SBA Loans for Orthotics and Prosthetics Practices
SBA loans for orthotics and prosthetics practices are one of the financing options owners and practitioners may consider when buying a clinic, buying out a partner, purchasing real estate or adding working capital. These loans are made by participating lenders and backed in part by the SBA, which can make longer-term financing available to businesses that meet program requirements.
This article explains how the main SBA programs may apply to orthotics and prosthetics (O&P) businesses and what lenders tend to review. Eligibility and terms depend on the business, the borrower, use of proceeds, program rules and lender review. Every loan is subject to approval, nothing here is a commitment to lend, and nothing here is legal, tax, billing or compliance advice.
Why O&P Owners Consider SBA Financing
O&P clinics often have needs that fit term financing well. An acquisition may require funding for goodwill, equipment and working capital in one transaction. A clinic that owns its building may want long-term real estate financing. A practice going through a partner retirement may need a buyout loan that can be repaid from cash flow over time.
SBA programs may offer structures designed for these situations, depending on the borrower and the lender.
SBA 7(a) Loans
SBA 7(a) loans are the most flexible SBA program. Depending on eligibility and lender review, O&P businesses may use 7(a) financing for:
- Acquiring an existing orthotics and prosthetics practice
- Partner buyouts and certain changes of ownership
- Purchasing or improving owner-occupied real estate
- Lab equipment and clinic build-out
- Working capital, including componentry and inventory
- Refinancing certain existing business debt, subject to program rules
Buyers planning to buy an orthotics and prosthetics practice often start by evaluating whether a 7(a) structure fits the deal.
SBA 504 Loans
SBA 504 loans are designed for major fixed assets such as owner-occupied real estate and long-lived equipment. A 504 structure typically involves a bank loan, a loan from a certified development company and a borrower contribution.
For an O&P clinic that wants to buy a building with both patient care and fabrication space, a 504 loan may be worth considering. Our article on O&P clinic real estate compares buying and leasing.
How SBA Loans for Orthotics and Prosthetics Are Underwritten
Lenders review O&P businesses much like other healthcare practices, with added attention to a few industry-specific issues. Lenders may look at:
- Historical cash flow: whether the practice can support the proposed payments
- Payer mix: the balance of Medicare, Medicaid, commercial insurers and veterans’ care programs
- Receivables and work in progress: how long it takes for delivered devices to be paid
- Enrollment and accreditation: whether the business can continue billing after a transaction
- Referral sources: how concentrated new patient volume is
- Borrower experience and credit: clinical credentials, management background and personal finances
For acquisitions, lenders also consider whether supplier enrollments, accreditation and payer contracts will need to be updated, since these should not be assumed to transfer to a new owner.
Equity, Seller Notes and Structure
SBA loans generally require some borrower equity, and the amount depends on the transaction and program rules. In acquisitions, part of the price may be covered by a seller note. Program rules and lenders may limit how seller notes and earnouts are used, and seller notes are typically subordinate to the SBA loan.
Partner transitions have their own considerations. Our article on O&P partner buyout financing explains how these deals are often reviewed.
Preparing to Apply
Owners and buyers can prepare by gathering:
- Several years of business and personal tax returns
- Interim financial statements and a debt schedule
- Accounts receivable aging and payer reports
- A purchase agreement or letter of intent, if applicable
- A business plan or transition plan describing how the practice will operate
- Personal financial statements and resumes for owners
Applicants can estimate potential payments with our SBA loan calculator. Estimates are for planning only and do not represent an offer or approval.
SBA Loans for Orthotics and Prosthetics Acquisitions
Acquisitions are one of the most frequent reasons O&P buyers explore SBA financing. In an acquisition, lenders generally look at the seller’s historical financial performance, the buyer’s clinical and management experience and the transition plan.
Lenders may want to know how the buyer will keep referral relationships in place, how supplier enrollments and accreditation will be handled and whether the seller will stay on for a transition period. They may also look closely at whether the clinic’s revenue depends on one practitioner who is leaving. A buyer who addresses these questions in a written transition plan may present a clearer picture to the lender.
Working capital is another area to plan carefully. Because O&P revenue is generally recognized at delivery, a new owner may need cash to carry work in progress and componentry while enrollments are updated and claims are processed.
When SBA May Not Be the Right Fit
SBA loans are not the only path. Conventional practice loans may suit borrowers with strong credit, experience and collateral. Equipment financing may be more efficient for a single lab purchase. A line of credit may be better for short-term cash flow needs. The right option depends on the purpose, the business and lender review.
Final Thoughts
SBA loans for orthotics and prosthetics practices can support acquisitions, partner buyouts, real estate, equipment and working capital, depending on eligibility and lender review. Owners who understand how lenders look at payer mix, receivables and enrollment issues can prepare a stronger application.
US Medical Funding helps O&P practitioners evaluate SBA and conventional financing options for their goals. Learn more about our full range of prosthetics practice financing options.
