Medical Practice Financing — What You Need to Know Before You Buy

Buying a medical practice is one of the best wealth-building moves a physician can make. But it's also one of the most misunderstood transactions in commercial lending.

I've closed multi-location medical practice acquisitions up to $13M. I've structured 100% financing deals with operational transition capital included. And I've watched smart, accomplished doctors make avoidable mistakes because nobody told them how practice financing actually works.

This is that conversation.

Why Medical Practices Are Unique

A medical practice isn't a building. It isn't a franchise. It's a business built on relationships, licenses, and cash flow patterns that don't look like anything else in a lender's portfolio.

Here's what makes practice deals different:

Goodwill valuation. A huge portion of a practice's value is goodwill — the patient base, the referral relationships, the reputation. This is an intangible asset. Some lenders don't know how to underwrite it. Others won't touch it. You need a lender who understands that goodwill in a medical practice is real, measurable, and bankable.

Cash flow timing. Medical practices have revenue cycles tied to insurance reimbursement. Collections lag 30-90 days. If your lender doesn't understand healthcare revenue cycles, they'll look at your cash flow and see risk where there's actually stability.

Licensing and credentialing. The deal doesn't close when the loan funds. It closes when you're credentialed with the payers, the licenses transfer, and the practice can actually operate under new ownership. This timeline affects everything — including how you structure the transition.

Seller dependency. In most practice sales, the selling physician needs to stay on for a transition period. How that's structured — employment agreement, consulting contract, earnout — affects the deal's risk profile and the lender's appetite.

SBA vs. Conventional: Which Path Fits?

This is the first fork in the road, and most buyers don't understand the tradeoffs.

SBA Loans (7(a) or 504)

Pros:

• Lower down payment — sometimes as low as 10%
• Longer amortization (up to 25 years on real estate, 10 on business value)
• Can finance goodwill, working capital, and equipment in one package
• Some programs allow 100% financing for qualified buyers

Cons:

• SBA guarantee fee adds cost (can be 2-3% of the loan)
• More paperwork and longer processing timelines
• Personal guarantee required
• Some SBA lenders don't understand medical practices and will slow-walk your deal

Conventional Loans

Pros:

• Faster closing timelines
• More flexibility on structure
• No SBA guarantee fee
• Potentially better rates for strong borrowers

Cons:

• Higher down payment (typically 20-30%)
• Shorter amortization on business value
• Less appetite for goodwill-heavy deals
• Fewer lenders willing to do practice acquisitions at all

My take: For most first-time practice buyers, SBA is the right path. The lower down payment preserves cash for the transition period — which is when you need it most. But the right answer depends on your deal, your liquidity, and your timeline.

What "100% Financing" Actually Means

You've probably heard that 100% financing is possible for medical practice acquisitions. It is — but not the way most people think.

100% financing doesn't mean the lender covers everything and you walk in with nothing. It means the financing structure is built so that your out-of-pocket cash at closing is minimized or eliminated. That usually involves:

• Seller financing for a portion of the purchase price (typically 10-15%, held on standby)
• SBA loan covering the primary acquisition cost
• Working capital rolled into the loan to fund operations during transition
• Equipment financing handled separately if needed

The seller takes a note, the SBA lender covers the rest, and you start day one with operating capital instead of an empty bank account. It works — but it requires a seller who's willing and a lender who knows how to structure it.

This is exactly the kind of deal where having an advisor matters. I've built these structures multiple times. The pieces fit together, but only if someone is coordinating them.

Common Mistakes Buyers Make

After closing deals in this space for years, I see the same mistakes repeatedly:

Skipping independent valuation. The seller's broker gives you a number. Your lender orders an appraisal. Those numbers don't always match. Get an independent valuation from someone who understands medical practice economics before you negotiate.

Underestimating transition costs. You're going to need working capital for 60-90 days while revenue ramps, insurance contracts transfer, and patients adjust. If you didn't finance that, you're burning personal cash at the worst possible time.

Choosing a lender who doesn't specialize. A community bank that does great SBA loans for restaurants may be completely lost on a medical practice deal. Goodwill valuation, revenue cycle analysis, credentialing timelines — if your lender hasn't done this before, your deal is their learning experience. You don't want that.

Ignoring the employment agreement. How the selling physician's transition is structured affects the lender's risk assessment, your operational stability, and your patient retention. This isn't a sidebar — it's central to the deal.

Not modeling the first 12 months. What does cash flow look like month by month after closing? Where are the pinch points? What happens if collections run slower than expected? If you haven't modeled this, you're guessing. Lenders hate guessing, and you should too.

The Bottom Line

Medical practice acquisitions are phenomenal opportunities. The economics work, the demand is real, and the path to ownership is well-established. But the financing is specialized, and the wrong advisor or the wrong lender can turn a great opportunity into a painful process.

I've been in these deals. I know the lenders, the structures, and the pitfalls. If you're looking at a practice acquisition, let's talk before you sign anything.