What Do Lenders Look for When Financing an Internal Medicine Practice?
Physicians seeking financing for an internal medicine practice may wonder what lenders consider when reviewing a loan request. While every lender has its own underwriting requirements, several factors can play an important role in determining whether a financing request is approved and how it may be structured.
For physicians considering internal medicine practice financing, understanding these factors before applying can help them prepare the appropriate financial information and identify potential issues early in the process.
Here are five important factors lenders may consider when financing an internal medicine practice.
1. The Practice’s Financial Performance
For an established internal medicine practice, historical financial performance can provide lenders with important information about the strength of the business.
Lenders may review financial information such as:
- Annual revenue
- Net income and profitability
- Operating expenses
- Cash flow
- Accounts receivable
- Existing business debt
- Historical financial trends
Consistent financial performance can help demonstrate the practice’s ability to support its existing obligations and any proposed new debt.
2. The Physician’s Credit and Financial Profile
A physician’s personal financial profile may also be considered when applying for business financing.
Depending on the lender and loan program, this may include reviewing:
- Personal credit history
- Personal financial statements
- Existing personal and business obligations
- Available liquidity
- Assets and liabilities
- Overall financial strength
A strong financial profile can be helpful, but lenders generally evaluate the complete financing request rather than relying on a single factor.
3. Professional Experience
A physician’s professional experience can be another important consideration, particularly when the financing involves purchasing or starting an internal medicine practice.
Lenders may want to understand the physician’s background, experience, qualifications, and ability to manage the responsibilities associated with operating a medical practice.
For an acquisition, lenders may also consider whether the physician has the experience necessary to successfully transition into ownership and maintain the practice’s operations.
4. Cash Flow and Ability to Repay the Loan
One of the most important considerations for any business financing request is whether the business is expected to generate enough cash flow to support the proposed debt obligations.
For an internal medicine practice, lenders may evaluate the relationship between revenue, operating expenses, existing debt, and the proposed financing.
For physicians acquiring an established practice, projected post-acquisition cash flow may also be reviewed.
A physician should understand how the proposed loan payment fits into the practice’s overall financial picture before moving forward with financing.
5. The Purpose and Structure of the Loan
Lenders may also evaluate how the financing will be used.
An internal medicine practice may require financing for a variety of purposes, including:
- Practice acquisition
- Startup expenses
- Medical equipment
- Commercial real estate
- Office renovations
- Working capital
- Business expansion
The loan amount, repayment structure, collateral requirements, and other terms can vary depending on the purpose of the financing and the lender’s requirements.
Physicians should have a clear understanding of how much capital they need and what the financing will be used for before submitting an application.
What Financial Documents May Lenders Request?
Physicians should be prepared to provide financial documentation during the financing process.
Depending on the lender and type of financing, requested documents may include:
- Personal financial statements
- Personal tax returns
- Business tax returns
- Practice profit and loss statements
- Balance sheets
- Bank statements
- Existing debt information
- Practice accounts receivable information
- Business purchase agreement for an acquisition
- Business projections when applicable
Having these documents organized before applying can help make the process more efficient.
What Do Lenders Look for When Financing a New Internal Medicine Practice?
A startup internal medicine practice can involve different considerations because there may not be an established operating history.
In these situations, lenders may place greater emphasis on the physician’s professional experience, personal financial profile, available liquidity, business plan, projected revenue, anticipated expenses, and overall ability to support the proposed financing.
Realistic financial projections can help demonstrate how the physician expects the practice to perform after opening.
What Do Lenders Look for When Financing a Practice Acquisition?
An acquisition can provide lenders with historical financial information that may be useful when evaluating the financing request.
Lenders may review the practice’s financial performance, purchase price, cash flow, existing liabilities, patient and revenue trends, and the physician’s qualifications.
Physicians should also understand that the purchase price is only one component of the overall transaction. Working capital, equipment, real estate, and other expenses may need to be considered when determining the total financing requirement.
How Can Physicians Prepare Before Applying?
Physicians can take several steps to prepare for a financing request.
These may include:
- Reviewing personal and business credit
- Organizing financial statements and tax returns
- Determining the exact purpose of the financing
- Estimating the total amount of capital needed
- Reviewing existing debt obligations
- Preparing a detailed business plan when appropriate
- Developing realistic financial projections
Preparing these items early can help physicians better understand their financial position before beginning the financing process.
Final Thought
When financing an internal medicine practice, lenders may evaluate many different factors, including the practice’s financial performance, the physician’s credit and financial profile, professional experience, cash flow, and the intended use of the financing.
Preparing financial documentation and understanding the total capital requirements before applying can help physicians approach the financing process with a clearer understanding of their needs.
Whether you’re purchasing an existing internal medicine practice, starting a new practice, expanding an existing location, or financing equipment and working capital, understanding what lenders look for can help you prepare for the process.
