Orthopedic Office Building Loan Options for Practice Owners
For many orthopedic groups, owning the building is part of the long-term plan. An orthopedic office building loan can let a practice stop paying rent to a landlord, control its own space and build equity in an asset that may outlast any single partner’s career. It also adds a significant obligation, so it pays to understand how these loans work before making an offer on a property.
This guide covers the main loan structures used to buy or build orthopedic office space, what lenders evaluate and the questions owners should answer first. Ownership, tax and zoning rules vary by state and locality, and nothing here is legal, tax or compliance advice.
Why Orthopedic Groups Buy Their Buildings
Orthopedic practices often need more specialized space than a typical medical tenant. Imaging suites, casting rooms, therapy gyms and procedure areas can be expensive to build out in leased space, and those improvements stay behind when a lease ends.
Owning the building may offer:
- Control: the ability to design and modify space as the practice adds imaging, therapy or other services
- Stability: protection from rent increases or a landlord’s decision not to renew
- Equity: a real estate asset that may appreciate and can be held separately from the practice
- Partner value: a real estate stake that can become part of a partnership or buy-in package
Ownership also brings responsibilities: maintenance, property taxes, insurance and vacancy risk if the group ever shrinks or relocates.
SBA 504 Loans for Owner-Occupied Buildings
SBA 504 loans are designed for owner-occupied commercial real estate and major fixed assets. A 504 structure generally combines a first loan from a bank with a second loan through a certified development company, along with a borrower contribution.
For orthopedic groups, a 504 loan may be used to:
- Purchase an existing medical office building
- Construct a new building on owned or purchased land
- Renovate or expand a building the practice already occupies
- Finance certain long-life equipment as part of the project
The practice must occupy a required portion of the building to qualify. Eligibility and terms depend on the business, the borrowers, use of proceeds, program rules and lender review, and every loan is subject to approval.
SBA 7(a) Loans for Real Estate
SBA 7(a) loans can also finance owner-occupied real estate, and they offer more flexibility in use of proceeds. A single 7(a) loan may combine a building purchase with improvements, equipment or working capital. This can be useful when a group is relocating and needs to fund the move, the build-out and a cushion for the transition at the same time.
Conventional Commercial Real Estate Loans
Conventional real estate loans follow each lender’s own underwriting standards. They may suit established orthopedic groups with strong financials, meaningful equity to contribute and a preference for fewer program requirements. Conventional loans can also be used when the building will be owned by a separate real estate entity and leased back to the practice, depending on the lender.
What Lenders Evaluate on an Orthopedic Office Building Loan
Real estate lenders look at both the property and the practice that will occupy it. Typical review points include the following, though each lender sets its own criteria:
- The practice’s historical cash flow and its ability to cover rent or debt payments
- An appraisal of the property and, in many cases, an environmental review
- The credit, liquidity and outside obligations of the owners and guarantors
- The share of the building the practice will occupy and any tenant income
- Construction budgets, contractor experience and contingencies for new builds
- How the building is owned and how the lease between the entities is structured
Before you apply, you can estimate potential payments with our SBA loan calculator. Estimates are for planning purposes only and do not represent an offer or approval.
Who Should Own the Building?
Many orthopedic groups hold real estate in an entity separate from the practice, with the practice leasing the space. This can keep the real estate distinct from practice operations, allow different partners to hold different stakes and simplify certain transitions when partners join or retire.
How the property entity is structured, how rent is set and who may hold an interest are questions for healthcare counsel and accountants. Our article on orthopedic real estate LLC financing goes deeper into ownership structure, while this guide focuses on the property loan itself.
Buy, Build or Renovate?
The right project depends on the market and the group’s plans.
- Buying an existing building: may allow the practice to move in sooner, but renovations for imaging or procedure space can be significant
- New construction: offers a purpose-built layout, with more planning, permitting and construction risk
- Renovating current space: may make sense if the practice already owns its building and needs more capacity
Groups should also think about how much space they will need as surgeons join, and whether extra space could be leased to other tenants in the meantime.
Planning for Partner Changes
An orthopedic office building is a long-term asset, while partnerships change. Agreements should address how new partners acquire a real estate stake, how departing partners are bought out and how the loan guarantee is handled when ownership shifts. New surgeons often need financing for both practice equity and a real estate interest; our guide to orthopedic practice buy-in financing explains how those pieces can be funded.
Final Thoughts
An orthopedic office building loan can help a practice gain control of its space and build long-term equity, but it should fit the group’s cash flow, growth plans and partnership structure. Comparing SBA 504, SBA 7(a) and conventional options side by side can help owners choose the structure that best fits the project.
US Medical Funding helps orthopedic surgeons and groups finance medical office buildings, renovations and practice real estate. Learn more about our orthopedic practice financing options.
