Top Issues Medical Practices Face When Securing Financing

January 30, 2025

The landscape of healthcare is fast-paced and ever-evolving, requiring medical professionals to stay on top of everything from patient care to regulatory compliance. One of the most pressing needs that practices face, however, is the ability to secure adequate financing. Whether you are looking to acquire another practice, buy new equipment, participate in a buy-in or buy-out, refinance existing debt, or purchase real estate for your clinic, you must navigate a complex process filled with potential pitfalls. Below, we explore the top issues that medical practices encounter when seeking financing, along with strategies to help overcome these hurdles.

1. Demonstrating a Proven Track Record and Financial Stability

Lenders want to ensure that any loan they make will be repaid in a timely manner. When evaluating a loan application, they typically look for a proven record of profitability and stable cash flow. For newer practices or physicians branching out on their own, demonstrating financial stability may be done through detailed projections but can be difficult, especially if there is limited historical data. Additionally, lenders may scrutinize personal finances—student loan debt, for instance, can heavily impact a doctor’s debt-to-income ratio. Medical professionals must be prepared with comprehensive financial statements, clear revenue and expense projections, and well-documented billing processes that showcase the viability of the practice.

2. Complexities of Practice Acquisition

Acquiring an established medical practice can be one of the most attractive paths for growing your patient base and revenue streams. However, it can also be riddled with complexities. Beyond simple valuations, an acquiring physician needs to evaluate patient loyalty, staff retention, insurance contracts, and the reputation of the selling practitioner. Lenders usually want to see documented tangible assets such as equipment and real estate, as well as goodwill and intangible assets. Negotiations can be lengthy, and if these details are not well documented or if the valuation of the practice is unclear, banks may hesitate. Having an expert valuation and a clear transition plan is crucial.

3. High Costs of Equipment

From digital imaging devices to advanced surgical tools, the equipment required to run a modern medical practice can be incredibly expensive. Traditional lenders may be less willing to approve large equipment loans without substantial collateral. Medical practitioners often need to balance the benefits of cutting-edge tools with the financial risks of substantial debt. A crucial factor in obtaining favorable equipment financing is showing how the new equipment will increase revenue and improve operational efficiency. Demonstrating the return on investment (ROI) with a detailed business plan can significantly strengthen a practice’s loan application.

4. Challenges with Practice Buy-Ins and Buy-Outs

A common path to partnership or ownership in a multi-provider practice is through a buy-in. Similarly, departing partners may need a buy-out arrangement. These transactions can get complicated, as they involve not just the physical assets of the practice but also intangible assets like patient goodwill. When a partner wants to leave, ensuring a fair valuation and payment schedule can be complex. Banks require clear legal structures for such transactions to confirm that the practice remains stable and profitable even after the change in ownership. If any key partner leaves, it is important for the remaining physicians to demonstrate they have the management expertise and patient base to maintain cash flow.

5. Refinancing Existing Debt

Refinancing can be a powerful way to reduce monthly payments, consolidate multiple loans, or take advantage of better interest rates. However, lenders require evidence that the restructured debt will not overextend the practice’s budget. Showing a consistent payment history on your existing obligations strengthens your refinancing application. Properly evaluating the benefits of refinancing—such as total interest paid over the life of the loan, fees associated with closing, and potential penalty clauses—can help medical practices make informed decisions that truly improve their financial positions.

6. High Real Estate Costs for Practices

Many medical professionals prefer to own their clinics rather than lease space, as it can offer long-term security and the potential for property value appreciation. However, purchasing real estate requires substantial capital. Real estate lending for medical practices often involves unique considerations such as zoning requirements, building specifications for medical use, and the potential for expansion. Loan terms can be more complex if the building needs significant renovations or specialized compliance upgrades (e.g., ADA compliance, medical gas lines). Before seeking real estate financing, it’s crucial to have architectural plans, zoning approvals, and a solid location strategy that validates the investment.

7. Stringent Underwriting Requirements

Medical practices, despite their generally stable revenue potential, can still face stringent underwriting standards, particularly in uncertain economic times. Lenders scrutinize everything from credit scores to debt service coverage ratios. They also consider broader market conditions. For instance, if there is a perceived shift in healthcare reimbursements or insurance coverage, underwriters might build in more caution. Practices may overcome such hurdles by providing transparent, well-documented financials and building strong relationships with banks or credit unions that understand the nuances of healthcare lending.

8. Navigating the Regulatory Environment

The healthcare industry is heavily regulated, with strict compliance standards that extend to how you manage patient data, structure contracts, and bill payers. Lenders are keenly aware that regulatory or compliance missteps can impact the financial stability of a practice. Demonstrating that your practice has robust compliance programs, up-to-date certifications, and transparent billing processes can go a long way toward reassuring lenders that your revenue stream is secure.

Partner with a Specialized Lender

Securing the right financing for your medical practice can be a challenging process. From managing substantial student loan debt and complex compliance needs to demonstrating strong financial statements and clear valuation for acquisitions or buy-outs, there are many hurdles to overcome. However, partnering with a lender that truly understands these unique challenges can make all the difference.

That’s where First Hope Bank comes in. Our lending team has specific expertise in the field of medical lending, offering tailored solutions for practice acquisitions, equipment financing, real estate purchases, and more. We work closely with physicians, dentists, veterinarians, and other medical professionals to understand their goals, streamline the loan process, and provide financing that supports long-term practice growth and stability. With First Hope Bank by your side, you can navigate the complexities of healthcare financing and focus on what matters most—providing excellent patient care.