Practice acquisition loan vs. commercial real estate loan

The short answer

No — financing the operating business and financing the building are different. A practice loan is supported mainly by operating cash flow and business assets; a real estate loan is tied more directly to the property's value and real estate underwriting. Collateral, structure, guarantees and down payment vary by lender and program.

The real question isn't which note has the lower rate. It's what both payments do to your cash flow together.

Two assets, one owner's cash flow

A practice purchase can include goodwill, equipment, supplies, working capital, leases and a seller note. A building purchase brings title, environmental and zoning review, insurance, repairs and an appraisal. A building that looks affordable alone can still leave the practice short after payroll, supplies, taxes and the acquisition note.

Illustrative combined debt service

Hypothetical: $1,200,000 practice debt at 8.50% over 10 years (about $14,878 a month) plus $900,000 building debt at 7.50% over 20 years (about $7,250 a month) = about $22,129 a month, or $265,543 a year, before taxes, insurance and maintenance.

With $345,000 of annual cash available for debt service, simple combined coverage is about 1.30x. That's an illustration, not a lender standard or approval.

Questions to settle with your lender and advisers

• Which entity signs each note, and is there a personal guarantee?
• Does the property loan have a balloon or refinance date?
• Are there cross-default provisions?
• How is the price split between goodwill, equipment and working capital?
• Is the seller's building being bought at the same closing?

SBA financing isn't one-size-fits-all

The SBA lists business acquisition, fixed assets, working capital and certain real estate among eligible 7(a) uses, with different maturities for real estate and general business purposes. Eligibility and terms are set case by case (sba.gov/loans/7a-loans).