• Review monthly — Monitor balance trends; increasing balances over time signal trouble
• Pay down aggressively — When collections improve, reduce the balance immediately

Comparing Line of Credit Options

Healthcare practices have several paths to line of credit financing:

For most established practices, a local bank or credit union offers the best combination of rates and service. If you need faster access or have weaker credit, online options provide alternatives at higher cost.

When Not to Use a Line of Credit

Lines of credit are not the right tool for every situation:

• Major equipment purchases — Use equipment financing with the asset as collateral
• Practice acquisition — SBA or term loan provides better structure
• Renovations — Defined project costs fit term loans better
• Chronic cash shortfalls — If you need ongoing financing to cover operations, address the underlying profitability issue

A line of credit works best as a safety net and timing bridge, not as ongoing operating capital. If used correctly, it provides flexibility and peace of mind without excessive cost.