When does a line of credit fit a practice best?
A line fits gaps that repeat but vary in size. Insurance payments that arrive in uneven batches, a flu season that needs extra staff every winter, or a payer that periodically slows down are all good examples. You draw in the slow weeks, repay when deposits catch up, and the limit is available again next time.
- A physical therapy clinic drawing when authorizations delay a run of visits, then repaying as payments post
- An eye care practice stocking frames before a busy back-to-school season
- A mental health group covering payroll for a new clinician during payer enrollment
- An urgent care staffing extra providers through a respiratory-illness surge
How is the credit limit set?
Funders typically size the limit from average monthly collections or deposits, the consistency of those deposits, the owner's credit and existing debt. Requirements vary by product and funder; many look at time in business, monthly revenue and credit. Newer practices may start with a smaller limit that can grow as history builds.
A clean collections summary helps the funder see that money reliably arrives, even when timing varies. Accounts receivable totals by payer category show what is pending. Never include patient-identifying detail. See what funders review for more.
What does a practice line of credit cost?
Cost comes from interest on the drawn balance plus any fees, which can include an origination fee, an annual or maintenance fee, draw fees or an unused-line fee. A line with a low advertised rate can cost more than expected if fees are high and you rarely draw. Ask for every fee in writing.
Also ask how repayment works on each draw. Some lines let you repay any time and redraw, while others set a fixed repayment schedule for each draw. Some lines are reviewed or renewed periodically, and the funder may adjust the limit based on your recent collections.
Line of credit or working capital?
Choose a line when you do not know exactly how much you will need or when. Choose a lump sum of working capital when the gap is a single, defined amount, such as covering a specific claims backlog. Lines are often cheaper for recurring gaps because you pay only on what you actually use.
Many practices keep a line open as a standing cushion and use working capital only for a larger one-time gap. For equipment, equipment financing usually fits better, because paying for a multi-year device from a revolving line ties up the limit you need for timing gaps.
When should a practice not rely on a line?
Do not use a line of credit to cover losses that repeat every month. If the balance only grows and never returns to zero, the practice has an overhead or collections problem, not a timing gap. Fix denial rates, fee schedules or staffing costs, because a maxed-out line leaves no cushion when a real delay hits.
A useful habit: track how many days each draw stays outstanding. If draws that used to clear in a few weeks now sit for months, look at what is driving the claims lag before drawing more.
What you’ll typically need
- Recent business bank statements
- Monthly collections summary
- A/R aging totals by payer category, no patient detail
- Business and personal tax returns for larger limits
Frequently asked questions
Can a new practice get a line of credit?
Some funders offer smaller lines to newer practices, usually weighing strong owner credit and early deposit trends. Others want a longer collections history first. A newer practice may start with working capital or equipment financing and add a line once the practice has more months of steady deposits.
Is a practice line of credit secured?
It depends on the funder. Some lines rely mainly on collections history and the owner's credit, sometimes with a general lien on business assets and a personal guarantee. Others ask for specific collateral for larger limits. Read the security terms in the agreement before you sign.
Should I use my line of credit for equipment?
Usually not. Equipment lasts years, and paying for it from a revolving line ties up the limit you need for timing gaps. Equipment financing matches the term to the device and keeps the line free for payroll and claims delays.
Can the funder reduce my limit?
Many line agreements allow the funder to review the account periodically and adjust or renew the limit based on recent collections, credit and how the line has been used. Ask how often reviews happen and what triggers a change, so a reduction does not surprise you in a slow month.
Want a standing cushion?
Apply online and tell us about the timing gaps your practice sees.
Updated September 14, 2026 · MedicalBizFunding Team