How to Buy a Medical Practice With a Partner
Choosing to buy a medical practice with a partner can make ownership more achievable. Two physicians can share the equity injection, split call and clinical coverage, combine their credit profiles and divide the work of running a business. For many internists and family physicians, partnering with a colleague is a practical way to buy a larger practice than either could afford alone.
Shared ownership also adds complexity. Partners have to agree on how the practice is owned, how decisions are made, how each will be paid and what happens if one of them wants out. Lenders will want clear answers to those questions too. This article explains how two-physician purchases are typically structured and financed. Ownership rules, including which licensed professionals may own a medical practice, vary by state, and nothing here is legal, tax or accounting advice. Each partner should consider separate counsel.
Why Physicians Buy Together
- Shared capital: each partner contributes part of the equity injection and reserves
- Clinical coverage: two physicians can maintain volume when one is away
- Retention of patients: a larger practice may need more than one provider to replace a retiring owner
- Divided responsibilities: one partner may focus on operations while the other leads clinical quality
- Combined financial strength: lenders may view two qualified borrowers more favorably than one
Agree on the Essentials Before You Make an Offer
Before approaching a seller or a lender, partners should agree on the big questions. Disagreements are much easier to resolve before money changes hands.
- Ownership split: equal ownership, or different percentages based on capital or production
- Capital contributions: how much each partner invests and what happens if one cannot contribute equally
- Compensation: how physician pay will be calculated, whether by production, equal split or a blend
- Decision-making: which decisions require both partners and how deadlocks are resolved
- Roles: who manages billing, staff, payer contracts and the lender relationship
- Exit terms: what happens on retirement, disability, death or a partner leaving
These terms belong in a written operating or shareholder agreement prepared by counsel. Buy-sell provisions are especially important, because they set the rules if one partner needs to buy out the other later. Our article on how to finance an internal medicine partner buyout explains what that process can look like.
How Lenders View a Medical Practice With a Partner
When two physicians buy together, lenders generally underwrite both. They may review:
- Personal credit history for each partner
- Personal financial statements, tax returns and liquidity
- Each partner’s training, experience and management background
- The draft operating or shareholder agreement
- How the purchase will be funded, including each partner’s equity contribution
- The practice’s historical cash flow and whether it can support two physician salaries plus debt payments
One partner’s weaker credit or limited reserves can affect the whole application. It helps for both partners to review their credit and finances before applying. Our articles on the credit score needed to buy an internal medicine practice and the down payment needed explain what lenders may look at individually.
Personal Guarantees
Lenders typically require personal guarantees from owners above a certain ownership level, and many require guarantees from every owner. A guarantee may make each partner responsible for the entire loan, not just their share, if the practice cannot pay. Partners should understand this before signing and consider how their operating agreement addresses it. Counsel can explain the implications in your state.
Some partners also carry life and disability insurance on each other so the practice or the remaining partner has funds to repay debt or buy out an ownership interest if something happens. Lenders may require this coverage as a loan condition, so it is worth pricing early.
Financing Options
SBA 7(a) loans can finance the purchase of an existing practice with multiple owners, and may include working capital and, in some cases, real estate. Eligibility and terms depend on the business, the buyers, use of proceeds, program rules and lender review. Every loan is subject to approval, and nothing here is a commitment to lend.
Conventional practice loans may suit partners with strong credit, reserves and clinical experience. Some partnerships also negotiate a seller note for part of the price, although lenders and loan programs may limit seller notes and they are typically subordinate to the senior lender.
If the deal includes the building, partners may choose to own the real estate in a separate entity. Our guide on whether to buy a medical practice and building together covers those structures.
Structuring the Purchase
Partners typically form a new entity to buy the practice. Whether that entity buys the practice’s assets or its ownership interests affects liabilities, taxes and payer contracts. Our article on asset vs. stock purchases explains the differences. Licenses, payer contracts and Medicare and Medicaid enrollments should not be assumed to transfer, and both partners may need to complete credentialing.
Pitfalls to Avoid
- Assuming a friendship replaces a written agreement
- Leaving compensation or decision-making rules vague
- Overlooking what happens if one partner becomes disabled or dies
- Underestimating how two physician salaries affect debt coverage
- Ignoring differences in long-term goals, such as retirement timing
Final Thoughts
Buying a medical practice with a partner can lower the barrier to ownership and create a stronger practice than either physician could build alone. Success usually depends on agreeing on ownership, pay, roles and exit terms before the deal, putting those terms in writing and arranging financing that supports two physicians and the debt.
US Medical Funding helps physicians finance practice acquisitions, including purchases by two or more partners. Learn more about our internal medicine practice acquisition financing.
