SBA Loans for Physicians
SBA loans for physicians, SBA medical practice loans, or almost any kind of “owner occupied” medical office financing are all readily available via the SBA loan programs for physicians. Also available are medical practice loans for dentists, dental-related practices, veterinarians, optometrists, ophthalmologists, physical therapy clinics, psychiatrists, solid chiropractic practices as well as other medically-related specialties.
SBA loans are a very flexible type of financing that are usually good for both the lender and the borrower.
Lenders like them because they come with something comparable to a “mortgage insurance” policy in the form of a guarantee from the Small Business Administration and because they can be a profitable way of helping their clients.
Doctors like them because they are a path of “less” resistance if they cannot qualify for a conventional practice loan, need 100% financing (or over 100% financing) over a longer term, need more flexibility in underwriting or have a more varied use of loan proceeds than what a conventional medical practice loan allows.
Primary Benefits of SBA Loans for Doctors
- 100% financing is available for existing medical practices financing either a commercial property, another practice or a complimentary business. 100% financing for medical practices is available for all of the following:
- Purchase of a free standing building, a condominium or unit in a larger building (Practice must occupy 51% of the space).
- Ground up construction of a new office (practice must initially occupy at least 60% of square footage when getting a loan for new construction).
- Purchase and major (or minor) renovation of a property that your practice will occupy at least 51% of the square footage.
- Purchase of another practice exactly like yours or a business or practice that compliments one you own.
- Partner Buyouts.
All of the above scenarios are eligible for existing profitable practices, but where SBA lenders can differ from conventional lenders is with their ability to finance scenarios and situations that conventiona practice lenders cannot. Some examples:
- The ability to offer 25 year fixed rates on commercial property
- Approving loans for doctors with low credit scores, previous bad credit, less than perfect credit, previous bankcruptcies, etc. Good explanations are obviously required for any past credit issues.
- Loans well above 100% loan to value
- Ground Up Construction well above 100% loan to cost
- Loans that have a varied use of proceeds
SBA Physician Lenders will frequently allow you to finance not just the real estate, but anything else you need for your practice and as long as more than half of the loan proceeds are used for real estate, the loan can be fully amortized over 25 years with no balloon.
For instance, if you have a high interest rate on a piece of equipment or a practice or debt consolidation loan, those can usually be paid off in a new SBA loan. Moving costs, virtually all closing costs, working capital, money for new equipment can all be included.
SBA loans for doctors can be summed up in one word: “flexibility.” These loans are not perfect, but there are things SBA lenders will do for doctors that they won’t do for non-medical businesses.
Buying An Existing Veterinary Practice
SBA loans for a veterinarians can be used to finance not only a practice or a building for a practice, but kennels, boarding facilities and even a doggy day care or pet grooming and boarding businesses as part of either a veterinary practice or building acquisition.
Even construction of additional property or buildings can be worked into the same loan. Certain SBA lenders allow this since it is commonplace for veterinarians to own a complimentary businesses like this.
An SBA loan for a veterinary practice requires a 10% equity injection/down payment unless you are expanding an existing successful practice you already own, in which case, 10% down is a real possibility.
If the seller is willing to hold 5% on “full standby” then just 5% is required for down payment and there are multiple ways you can come up with the 5% (or 10% if no seller 2nd) – including possibly borrowing the down payment. You might review the guidelines on our 100% financing page or contact us if you want to better understand the possibilities.
Recent example of a less obvious use for an SBA Medical Practice Loan:
For example, we recently received a commitment for 100% financing for a veterinarian to purchase the building he is currently renting as well as the land it sits on AND the boarding and kennel business owned by the current landlord. What is even more remarkable about this transaction is the veterinarian has only been a traditional vet for 2 years, (he was mobile before that), and he is approved to purchase the building, the land AND the boarding and kennel business for $4 million with 100% financing plus a generous amount of working capital.
Granted, the vet is doing great and his Trailing 12 financials are outstanding, the business boarding and kennel business is very profitable, but to be able to get this done with no money out of pocket is special and it is hard to imagine many traditional (or even SBA Physician lenders for that matter) allowing this structure.
FYI: Normally the SBA requires a 10% equity injection when you are buying someone else’s business, however, there a few lenders who will allow you to purchase a business that is a natural expansion or your existing business or practice without a down payment.
100% Fixed Rate Medical Building Financing – Non SBA
Conventional non-SBA loans for physicians are also very popular. The most attractive program for the financing of a building is an “85/15” to either purchase or build a facility.
The financing typically consists of 2 loans – an 85% loan to value real estate loan and a 15% loan against your practice equity. This program is available for existing practices that have equity.
The real estate loan is typically a low 5, 7 or 10 year fixed rate with a 20 or 25 year amortization and the 10% to 15% practice loan is typically a low 10 year fixed rate.
Practice Financing – Very Low Rates for 10 Year Term
100% NON-SBA Medical Practice Financing is available for doctors in most states at aggressive rates with low fees.
Practice acquisition financing or practice refinancing is currently available with low rates for both short term adjustable rates and 10 year fixed rates.
Longer term amortizations – up to 15 or 20 years – are also for available for practice financing, but at slightly higher rates. (See below for more info).
Please contact us re: qualifying: 1-800-414-5285
15 Year Fixed Rate 100% Practice Financing With or Without A Building
100% financing is available on a 15 year fixed rate for the acquisition or refinance of existing medical practices including:
- Independent Pharmacies
This program is a fully amortized 15 year fixed rate and term. It is available for qualified borrowers acquiring or refinancing existing medical practices or buildings. The rate for this program is higher than a 10 year because is fully fixed for 15 years.
15 or 20 Year Amortization with 3, 5, 7 or 10 year Fixed Term
Practice financing is also available with a 15 year amortization, but with a shorter initial fixed period.
The rates for this program are a little higher than those with a 10 year term, but the longer amortization has a dramatic effect on the payments.
Here is a comparison of a 5 year fixed with a 15 year amortization vs. a 10 year fixed for a loan amount of $1.5 million:
10 year fixed at 4.5%: $15,546
5 yr fixed/15 year am at 5.65%: $12,376
Payment Savings = $3170
Another available program is a 10 year fixed with a 15 year amortization. This loan has value as it has both a 15 year amortization AND it is fixed for first 10 years. The rates are .75% to 1% higher than the most aggressive 10 year fixed and it has some additional fees, however the fees can be financed.
20 Year Amortization
20 year medical practice loans are available for strong practices borrowing $2 million or more. This loan is not as popular as most borrowers would rather pay off their loans quicker, but it is available.
SBA Medical Practice Refinance or Acquisition Without Real Estate or With A Lot of Goodwill
SBA also allows for 10 year loans for a practice acquisition that does not include real estate.
SBA is a good option if there is something about the transaction that is preventing you from qualifying for a conventional practice loan – for instance, if you have had credit issues in the recent past. Also, most SBA lenders are flexible regarding how they are willing to structure the financing including allowing seller held financing if they cannot get comfortable enough with the request.
100% SBA Medical Practice Construction Financing (Ground Up or Renovation)
25 year fully amortizing SBA loans are available for 100% of the construction costs for an existing medical practice looking to construct, acquire or renovate a building.
You must be able to show historical cash flow of at least 1:1 to handle new/proposed debt. This program is ideal for “rent replacement” situations where your new building mortgage payment will be approximately equal to your current lease payment.
The program is typically a very reasonable variable rate pegged to the Prime rate or it can be a 5 year fixed and it can be used for an expansion of an existing practice using existing cash flow or realistic projections.
Refinance of Practice Debt
100% of the debt of an existing medical practice may also financeable with either SBA or conventional loans.
Many practices have start up debt and equipment loans at rates higher than current market or they may have loans with graduated payment terms that will end up being a burden on the practice in the future. Low 10 and 15 year fixed rate terms are available to refinance this debt.
Medical Practice “Equity” Loans
If you have significant equity in your medical, dental or veterinary practice you may be able to tap that equity for “wealth creation” or debt consolidation purposes (personal or business). This program allows you to leverage the value of your practice for financial planning and investment purposes.
The proceeds of the loan must typically be used for practice expansion, invested in a wealth building asset or used to help you consolidate or restructure debt with a tangible benefit for you or the practice.
Examples for use the “cash out” could be funding the down payment on a multi-family apartment, paying off credit card debt or even the initial deposit for a Defined Benefit Plan or IRA.
Here is a simplified example of how much equity you could borrow:
Let’s say you have a practice that has consistent gross revenues of $1 million and practice debt of $100,000. A practice equity loan will typically allow a maximum loan amount of between 50% and 70% of your gross revenue, so in this case you could borrow between $400,000 and $600,000 in practice equity.
Please contact us at 1-800-414-5285 if you would like more information about this program.
Construction Financing and Building Purchase for Start Ups
A 10% down payment is typically required for a construction loan to a start up, but there are situations where we can arrange for new doctors to borrow the 10% needed for the down payment as well as provide the rest of the financing including working capital and equipment.
Please call us at 1-800-414-5285 for more information.
Build-Out of Lease-Hold Space
Under a portfolio program, it is possible for established and some start up practices to borrow 100% of the money necessary to build out leased space for their practice needs. Financing is available for up to 15 years vs. 25 years for loans that include the real estate.
An established practice will pay less in fees than a startup in this case, but both would get very good terms.
Under the SBA program, start up practices can also borrow the money for build out of leased space if they can put down 10% down, but that the 10% can be borrowed IF you have “outside” income from another source/business or from a spouse that can service the additional debt. Gift funds are also acceptable.
SBA “Blended Maturity”
For a practice and building purchase with significant intangible assets (blue sky/goodwill), SBA underwriting guidelines dictate that a 25 year term is possible as long as commercial real estate makes up the largest percentage of the use of funds. The guideline does NOT say that a medical facility or building has to account for more than 50% of the financing – it states that the real estate portion of the loan must be the largest percentage, so it could be that the building is worth less than half of the total sales price but still more than the goodwill and equipment and therefore would be eligible for a 25 year term and amortization. Not all SBA lenders will underwrite the loan this way, but there are some that will for the right borrowers.
FYI: If a medical building is not the largest percentage then the SBA requirement calls for a “weighted average calculation” to determine the longest allowable maturity and you end up with a term between 10 and 25 years.
SBA 504 for Real Estate & Equipment
The SBA 504 loan for physicians is another excellent choice for doctors who need to build a new office, renovate or expand an existing medical or surgical facility or refinance their current facility as part of an expansion. The limitation the 504 has compared to the 7a is that it is more difficult to structure 100% financing as that would require using equity from another property in lieu of down payment.
Benefits for Doctors and Medical Facilities
- 504 loans have a second mortgage that is fixed for 20 years at a below market rate.
- You can include the financing of expensive medical equipment with a useful life of 10 or more years.
- Like the 7a, It is typically long term fully amortized financing with no balloons, calls, re-qualifying or refinancing necessary later.
- 90% loan to cost financing – i.e. you can finance improvements, closing and soft costs.
- Rates are low and fees are reasonable.
SBA loans for physicians are well suited for many types of medical practices and facilities including:
- Obstetrics & Gynecology
- Plastic Surgery
- Radiology and MRI Imaging Centers
- Sports Medicine
*100% practice financing is available for startups, 100% real estate loans are also possible for startups, but more difficult to qualify for than for than an existing practice. SBA medical practice loans are typically more flexible with regard to lower credit scores, “uneven” profitability, amount of collateral, etc.
**100% financing for chiropractic practices is possible, but less lenders are willing to offer it.
Please contact us at 1-800-414-5285 for more info about SBA medical practice and medical building financing.
If you are interested in building an energy efficient building or using renewable energy in your facility, please our page re: SBA’s Energy Efficient loan program: SBA 504 Renewable Energy Benefits
100% Financing For Medical Practices – Including Buildings and Equipment
As a recap, the SBA 7a program allows for 100% financing in the following situations:
- Purchase of commercial real estate for an existing, profitable medical practice
- Purchase of another medical practice by an existing, profitable medical practice
- Ground up construction of a new office/building
- Purchase and renovation of a new office/building
- Major equipment purchase
The 7a is also frequently used by medical doctors to refinance higher rate practice debt.
SBA loans for physicians can be fully amortized over 25 years if the majority of the loan proceeds are used for real estate, so there are many transactions for the purchase or construction of a new office that include the refinance of other practice debts.