Educational content only. Lender analysis patterns described here represent general practices in commercial healthcare lending. Specific underwriting approaches vary by lender and circumstance. Consult your commercial banker, accountant, or commercial loan broker for analysis specific to your situation.
Most clinic owners read their profit and loss statement the way their accountant prepared it — revenue at the top, expenses by category, net income at the bottom. The bottom line tells the operator whether the practice made money. That's a fine summary for tax purposes and a rough check on whether things are going well.
Lenders read the same P&L very differently. They're not asking "did the practice make money." They're asking "can this practice support new debt, and what's the risk that it can't?" Those are different questions, and the answers come from looking at the same document through a different lens entirely.
Operators who learn to read their own P&L the way a lender reads it gain two advantages. They walk into financing conversations prepared instead of surprised. And they spot the issues that quietly weaken their practice's financing position well before they need to apply for anything.
This post walks through the specific things commercial lenders look at on a healthcare practice P&L, in roughly the order they look at them.
1. Trailing Twelve Month Revenue Trend
The first thing a lender looks at is not this year's revenue. It's the trend across the trailing 24-36 months.
A practice with $720,000 in revenue this year reads very differently if last year was $680,000 and the year before was $640,000 (growing 6 percent annually) versus if last year was $760,000 and the year before was $810,000 (declining). Both practices have the same current revenue. The first looks like a healthy business with a clear trajectory. The second looks like a business with a problem the lender will want explained.
When you read your own P&L, look at it across three years at minimum. The trend is the story; the current year is a snapshot. If your trend is declining, that's a real issue regardless of how comfortable this year's number feels. If it's growing, that strength compounds with every additional year of consistency.
2. Operating Margin Stability
The second thing lenders look at is operating margin (revenue minus operating expenses, excluding owner compensation and debt service) as a percentage of revenue, tracked across the same multi-year window.
Stable or improving operating margin is a strong signal. A practice running at 30 percent operating margin for three years tells the lender the underlying economics are well understood and well-managed. A practice running 38 percent, 24 percent, 31 percent over three years tells a different story — the economics are volatile, dependent on factors outside the operator's control, or being actively manipulated through one-time adjustments.
Volatile margins create underwriting friction even when the average is fine. Lenders prefer predictable businesses over high-average-but-volatile ones, because debt service is a predictable obligation that needs to be paid in volatile months too.
3. Owner Compensation Adjustments
This is where lender analysis diverges sharply from the standard P&L. Lenders don't accept the owner compensation figure on your P&L at face value. They normalize it.
Normalization means adjusting the reported owner compensation to what an arm's-length manager would earn for the same role. If your P&L shows you taking $50,000 in salary but a reasonable replacement clinician/manager for your role in your specialty would earn $140,000, the lender adjusts your operating income downward by $90,000 to reflect what the practice would need to pay if you weren't there. If you're taking $300,000 and the reasonable replacement number is $160,000, they adjust upward by $140,000.
The "reasonable replacement" number varies significantly by specialty. An arm's-length salaried dentist or physician earns substantially more than an arm's-length salaried mental health counsellor or chiropractor. Lenders are looking at specialty-appropriate ranges, not generic ones.
The implication for you as an operator: the version of your P&L that matters to the lender is the normalized version, not the one you filed for taxes. If you're significantly under-paying or over-paying yourself by lender-normalization standards, the practice's apparent operating income will look very different through the lender's lens than through your tax return.
4. Other Add-Backs And Adjustments
Beyond owner compensation, lenders typically adjust for several categories of "discretionary" or "non-recurring" items that distort the apparent operating economics.
Common add-backs lenders look for:
Family employment — if family members are on payroll at above-market rates for non-essential roles, lenders may adjust downward.
Personal expenses run through the business — vehicle leases, personal travel, entertainment, club memberships that show on the P&L. Lenders adjust these out as not part of true operating expense.
One-time costs — significant repair events, legal settlements, leasehold improvements written off in a single period, equipment purchases expensed instead of depreciated. These come out so the lender sees the normal recurring expense base.
Non-recurring revenue — one-time grants, COVID-era support payments, settlements, or unusual revenue events. These also come out so the lender sees the normalized revenue base.
The point of all these adjustments is to produce what lenders call "adjusted EBITDA" or "normalized operating income" — a figure that represents the practice's true ongoing earnings capacity, independent of the owner's tax planning, lifestyle choices, or one-time events.
When you read your own P&L, the exercise of identifying what a lender would adjust is useful in itself. You'll usually find that the normalized number is meaningfully different from the headline number, and the gap tells you something about how the practice will look to a lender.
5. Debt Service Coverage Ratio
Once the normalized operating income is established, the lender calculates debt service coverage ratio — the ratio of normalized annual operating income to total annual debt service (including the proposed new debt if you're applying for new financing).
Most lenders look for DSCR of 1.20x to 1.35x as a minimum, meaning the practice must generate 20 to 35 percent more operating income than is required to service the debt. Below 1.20x creates underwriting friction regardless of how strong other factors are. Above 1.50x is comfortable. Above 2.0x typically means the lender has no concerns about debt capacity at all.
The implication for operators: knowing your current DSCR (with current debt) tells you immediately whether you have room to take on additional debt for expansion or whether you'd be at the lender's lower limit. Calculating DSCR with proposed new debt before applying tells you the same thing the lender will see on the application.
6. Revenue Concentration And Quality
Lenders look closely at where revenue comes from, not just how much there is. Several patterns create concern even when the total looks good.
Customer or referral concentration. If one referral source, one corporate contract, or one major patient relationship represents more than 25-30 percent of revenue, the lender treats this as concentrated risk. The practice's revenue is dependent on something the operator may not fully control.
Payer mix concentration. For practices that bill third-party payers, heavy concentration in one or two payers creates payer risk — if that payer changes terms or exits the market, the practice is exposed.
Service mix volatility. If revenue is heavily dependent on one or two high-margin services that have shifted in volume year over year, the lender flags this as concentration risk in the service mix.
Diversified revenue is treated as lower risk than concentrated revenue at the same total level. A practice with $700,000 spread across 800 patients and 4 payers reads more favourably than one with $700,000 from 200 patients and one dominant payer.
7. Receivables Quality
For practices that bill insurance, the lender examines accounts receivable aging carefully. High percentages of receivables older than 60 or 90 days suggest collection problems, billing system issues, or payer mix challenges. The lender may discount the value of aged receivables when assessing the practice's collateral or its true revenue position.
Practices with clean aging — most receivables under 30 days, minimal 90+ day balance — look healthier than practices with comparable total revenue but degraded aging.
8. Operating Line Of Credit Usage
If the practice carries an operating line of credit, the lender looks at how it's been used over the past 12-24 months. A line that's drawn down occasionally and paid off quickly signals that it's being used as intended — as flexibility for short-term timing mismatches. A line that's been drawn down consistently for months or years signals that the practice is funding ongoing operations through credit because its operating cash flow isn't sufficient.
Heavy line-of-credit usage is one of the clearest signals to a lender that a practice has structural cash flow issues. The total dollars borrowed look the same in either case, but the pattern tells very different stories.
The Practical Use For Operators
Reading your own P&L through this lens, four times a year, gives you several things at once.
You spot the issues that will hurt you in a future financing application before they're urgent. If your operating margin is degrading, you can address it now rather than discover it during an application. If owner compensation is meaningfully out of normalized range, you can adjust the structure ahead of time. If receivables aging is slipping, you can fix the collection process before a lender sees it.
You also build the discipline of seeing your practice as an outsider would see it. Operators who only read their P&L for the bottom line tend to be surprised when an outside party sees something they didn't. Operators who read it through a lender's lens regularly are rarely surprised by anything.
None of this requires becoming an accountant or a lender. It just requires a different question when reviewing the same document: not "did we make money," but "what would a careful outsider see when they look at this?" The discipline takes 30 minutes a quarter and pays for itself many times over the first time you need it.
The Profitability Calculator produces a structured view of operating income and debt service that mirrors how lenders normalize practice financials. The Capital Structure Tool models how different debt configurations affect the practice's DSCR position. Used together, they help operators see their numbers through approximately the same lens a lender would apply.
Disclaimer: Lender analysis patterns and normalization practices described represent general approaches in commercial healthcare lending. Specific underwriting methodologies vary by lender, jurisdiction, and circumstance. KlinDeck is not a financial advisor, accountant, lender, or commercial loan broker. Content is educational only. Consult qualified professionals for guidance specific to your situation.