Most people assume buying a medical practice is out of reach without deep pockets or a private equity backer. That assumption is wrong.

An SBA 7(a) loan can finance up to 90% of a medical practice acquisition. The loan terms, lender requirements, and underwriting nuances differ from a typical business purchase, but the core mechanics work the same way. You bring 10% down, the SBA-backed loan covers the rest, and the practice’s cash flow services the debt.

The catch is that medical practice deals come with their own landmines. Knowing where they are before you make an offer is what separates buyers who close from buyers who lose six months and a $15K diligence bill.

How an SBA Loan to Buy a Medical Practice Actually Works

An SBA 7(a) loan to buy a medical practice functions like any other acquisition loan under the program. The lender underwrites the deal, SBA guarantees a portion of it, and you inject at least 10% equity at closing.

The max SBA 7(a) loan amount is $5M. That means the program covers practices priced up to roughly $5.5M, assuming a 10% equity injection. For most primary care clinics, specialty practices, and dental offices in the $500K to $4M range, that ceiling is more than enough.

Standard loan terms for practice acquisitions run 10 years. Spread the debt service over a decade, and a practice generating $600K in seller’s discretionary earnings can support a surprisingly large purchase price without the DSCR falling apart.

The DSCR Math That Actually Matters

Here is where buyers need to understand the difference between the lender’s minimum and a number you should actually build a deal around.

Most SBA lenders require a minimum 1.25x DSCR to approve a deal. That is the lender’s floor, not yours. A deal at 1.25x coverage leaves almost no margin for a slow quarter, a payor rate adjustment, or a key staff departure. One bad month and you are sweating payroll.

We target 2x DSCR on clean deals. When there are well-documented synergies in play, we will work with 1.5x. But we would not advise a buyer to pursue a practice where the math only clears 1.25x. That is the lender saying “we will technically approve this.” It is not anyone saying the deal is good.

Below 1.25x, the deal is dead regardless of how strong the practice looks on paper. The math is the math.

What Lenders Look for in a Medical Practice Deal

Medical practice underwriting has specific sensitivities that generic SBA lenders sometimes miss. Working with a lender who has closed practice acquisitions before is not optional. It is a prerequisite.

Here is what a lender experienced in this space is going to scrutinize:

Payor mix. A practice that is 80% Medicare and Medicaid reimbursements carries a different risk profile than one with 60% commercial insurance and 20% cash-pay. Lenders know reimbursement rates can shift with a single policy change. Heavy government payor concentration can soften the underwriting considerably.

Physician dependency. If the selling physician sees 90% of patients and plans to walk after a 90-day transition, that is a problem. Lenders want to see a real transition plan. Some require the seller to remain for 6 to 12 months as a paid consultant, and that gets negotiated in the purchase agreement, not as an afterthought.

Licensing and credentialing. The acquiring physician has to be credentialed with the insurance panels before they can bill. That process can take 60 to 120 days, sometimes longer depending on the panels involved. Some lenders require confirmed credentialing before funding. Others allow it to run in parallel with closing.

Know which situation you are in before you sign an LOI. That single variable can shift your entire deal timeline.

Goodwill versus tangible assets. Medical practices are typically goodwill-heavy. The value sits in patient relationships, contracts, and the established referral base, not in equipment. SBA 7(a) handles this well because it can finance goodwill, unlike conventional loans that often demand hard asset collateral.

The Seller Note Situation in Practice Acquisitions

Seller notes in medical practice deals often serve double duty. They bridge any financing gap and they function as a performance guarantee, keeping the seller invested in a smooth post-transition period.

On most deals we work on, we push for a seller note structured on 10-year full standby at 0% interest. Zero interest. Zero payments. For the entire standby period. That structure means the seller does not collect payments on their note while the SBA loan is outstanding, which reduces the cash burden on the practice during the early years and keeps the DSCR from getting squeezed.

We achieve that structure on more than 90% of our deals. Not every seller accepts it on the first ask, but it is standard in SBA acquisition structures. A reasonable seller who has been through the process before understands why it works.

Here is what that looks like in practice. Say you are looking at a family medicine clinic with a $2M asking price. The SBA loan covers $1.8M. You bring $200K equity. The seller carries a $200K standby note at 0%. The practice generates $480K in adjusted EBITDA. At that structure, annual debt service runs around $216K, giving you a 2.2x DSCR. That deal gets approved.

This is the piece that catches non-physician buyers off guard.

Most states have corporate practice of medicine (CPOM) laws that restrict who can own a medical practice. In strict CPOM states, only licensed physicians can own a practice that employs other physicians or bills for medical services. A non-physician investor cannot simply buy a clinic and install a medical director.

The workaround in many states is a management services organization (MSO) structure. The physician owns the clinical entity and employs the clinical staff. A separate management company (which can be non-physician owned) handles billing, HR, real estate, equipment, and administration, then charges a management fee back to the clinical entity.

This structure adds complexity. It adds legal cost. And it needs to be set up correctly before closing.

Side note: the MSO structure also introduces its own compliance considerations around fee arrangements and the anti-kickback statute, which is exactly why you need a healthcare attorney reviewing this, not a generalist.

If you are a licensed physician buying a practice in your specialty, CPOM is mostly a non-issue. If you are a non-physician acquiring a medical practice as an investment, you need a healthcare attorney reviewing the deal structure before you spend a dollar on diligence.

Your state’s specific CPOM rules determine what structure is permissible. Do not rely on general internet research here. This is one area where getting the legal guidance right at the start saves you from a deal that collapses at closing or creates compliance exposure after.

Add-Backs and Adjusted Earnings in Medical Practice Deals

Medical practice financials require careful normalization. Do not take any number at face value.

Physician-owned practices are notorious for running significant personal expenses through the business. The selling physician’s compensation, auto lease, health insurance, retirement contributions, and sometimes a spouse on payroll doing minimal work all need to be identified and documented.

But here is where it gets specific: SDE and adjusted EBITDA are not the same metric, and you need to know which one you are working with. SDE adds back the owner’s total compensation and benefits. Adjusted EBITDA normalizes for non-recurring and discretionary expenses but keeps a market-rate management salary in place. Conflating the two will give you a distorted picture of what the practice actually earns.

The flip side is that you also need to account for market-rate replacement compensation for the clinical role. If the seller was working full-time and drawing $180K in W-2 compensation, that expense stays in the model. If they were drawing $350K and working 25 hours a week, you need to normalize that number to something defensible.

We see buyers make two mistakes here repeatedly. First, trusting the broker’s add-back schedule without verifying each line item against tax returns and bank statements. Second, forgetting to normalize the physician salary when the seller was significantly over or under-compensating themselves.

Get three years of tax returns, three years of profit and loss statements, and 12 months of bank statements. Cross-reference them. Any add-back that cannot be traced to a source document is not a real add-back. Three years of documentation. Minimum.

Matching the Right Lender to a Medical Practice SBA Loan

Not every SBA-approved lender has experience in healthcare. Some lenders that are perfectly capable on a landscaping company acquisition or a retail franchise will pause when they see payor mix tables and credentialing timelines.

You want a lender that has closed medical practice deals. How many in the last 24 months, and in what specialties? A lender with 10 closed dental practice deals is not necessarily the right fit for a gastroenterology clinic.

And the other dimension is speed. Medical practice deals have credentialing dependencies that create scheduling pressure. A lender who needs 90 days to underwrite is going to stress-test your LOI exclusivity period and risk the deal falling apart before it ever reaches the closing table.

We maintain relationships with SBA lenders who understand healthcare transactions. Part of what we do as a buy-side advisory is match deals to lenders who have the right experience and can move at the right pace. From what we have seen, that matching process alone prevents a significant number of deal failures.

Frequently Asked Questions

Can a non-physician use an SBA loan to buy a medical practice?

In most states, corporate practice of medicine laws require physician ownership of clinical entities. A non-physician can still participate through an MSO structure, where they own the management company and a licensed physician owns the clinical entity. Whether this works in your state depends on specific local statutes. A healthcare attorney should review the structure before you make an offer.

How much do I need down to buy a medical practice with an SBA loan?

The SBA 7(a) minimum equity injection is 10% of the purchase price. On a $1.5M practice, that is $150K at closing. The equity can come from cash savings, a 401(k) rollover via a ROBS structure, or other documented sources. It cannot come from a borrowed down payment unless structured as a seller note within the approved deal.

What credit score do I need for an SBA loan to buy a medical practice?

Most SBA lenders want a personal credit score of 680 or higher for an acquisition loan. Some prefer 700 or above, particularly on larger deals or those with thinner cash flow coverage. Your personal financial statement matters too, including net worth, liquidity, and any outstanding personal debt obligations that could compete with the new debt service.

How long does it take to close an SBA loan for a medical practice acquisition?

From signed LOI to closing, a well-managed SBA medical practice acquisition takes 60 to 120 days. The credentialing process is the most common source of delay. If insurance panel applications are not submitted early, they can push closing back by weeks. Deals where the buyer already holds the relevant credentials and is being added to existing panels move faster.

What is a reasonable DSCR target for a medical practice SBA deal?

We target a 2x DSCR on clean deals and accept 1.5x when the model includes well-supported synergies. Most SBA lenders require a minimum of 1.25x, but that is the lender’s bare minimum, not a number we would build a deal around. A practice at 1.25x coverage has almost no margin for error, and we advise buyers against pursuing deals at that threshold.

Thinking About Buying a Medical Practice?

Regalis Capital works with buyers on complex SBA-financed acquisitions, including medical and healthcare practices. We handle the financial analysis, structure the deal, source the right lender, and manage the process from LOI to close.

If you are a physician looking to acquire a practice, or an investor exploring the healthcare services space with the right structure in place, start here to learn how we work.