How to Finance an Internal Medicine Practice Acquisition
Acquiring an established internal medicine practice can be an important opportunity for physicians looking to become practice owners, expand an existing medical business, or enter a new market. Understanding how medical practice financing can be used to fund an acquisition can help physicians prepare for the financial requirements of the transaction.
An internal medicine practice acquisition may involve more than simply financing the purchase price. Depending on the transaction, a physician may also need funding for working capital, equipment, commercial real estate, renovations, technology, and other expenses associated with taking ownership of the practice.
Here are five important things physicians should know when financing an internal medicine practice acquisition.
1. Determine How Much Financing the Acquisition Will Require
The amount of financing needed to acquire an internal medicine practice can vary significantly depending on the practice’s financial performance, purchase price, location, assets, patient base, and other factors.
In addition to the purchase price, physicians may need to consider additional expenses such as:
- Medical and office equipment
- Working capital
- Commercial real estate
- Office renovations or improvements
- Technology and software
- Transition and operating expenses
- Other costs associated with the acquisition
Evaluating the entire transaction can help physicians determine how much capital may be needed rather than focusing solely on the practice’s purchase price.
2. SBA Financing May Be an Option for Internal Medicine Practice Acquisitions
SBA financing can be an option for qualified physicians acquiring an existing internal medicine practice.
An SBA 7(a) loan may potentially be used for eligible business purposes, including the acquisition of an existing business and working capital. Depending on the transaction and lender requirements, SBA financing may allow multiple financing needs to be incorporated into a single financing structure.
Lenders may evaluate factors such as the physician’s professional experience, personal financial profile, credit history, the practice’s historical financial performance, cash flow, purchase price, and the overall strength of the transaction.
Physicians considering an acquisition should review SBA financing requirements early in the process to determine whether the transaction may qualify.
3. Conventional Financing May Also Be Available
Conventional financing is another potential option for physicians purchasing an internal medicine practice.
Depending on the borrower and transaction, conventional financing may provide different loan structures and underwriting requirements than SBA financing. The appropriate financing option can depend on the practice’s financial performance, the physician’s qualifications, available liquidity, purchase price, and other factors.
Conventional financing may also potentially be used for related financing needs, including equipment, commercial real estate, and working capital.
4. Consider the Practice’s Cash Flow Before Taking on Debt
One of the most important considerations when financing an internal medicine practice acquisition is whether the practice is expected to generate sufficient cash flow to support the proposed debt obligations.
Physicians and lenders may evaluate:
- Historical practice revenue
- Practice profitability
- Operating expenses
- Existing debt obligations
- Projected post-acquisition cash flow
- Physician compensation
- Working capital requirements
Understanding the practice’s financial performance can help physicians evaluate whether the proposed acquisition price and financing structure are appropriate.
5. Prepare Financial Documentation Early
Physicians should begin preparing the required financial information as early as possible. Having documentation organized can help make the financing process more efficient and may help identify potential issues before the transaction moves toward closing.
Depending on the lender and financing program, physicians may be asked to provide:
- Personal financial statements
- Personal tax returns
- Business tax returns
- Practice financial statements
- Profit and loss statements
- Balance sheets
- Accounts receivable information
- Existing debt information
- Practice purchase agreement or letter of intent
- Information regarding the physician’s professional experience
The exact documentation required can vary depending on the lender, loan program, and structure of the acquisition.
Can Financing Include Commercial Real Estate?
In some transactions, physicians may also be purchasing the building where the internal medicine practice operates.
Commercial real estate financing may potentially be incorporated into the overall financing strategy, depending on the property, transaction structure, borrower qualifications, and lender requirements.
Physicians purchasing both a practice and its real estate should evaluate the financing needs of both components when determining the overall capital required for the transaction.
Why Physicians Should Begin the Financing Process Early
Physicians considering an internal medicine practice acquisition should begin exploring financing before the anticipated closing date.
Starting early provides additional time to review the practice’s financial information, determine potential financing options, gather documentation, evaluate the purchase price, and address any issues that could affect the transaction.
Waiting until the final stages of an acquisition to begin discussing financing can create unnecessary pressure and potentially delay the closing process.
Final Thought
Financing an internal medicine practice acquisition involves more than simply obtaining money to purchase the practice. Physicians should consider the purchase price, cash flow, working capital, equipment, real estate, and other expenses that may be involved in taking ownership.
SBA and conventional financing may provide potential options for qualified physicians, but the appropriate financing structure will depend on the specific acquisition and the borrower’s financial qualifications.
Whether you’re purchasing your first internal medicine practice, expanding an existing practice, acquiring commercial real estate, or seeking additional working capital, evaluating your financing needs early can help you make a more informed decision.
