Physician’s Guide to Financing a Medical Practice Purchase

Buying a retiring physician’s practice can be financed with little or no money down. Here is how the underwriting works and what it takes to qualify.

Why Lenders Compete for Physician Borrowers

Medical practices default at rates far below general small business averages. Demand is non-discretionary, physicians carry licensure that makes career interruption unlikely, and established practices have patient panels that do not evaporate when ownership changes. Lenders know this, and they price and structure accordingly.

The practical consequence is that a qualified physician buying a healthy practice can often obtain 100% financing, sometimes with an additional working capital layer on top. That is nearly unheard of in other industries, where 10% to 30% equity injections are the norm.

The qualification bar is specific rather than generous. Lenders want board certification or eligibility, a clean licensure and malpractice history, credit in the high 600s or better, and either practice ownership experience or a clear transition plan with the selling physician staying on.

How Practices Are Valued

Most primary care and specialty practices trade on a multiple of adjusted EBITDA after normalizing the owner’s compensation to fair market value for the clinical work performed. That normalization is the crux of every valuation dispute. A physician taking $600,000 in compensation while a market salary for their production is $350,000 has $250,000 of add-back; one taking $200,000 has negative adjustment.

Multiples typically range from 3.0x to 5.0x adjusted EBITDA for single-provider practices, with multi-provider groups and procedure-heavy specialties commanding more. Ancillary revenue streams such as in-office imaging, laboratory, and dispensing carry their own multiples and should be valued separately.

Hard assets are valued at fair market value and added. Dental and ophthalmic practices in particular carry substantial equipment value, and a practice with a recently purchased imaging suite is worth materially more than one running fifteen-year-old technology.

Payer Mix Is the Diligence That Matters Most

Two practices with identical collections can have wildly different values depending on who pays. Commercial insurance typically reimburses at 120% to 180% of Medicare rates, Medicare pays its schedule, and Medicaid frequently pays 60% to 80% of Medicare. A practice at 70% commercial is a different asset than one at 70% Medicaid.

Verify that payer contracts are assignable and that the buyer will be credentialed with each plan before closing. Credentialing routinely takes 90 to 150 days, and a physician who takes over a practice before credentialing completes cannot bill for the patients they are seeing. That gap has sunk otherwise sound acquisitions.

Also examine the revenue cycle. Days in accounts receivable above 45, denial rates above 8%, and aged AR over 120 days exceeding 15% of the total all signal collection problems that will follow you. Sometimes that is an opportunity, since fixing billing is straightforward and immediately accretive, but it should be priced into the deal.

Structuring the Loan

For acquisitions under $5 million, the SBA 7(a) program provides a ten-year fully amortizing term with no balloon, funds goodwill, and can wrap working capital and equipment into the same facility. When real estate is included, the term extends to twenty-five years, which dramatically lowers the blended payment.

Conventional physician practice lending is also widely available and often faster, with terms of seven to ten years and comparable leverage for strong borrowers. The trade-off is typically a balloon at year five to seven and tighter covenants.

Angel Funding Group arranges practice acquisition financing through our mergers and acquisitions group and routinely combines it with commercial real estate financing when the seller also owns the medical office building. Buying the practice and the property together in one coordinated closing is almost always cheaper than two separate transactions.

Planning the Clinical Transition

Patients follow physicians, not signage. The single greatest risk in a practice acquisition is attrition during the handoff, and the mitigant is a structured transition where the selling physician remains for six to twenty-four months, personally introducing patients and referral sources.

Negotiate that transition into the purchase agreement with defined hours, defined compensation, and a non-compete covering a realistic geographic radius. Consider tying a portion of the price to retention of collections over the first twelve months, which aligns the seller with your success.

Retain the staff, especially the front desk and billing personnel. They hold the operational knowledge, the referring physician relationships, and the patient familiarity that keeps volume stable. Practices that replace the entire staff in month one routinely see collections drop 20% before they recover.