SBA Loans for Medical Practices: Financing a New Practice or Expansion

Medical and dental practices are among the most attractive borrowers for SBA loans. Stable demand, professional credentials, and predictable revenue streams make healthcare practitioners ideal candidates for government-backed financing. If you are acquiring a practice, opening a second location, or purchasing real estate, SBA loans often provide the best combination of rates, terms, and down payment requirements.

This guide covers how SBA financing works specifically for healthcare practices and what lenders evaluate when underwriting your application.

Why Lenders Love Healthcare Practices

SBA lenders have internal risk models, and healthcare practices consistently score well. Here is why:

• Recession-resistant demand — People need healthcare regardless of economic conditions
• Professional credentials — Years of education and licensing represent significant practitioner investment
• Predictable revenue — Insurance reimbursement creates stable, recurring income
• Low failure rates — Medical and dental practices fail at significantly lower rates than restaurants or retail
• Transferable patient relationships — Unlike many businesses, patient goodwill transfers to new owners
• Equipment collateral — Medical equipment holds value and can secure portions of the loan

SBA 7(a) vs. SBA 504: Which Fits Your Needs?

Two SBA programs cover most medical practice financing needs. Understanding the difference helps you choose the right path:

Practice Acquisition: The Most Common Use Case

The majority of SBA loans to healthcare professionals fund practice acquisitions. Whether you are buying out a retiring dentist or acquiring a medical practice to expand your footprint, SBA 7(a) loans are purpose-built for these transactions.

Typical acquisition loan structures:

• Purchase price coverage — Up to 90% of the total acquisition cost
• Goodwill financing — SBA loans can finance practice goodwill, which conventional loans often cannot
• Working capital inclusion — Add 3-6 months of operating capital to your loan
• Transition costs — Cover training periods, overlap staffing, and other transition expenses

Practice valuations typically range from 60-90% of annual collections for dental practices and vary more widely for medical practices depending on specialty, payer mix, and location. SBA lenders will require a professional valuation, usually from a healthcare-specific appraiser.

Real-World Scenario: Dental Practice Acquisition

The situation: A dentist with 7 years of associateship experience wants to purchase a solo general dentistry practice. The practice collects $950,000 annually with $275,000 in owner compensation after expenses. Asking price: $760,000 (80% of collections, 2.76x owner benefit).

Buyer profile: 710 credit score, $95,000 in savings, no prior business ownership but strong clinical track record and production history.

Financing structure: SBA 7(a) loan for $684,000 (90% of purchase price). Buyer contributed $76,000 down payment. Additional $50,000 included for working capital and transition costs, bringing total loan to $734,000.

Terms received: 10-year amortization at Prime + 2.5% (approximately 10% at origination). Monthly payment: $9,700. Seller agreed to 90-day transition period with patient introductions.

Outcome: Practice cash flow comfortably covered debt service. The buyer maintained 85% patient retention through the transition and reached full production within 8 months.

Opening a Second Location

SBA loans also work well for practice expansion. If you have an established practice generating consistent revenue, adding a second location is a natural growth path that lenders understand.

What lenders evaluate for expansion financing:

• Existing practice performance — Profitable operations with clean financials
• Equity position — Some lenders want to see existing debt largely paid down
• Management capacity — Can you run two locations? Do you have staff to support expansion?
• Market analysis — Is there patient demand in the new area?
• Detailed projections — Revenue ramp timeline, break-even analysis, staffing plan

Expansion loans often include both real estate/build-out costs and working capital to fund operations until the new location reaches profitability. Expect to provide 6-12 months of projected operating expenses as part of your loan request.

Real Estate Purchase with SBA 504

If you are purchasing the building that houses your practice — or buying a new property for expansion — the SBA 504 program offers advantages over conventional commercial real estate loans.

• Lower down payment — 10% vs. 20-25% for conventional commercial mortgages
• Fixed interest rate — The CDC portion (40% of the loan) carries a fixed rate, providing payment predictability
• Longer terms — Up to 25 years, which reduces monthly payments
• Below-market rates — 504 rates are typically 0.5-1% lower than conventional alternatives

The SBA Application Process for Healthcare Practices

SBA loans require more documentation than conventional financing, but the process is manageable with preparation. Here is what healthcare practice applicants typically need:

• 3 years of tax returns — Both personal and business (if buying an existing practice, seller provides business returns)
• Practice financials — Profit and loss statements, balance sheets, accounts receivable aging
• Professional credentials — Medical/dental license, board certifications, DEA registration if applicable
• Practice valuation — Required for acquisitions, must be from a qualified appraiser
• Business plan — Less formal for acquisitions with track record, more detailed for startups or expansions
• Resume/CV — Demonstrates clinical experience and management capability
• Personal financial statement — Net worth, liquid assets, existing debts

Timeline Expectations

SBA loans are not fast. Set realistic expectations for the process:

For practice acquisitions, this timeline needs to align with your purchase agreement. Build in sufficient due diligence and financing contingency periods. Sellers familiar with practice sales understand that SBA financing takes time.

Common Reasons for Delays or Denial

Even strong applicants can face issues. Watch out for these common problems:

• Incomplete documentation — Missing tax returns, unsigned forms, outdated financials
• Credit issues — Recent derogatory marks, high personal debt ratios
• Practice financials — Declining revenue, unusual expenses, poor collections rate
• Overpriced acquisition — Valuation exceeds supportable amount based on cash flow
• Insufficient equity — Down payment funds not verified or seasoned
• License issues — Any disciplinary actions or malpractice concerns

Working with Healthcare-Specialized Lenders

Many SBA lenders have dedicated healthcare practice divisions. These specialists offer advantages:

• Industry understanding — They know typical practice valuations, overhead ratios, and cash flow patterns
• Faster processing — Familiar with healthcare documentation reduces back-and-forth
• Better terms — Some offer rate discounts for medical and dental professionals
• Relationship value — Can provide ongoing financing as your practice grows

Names you will encounter in healthcare practice lending include Live Oak Bank, Bank of America Practice Solutions, and various regional banks with healthcare divisions. Credit unions serving healthcare professionals are also worth exploring.

What Comes After Approval

Once approved, you will work through closing documentation and loan covenants. Common ongoing requirements include:

• Annual financial reporting — Tax returns and practice financials submitted each year
• Insurance requirements — Business insurance, malpractice coverage, life insurance on key persons
• Collateral maintenance — Keep equipment in good condition, maintain property
• Operating account — Some lenders require banking the practice account with them

SBA loans remain one of the best financing options for medical and dental practice acquisition and expansion. The process requires patience and documentation, but the favorable rates and terms justify the effort for most practitioners.