For physicians, dentists, and other healthcare practitioners, purchasing an existing medical practice may be one of the most appealing and calculated opportunities to advance their career. Whether you are newly qualified wanting to step into a directorship role or seasoned practitioner looking to consolidate your presence, acquiring a practice can provide immediate cash flow, existing patients, and an operational framework. However, the purchase price is typically on the higher end, which is often unattainable without support. That’s why medicine practice business loans exist.
In this post, we will cover everything you should know about a loan to buy a business —types of loans, the qualifications you need to meet, advantages and disadvantages, and picking the most suitable option for you.
Why Buy an Existing Medical Practice?
Before focusing on the financing aspects, it’s crucial to highlight the reasons why so many practitioners choose to buy a business as opposed to starting one from the ground up.
Benefits include:
Established patient base: Immediate access to revenue.
Operational structure: Staff, systems, and equipment are often included.
Brand recognition: Reputation in the community is already established.
Revenue history: Assessing the available financials assists with estimating the viability and value of the business.
Location and licensing: Everything from zoning, permits, and even the primary location are settled.
Purchasing a practice does present some risk when compared to starting a practice from scratch, but it still offers a considerable financial risk. Depending on the specialty, location and size of the practice the acquisition costs averages between hundreds of thousands to several millions. This is where business loans come in handy.
What is a Medical Practice Business Loan?
A Medical Practice Business Loans refers to a specific financing option crafted for healthcare professionals. This type of financing is deemed low-risk by banks and lenders considering the earning potential and low default rates that medical professionals typically offer. The loans can be used for different reasons such as:
Buying out a partner
Renovating office space
Marketing or working capital
Purchasing new technology and equipment
Buying an existing practice
For individuals looking to purchase a medical business, the main focus is usually on acquisition loans.
Loans to Consider For Purchasing a Medical Practice:
1. SBA Loans (Small Business Administration Loans)
SBA loans are designed for small businesses, and the 7(a) loan for general business acquisition is one of the most popular loans for practice purchases. This is because they are partially guaranteed by the federal government, making it easier for lenders to approve applications.
Loan Amounts: Upwards of 5 million dollars
Terms: 10 years (maximum for acquisition SBA loans)
Interest Rates: Almost always variable – usually prime + 2.75% or similar
Down Payment: Often 10-20% of the loan amount
Pros:
Better terms with lower interest than other loans
Higher chances of being approved because of these being federally backed
Cons:
Slow application processes
Requires a lot of documentation
2. Conventional Bank Loans:
There are many traditional banks that provide customized loans for healthcare practitioners. They are likely to have competitive terms if one has an established relationship with the bank.
Loan Amounts: Usual range varies quite a lot
Terms: Generally 5-10 years
Interest Rates: Usual industry standards but with narrower band based on one’s reliability.
Pros:
If one has good credit, they will enjoy very reasonable rates
May offer waived fees due to having good relations with the bank
Cons:
Very high credit specification and requirement for collateral
Comparison to online lenders, they tend to be slower
3. Online / Alternative Lenders:
Compared to traditional banks, SBA lenders, or even other bank services, online lenders provide faster approval as well as a looser structure of criteria.
Loan Amounts: From \$50,000 to over \$1 million
Terms: 1-5+ years
Interest Rates: Above what banks offer
Pros:
Quick application and approval process
Less documentation required
Cons:
Elevated interest costs
Shorter repayment schedules
4. Healthcare Specific Lenders
These lenders specialize in financing medical, dental, or veterinary practices. Because these lenders know healthcare very well, they provide acquisition, equipment, and working capital packages tailored specifically for them.
Providers: Live Oak Bank, Bank of America Practice Solutions, Lendio, etc.
Features: Flexible terms, no penalties for early repayment, consultative services
Applying for a Medical Practice Loan: How to Qualify
Applying for a loan comes with a set of specific criteria that you need to meet:
1. Credit Score Evaluation
A personal credit score of 650–700 is the minimum benchmark set by lenders, although some SBA lenders prefer the latter figure.
2. Occupational Background
Having prior work experience running or operating a practice is a must. A few years in the field is generally advantageous.
3. Business Plan
Every business needs a coherent business plan, and it must, at a minimum, contain:
Financial forecasts
Value of practice
Marketing plan
Plans for the future
4. Financial Documents
You will need to obtain:
Tax returns (both personal and business)
Bank transactions
Profit & loss summaries
Balance sheet
5. Practice Valuation
A reasoned valuation done by someone else for a practice helps in verifying whether the purchase price is reasonable. This is often a requirement of the lenders to establish the loan-to-value ratio.
A Guide On How To Acquire A Medical Practice Using A Loan
1. Identify An Appropriate Practice
Carry out research on the demographics, competition, and area. Ensure the practice is in line with your area of specialty as well as your objectives.
2. Conduct Detailed Examination Of Relevant Documents
Make an assessment of the financial documents such as the contracts, staff roles, billing systems, and the history of compliance.
3. Get A Practitioners Valuation
Engage the services of an experienced appraiser for the determination of the fair market value of the practice.
4. Make The Comprehensive Business Plan
Work on the strategy statement along with insights that will come from the due diligence.
5. Obtain Business Financing
Make a comparison of the financing provided by SBA, banks, and their specialized lenders. Ensure all applications include relevant documents.
6. Finalization of The Agreement
Collaborate with the lawyers and accountants towards the defining of the terms, transition plans as well as the legal documentation.
7. Secure Financing and Complete the Purchase
Once the financing is accepted and contracts are executed, the loan will be disbursed and the ownership will change.
Pros and Cons of Acquiring a Practice Through Financing
Advantages:
Access to a new source of income
Existing goodwill
Reliable income
Room to enhance profits
Loan secured by assets (you obtain physical assets)
Disadvantages:
Debt stress
Risks during the transition (patient loss, staff changes)
Potential need for upgrading some systems
Prolonged negotiations and extensive due diligence
Closing Remarks
Acquiring a medical practice is a career milestone and significant financial undertaking. When coupled with the right financing plan, a medical practice can serve as a profitable investment that provides long-term self-sustained success. In this regard, medical practice business loans can play an important role by providing funds needed to acquire, transition, and grow the practice.
As with any other financial decision, evaluate all of your alternatives, obtain professional help, and ensure your calculations are to your benefit. With the right approach, robust due diligence, and the right financing, acquiring a medical practice may just turn out to be the most beneficial step in your professional career.
