# Medical practice financing: fund the purchase, the equipment and the wait for claims

**Short answer:** A licensed practice can use SBA loans if its ownership meets state requirements (SOP 50 10 8.1, Sec. A, Ch. 1, Para. E.3). A new owner buying a practice needs equity of 10%, which cannot be reduced or eliminated. Medicare payments generally cannot be assigned to lenders (42 CFR 424.73).

Canonical page: https://www.sbaexpress.loans/guides/medical-practice-financing/
Last checked: 2026-11-09

## On this page

- [Three needs, three kinds of money](#three-needs-three-kinds-of-money)
- [A worked example: buying a practice for $600,000](#a-worked-example-buying-a-practice-for-600-000)
- [A worked example: the wait for insurance payments](#a-worked-example-the-wait-for-insurance-payments)
- [Equipment and technology](#equipment-and-technology)
- [When practice financing is a bad idea](#when-practice-financing-is-a-bad-idea)
- [Questions to ask before you sign](#questions-to-ask-before-you-sign)

## Three needs, three kinds of money

Use a term loan to buy a practice or equipment, sized to how long the asset lasts. Use a line of credit for the wait on insurance payments, repaid as claims pay.

A practice has three separate financing needs. Buying a practice is a large, long-lived purchase. Equipment is a purchase with a working life. The wait for insurance payments is a timing gap.

Businesses that offer services requiring professional licenses are eligible for SBA loans. The ownership structure must meet every state requirement where they are located (SOP 50 10 8.1, Sec. A, Ch. 1, Para. E.3). The lender must document that in the loan file. State ownership rules vary, so ask a healthcare attorney before you sign a purchase agreement.

## A worked example: buying a practice for $600,000

Suppose you buy a practice for $600,000 and that price is the whole project cost. On an Initial Acquisition the minimum equity injection is 10%, which cannot be reduced or eliminated (App. 15, Para. C.2.a). That puts $60,000 of your own money in and leaves $540,000 to borrow. SBA allows 10 years of amortization, with only the real estate portion allowed up to 25 years on a blended basis (App. 15, Para. B.1). Assume 10% a year over 10 years. This is an illustration, not a quote.

- Payment: about $7,136 a month, or about $85,634 a year.
- SBA requires debt service coverage of at least 1.25:1 on an Initial Acquisition (App. 15, Para. C.2.b).

Suppose the practice produces $140,000 a year in cash available for debt payments. Coverage is $140,000 ÷ $85,634 = 1.63, which clears the minimum.

Now suppose cash available is $100,000. Coverage is $100,000 ÷ $85,634 = 1.17, which does not.

- The most the lender can support is $100,000 ÷ 1.25 = $80,000 a year in payments, or about $6,667 a month.
- At the assumed terms that supports a loan of about $504,000.
- A $600,000 price would need about $96,000 of equity, or a lower price.

SBA limits the total debt to the business valuation and requires that cash flow support it (App. 15, Para. A.4). The valuation must be prepared for the lender by a qualified source, not for you or the seller (App. 15, Para. C.1). SBA prohibits seller earnouts (Para. A.8). After an Initial Acquisition the seller must exit and can only consult, for up to 24 months (Para. A.9).

## A worked example: the wait for insurance payments

Suppose your practice bills $150,000 a month and payers take about 45 days to pay. About $225,000 ($150,000 × 45/30) is waiting to be collected at any time. You pay staff and rent before it arrives.

Assume 12% a year and a $100,000 draw held for 45 days. Interest is $100,000 × 12% × 45/365 = about $1,479. Compare that with any factor's quoted fee on the same claims.

Receivable financing also has a legal limit. Under 42 CFR 424.73(a), Medicare does not pay amounts due a provider to any other person. That covers an assignment, a power of attorney or another direct payment arrangement. The exceptions are a government agency, a court order and a billing agent that meets five conditions. One condition is that the agent's pay is unrelated to the dollars billed or collected (42 CFR 424.73(b)).

So a factor cannot simply take over your Medicare claims. Ask any receivables lender in writing how it handles Medicare and other government payers, and have your attorney review the answer.

## Equipment and technology

Suppose you buy $150,000 of imaging equipment. Assume 10% a year with monthly payments. This is an illustration, not a quote.

- **3 years.** About $4,840 a month. Interest: about $24,243.
- **7 years.** About $2,490 a month. Interest: about $59,175.
- **10 years.** About $1,982 a month. Interest: about $87,871.

The shortest term whose payment your slowest months can carry usually costs the least. Match the term to the equipment's life. SBA's refinancing rule gives a 3-year loan on equipment with a 15-year life as its example of an inappropriate maturity (App. 14, Para. A.1.f). SBA equipment terms run 10 years, or up to 15 years if the IRS asset class useful life supports it (App. 17, Para. A.2).

Working capital on a 7(a) loan can pay for business software and cloud services, including billing and records tools (Sec. A, Ch. 3, Para. A.2.d.i). The maximum term is 10 years. Ask the lender which category a purchase falls under, because the category changes the maximum term.

Each owner of 20% or more of the practice gives an unlimited personal guaranty (Sec. A, Ch. 5, Para. A.1).

If you are buying, expect the lender to verify the seller's reported numbers. Lenders must validate the seller's information with IRS tax transcripts (App. 15, Para. A.7).

Price also drives the paperwork. For an Initial Acquisition, a Quality of Earnings report is required when the business purchase price is $3,000,000 or more. At $350,000 or less, the lender may perform its own valuation unless buyer and seller are closely related (App. 15, Para. C.1).

## When practice financing is a bad idea

- **Selling Medicare claims.** The anti-assignment rule limits who can be paid.
- **A price the cash flow cannot carry.** The example above shows how $40,000 less cash flow changes the answer.
- **Short money for long assets.** A 3-year payment on imaging equipment can crowd out payroll.
- **A line used to cover a practice that loses money every month.** Claims do not repay a draw that funds a loss.
- **A purchase with no plan for patients.** Revenue can leave with the seller. Ask for transition terms in the purchase agreement.

## Questions to ask before you sign

- How does the lender treat Medicare, Medicaid and other government payers?
- Does the lender exclude receivables more than 90 days past due when it sets the limit?
- What is the payment in your slowest month, and does coverage still hold?
- Who prepares the business valuation, and who pays for it?
- What do you pledge, and who signs a personal guarantee?

None of the sources cited here lists typical prices for practice loans, because prices vary by lender.

## Sources

- [42 CFR § 424.73, prohibition of assignment of claims by providers (Medicare)](https://www.ecfr.gov/current/title-42/section-424.73)
- [SOP 50 10 8.1, Sec. A, Ch. 1, Para. E.3, professional license businesses (about p. 20)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 15, Para. A, change of ownership requirements, items 4, 8 and 9 (pp. 362-363)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 15, Para. B.1, loan maturities (p. 370)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 15, Para. C.1 and C.2, financial due diligence and credit standards (Para. C begins p. 371)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 14, Para. A.1.f, debt with an inappropriate maturity (p. 355)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 17, Para. A.1 and A.2 (p. 390)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. A, Ch. 3, Para. A.2.d.i, software and cloud computing (p. 52)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. A, Ch. 5, Para. A.1 (p. 93); 13 CFR § 120.160(a)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)