Educational content only. This post explains how financial concepts and published data apply generally to healthcare practices — it does not constitute advice for your specific situation. Consult your accountant, lender, and relevant advisors before making any significant business or financial decisions.
Buying an existing clinic and starting one from scratch involve overlapping skills but different financing conversations. The capital stack looks different. The lender's analysis looks different. The due diligence process looks different. Understanding how an acquisition is financed before you're deep into a transaction saves significant time and avoids expensive surprises.
Why Acquisition Financing Differs from Startup Financing
A startup loan funds assets — leasehold improvements, equipment, and working capital. An acquisition loan funds goodwill — the intangible value of an existing patient base, clinical reputation, staff relationships, and operational infrastructure. Published commercial lending resources describe goodwill financing as a materially different risk profile than asset financing because goodwill has no standalone collateral value.
If a clinic startup defaults, the lender can potentially recover some value from the equipment and the leasehold improvements (through the government guarantee in CSBFP or SBA programs). If a practice acquisition defaults, the lender's collateral is primarily the practice as a going concern — which has value only if it keeps operating. Published lending resources describe this as the reason acquisition financing often requires a stronger borrower profile than startup financing for the same dollar amount.
The Capital Stack for an Acquisition
Published acquisition financing resources describe the typical structure for a healthcare practice purchase as including some combination of:
Buyer equity contribution. Published resources describe equity contribution requirements for practice acquisitions as typically 15–30% of the total purchase price — consistent with startup financing, though the "project cost" is now the purchase price rather than the sum of build and equipment costs.
Vendor financing. Published M&A and practice transition resources describe vendor take-back financing — where the seller finances a portion of the purchase price, typically 10–30% — as common in healthcare practice transactions. Vendor financing serves two purposes: it reduces the buyer's external financing requirement, and it keeps the seller financially invested in a smooth transition (because they're paid from the practice's ongoing cash flow).
Third-party loan. The balance is typically financed through a conventional business loan, CSBFP, BDC, or SBA 7(a) depending on the market and the borrower's profile. Published resources note that CSBFP eligibility for goodwill in practice acquisitions has specific provisions that should be confirmed with a participating lender — the program's coverage of intangible assets and goodwill has evolved over time.
What Lenders Assess in an Acquisition
Published lending resources describe acquisition loan underwriting as focused primarily on the target practice's historical financials rather than projections. Three years of financial statements, tax returns, and production reports give a lender a basis for assessing what the practice actually generates — as opposed to what a business plan projects it might generate.
The DSCR analysis for an acquisition is based on historical earnings, not projected earnings. Published resources describe lenders as typically applying a haircut to historical earnings in their underwriting — to account for transition risk, revenue concentration in the departing owner, and the possibility that some patients follow the seller. The size of that haircut reflects the lender's assessment of transition risk, which is related to the owner dependency factors discussed in the valuation context.
Due Diligence for the Buyer
Published practice acquisition guides describe financial due diligence as involving: verification of the practice's historical revenue against production records, accounts receivable aging, review of the lease and its assignability, staff agreements and key employee retention, equipment condition and service history, and regulatory compliance documentation.
Published resources consistently describe the assignability of the lease as a critical due diligence item — a practice that cannot be acquired without the landlord's consent, where that consent cannot be reasonably withheld, has a significant structural risk baked into the transaction.
→ See also: How Healthcare Practice Valuations Are Actually Calculated
Model financing scenarios for a practice acquisition — equity contribution, loan amount, monthly obligations, and five-year total cost. Use the four capital stack structures as a framework for comparing acquisition financing approaches.
Explore Acquisition Financing Approaches →Disclaimer: All figures referenced are from published industry sources and represent general patterns — not estimates for any specific practice. KlinDeck is not a financial advisor, accountant, lender, or lawyer. Tools are educational references only. Consult qualified professionals before making significant decisions.