Medical practice loan: rates, SBA options and requirements

Key takeaways

The numbers lenders use

Many lenders look for DSCR of about 1.25x or higher. Each lender sets its own standard.

Worked example (illustrative numbers)

A physician buys a primary care practice. All numbers are illustrative.

• Annual collections: $1,500,000; A/R $185,000 → days in A/R = $185,000 ÷ ($1,500,000 ÷ 365) ≈ 45 days
• Adjusted EBITDA margin: 15% → $225,000 a year
• Loan: $900,000 at 10.00% for 10 years → about $11,894 a month, $142,723 a year
• DSCR = $225,000 ÷ $142,723 = 1.58x
• Break-even collections (DSCR 1.00x) = $142,723 ÷ 15% ≈ $951,485

Illustrative only. Real terms depend on the lender, the SBA and your file.

What lenders look at

Expect a lender to review:

• Collections for three years, plus year to date
• Payor mix and any concentration in one payor
• Accounts receivable aging and days in A/R
• Provider production, contracts and retention
• Adjusted EBITDA and owner add-backs
• Goodwill, valuation and credentialing timeline for the buyer
• Real estate and lease terms

Payor mix and receivables in a transition

When a practice changes hands, new provider enrollment and credentialing can delay payments. Many buyers include working capital in the loan to cover the gap, and agree with the seller on who keeps existing receivables.

What drives medical practice loan rates

Rates usually reflect the program, term, fixed vs variable pricing, collateral, the buyer's credit and the practice's cash flow. Fees and points change the true cost; compare offers with the loan fees and points calculator.

What medical practice loans pay for

Common uses:

• Acquisition, including goodwill
• Partner buyout or buy-in
• Startup practice
• Equipment: imaging, diagnostic, exam and procedure equipment
• Build-out, expansion and owner-occupied real estate

SBA vs conventional vs equipment financing for a medical practice

SBA 7(a): long acquisition terms (often 10 years) and the ability to include working capital make it a common choice when new payor enrollment and credentialing will slow collections after closing. Expect SBA paperwork, guarantee fees and a personal guarantee. SBA 504 fits an owned clinic or surgery building; SBA Express covers smaller equipment or IT needs.

Conventional bank loans: banks that lend to physicians may offer competitive conventional terms, but they will look hard at A/R quality, provider retention and how much volume depends on outside referral sources.

Equipment financing: imaging, diagnostic and procedure equipment secures its own loan with terms matched to useful life. Before financing equipment tied to referrals or in-office ancillary services, talk to your attorney about how federal and state self-referral and anti-kickback rules apply.

Equity injection and timing for a medical practice purchase

Most acquisition lenders want the buyer to contribute cash. SBA lenders typically look for a minimum equity injection on a change of ownership (commonly cited as 10% of total project costs), and part of that may come from a seller note only if the note meets current SBA standby rules. Conventional lenders often ask for more.

Plan on 60 to 120 days from signed letter of intent to closing for many medical practice purchases. Payor enrollment and credentialing for a new owner or entity can take months, so start applications early and size working capital to cover the gap in collections.

• Week 0–2: letter of intent; share tax returns, collections by payor and A/R aging with a lender
• Week 2–6: term sheet, valuation, provider retention and employment agreement review
• Week 6–12: underwriting, SBA authorization if applicable, payor enrollment and credentialing applications, attorney review of referral relationships
• Closing: final legal documents, funding, receivables cut-off and patient notification

Common mistakes in medical practice deals

Lenders see these avoidable problems in medical practice purchases:

• Counting old receivables as cash flow without agreeing who keeps them
• Starting payor enrollment and credentialing after closing instead of before
• Forgetting working capital to cover the collections gap in the first 60 to 90 days
• Assuming key physicians or advanced practice providers will stay without signed agreements
• Relying on referral sources without having your attorney review the arrangements
• Mixing personal and practice expenses so cash flow cannot be verified

SBA program limits (checked against sba.gov on November 2, 2026)

• How these limits apply to a physician or specialty practice: the 7(a) cap often covers goodwill, equipment and the working capital needed while payor enrollment catches up, with 504 reserved for owner-occupied buildings.
• SBA 7(a) maximum loan amount: the SBA lists $5 million.
• SBA 7(a) maturity: generally up to 10 years for business acquisitions, equipment and working capital, and up to 25 years for real estate.
• SBA 504 maximum (CDC portion): the SBA lists $5.5 million, for owner-occupied real estate and long-life equipment.
• SBA Express maximum: the SBA lists $500,000 with up to a 50% guarantee.
• Equity injection and seller-note standby rules for changes of ownership are set in SBA SOP 50 10 and have changed more than once. Confirm current requirements with a lender.
• Larger group or multi-site purchases can approach program caps; ask the lender early whether a combination of SBA and conventional debt is needed.
• Interest rate caps and guarantee fees change; we do not state them here. See sba.gov.

Rates, caps and fees change. Check the official source before you rely on any figure: SBA.gov: 7(a) loans.

• SBA SOP 50 10: Lender and Development Company Loan Programs
• SBA.gov: 504 loans
• SBA.gov: Terms, conditions and eligibility

Common questions