How to Finance an Optometry Practice Purchase
If you have found a practice you want to own, the next question is how to finance an optometry practice purchase without stretching yourself or the practice too thin. Few buyers pay the full price in cash, so the financing structure often shapes whether the deal works at all.
This article walks through the main financing options, how they may be combined and what lenders typically review. Loan programs, terms and eligibility vary by lender and by deal, every loan is subject to approval, and nothing here is a commitment to lend or legal, tax or accounting advice.
Start With What You Are Buying
An acquisition is rarely just goodwill. A purchase may include the patient base, equipment, optical inventory, furniture, records, the trade name and sometimes the building. It may also include working capital to carry the practice through the transition.
Listing each component and its expected cost helps you and your lender decide which loan types fit which parts of the deal. Real estate, for example, may be financed differently than the practice itself.
SBA 7(a) Loans
SBA 7(a) loans are frequently considered for practice acquisitions. They are made by banks and other lenders and partially guaranteed by the SBA, which may allow lenders to offer longer repayment terms than they otherwise would.
Depending on the deal, a 7(a) loan may be used to finance:
- Goodwill and other intangible assets of the practice
- Equipment and optical inventory included in the sale
- Working capital for the transition
- In some cases, the real estate the practice occupies
Eligibility and terms depend on the business, the buyer, the use of proceeds, program rules and lender review. SBA loans can involve more documentation than some conventional loans, so buyers should plan for that in their timeline.
Conventional Practice Loans
Conventional practice loans are made under a lender’s own credit standards without a government guarantee. They may suit buyers with strong credit, meaningful liquidity and prior ownership or management experience, or deals where the practice has a long record of stable cash flow.
Conventional loans can offer flexibility in structure, but requirements for equity, collateral and repayment term vary widely from lender to lender.
Seller Financing
Some sellers agree to carry a portion of the price as a promissory note paid over time. A seller note can help bridge a gap between the price and what a lender will finance, and it may signal the seller’s confidence in the practice.
Seller notes are typically subordinate to the senior lender, and lenders or loan programs may restrict when and how they are paid. Earnouts tied to future performance may be limited or not allowed under some programs. Our article on seller financing an optometry practice purchase explains these considerations in detail.
Your Equity Injection
Most lenders expect the buyer to contribute some cash or other equity to the deal. The amount depends on the program, the lender, the buyer’s experience and the overall structure. Lenders also want to see that you keep reserves after closing rather than using every dollar at the table. Our guide to the optometry practice down payment covers how that requirement is typically determined.
What Lenders Review When You Finance an Optometry Practice
When you apply for an acquisition loan, lenders typically look at both the practice and the buyer:
- Historical cash flow: whether the practice has earned enough to cover a fair owner salary and the proposed debt
- Revenue mix: how much comes from exams, optical, contact lenses and medical eye care, and how reliant the practice is on vision plans
- Buyer experience: clinical experience and any management or ownership background
- Credit and liquidity: personal credit history, existing obligations including student loans, and available cash
- Transition plan: how long the seller will stay and how patients and staff will be introduced to the new owner
- Purchase price support: whether the price is backed by a reasonable valuation
Prepare a Strong Loan Package
A complete, organized application can help the process move more smoothly. Lenders typically ask for the practice’s tax returns and financial statements, a signed letter of intent or purchase agreement, your personal financial statement and tax returns, your resume and licensure, and a summary of how the funds will be used. Our list of documents needed for an optometry practice loan can help you get ready.
Plan for Working Capital After Closing
Even a healthy practice can feel a cash crunch early in new ownership. Payer and vision plan participation, Medicare and Medicaid enrollments and credentialing should not be assumed to transfer, and claims may be delayed while updates are made. Payroll, rent and optical orders continue in the meantime.
Building working capital for optometry practices into the financing plan can give a new owner more room to manage the transition.
Mistakes That Can Derail Financing
- Agreeing to a price before understanding what cash flow can support
- Using all available cash for the equity injection
- Assuming a seller note can be paid on any schedule the parties choose
- Overlooking the cost of replacing aging equipment soon after closing
- Waiting until late in the process to gather documents
Final Thoughts
There is more than one way to finance an optometry practice purchase. The right structure depends on the size of the deal, what is included, your experience and liquidity and how the practice earns its revenue. Comparing SBA and conventional options, planning your equity and keeping working capital in reserve can help you close with a structure the practice can support.
US Medical Funding helps optometrists finance practice purchases and compare loan structures. Learn more about our optometry practice acquisition financing.
