See Your Financing Request the Way a Lender Will
Buying a practice, opening a clinic, expanding or adding equipment? Before the file goes to a bank, see which numbers a lender will count, whether the cash flow carries the payments, and what the file still needs.
How Lenders Read a Clinic Financing Request
Every clinic lender starts with the same question: does the practice's cash flow cover the new payments with room to spare? The answer is rarely the net income on the financial statements. Lenders rebuild cash flow from the statements, decide which adjustments to accept, and test the result against a full year of loan payments. The check above runs the same sequence.
1. Rebuild cash flow from reported EBITDA
The starting point is net income before tax, with interest, depreciation and amortization added back. That figure is reported EBITDA. Sellers, brokers and owners then propose adjustments to show what the practice earns under normal conditions. Lenders sort those adjustments into four groups.
| Adjustment | How lenders commonly treat it | What supports it |
|---|---|---|
| Owner pay above the market cost to replace the owner | Counted with proof | Payroll records and a market wage for the owner's clinical and management role |
| Owner pay below market | Deducted | Lenders substitute a market wage, which lowers cash flow |
| One-time expenses | Counted with proof | Invoices showing the cost will not recur |
| Personal expenses run through the practice | Often discounted | Records that separate personal from business use |
| Related-party rent above market | Often discounted | A market-rate lease that takes effect at closing |
| Projected savings, fee increases or new services | Usually excluded | Lenders underwrite history, not plans |
The result is a range rather than one number. The low end counts reported EBITDA and the documented items. The high end also counts the discounted items. The gap between that range and the owner-presented figure is where most purchase negotiations, and most declined applications, begin. The full treatment of each adjustment is in practice EBITDA add-backs buyers and lenders accept.
2. Test coverage against the loan payments
Debt service coverage divides the rebuilt cash flow by a full year of loan payments, including existing debt that stays in place. Many lenders look for at least 1.25x. Thresholds commonly sit between 1.20x and 1.50x, depending on the specialty, the borrower and the type of loan. Coverage below 1.0x means the cash flow does not pay the debt. How the ratio is built and where lenders set the line is covered in debt service coverage in healthcare practice lending and the DSCR required to buy a practice.
3. Work back to the amount the cash flow supports
Dividing the rebuilt cash flow by 1.25 gives the most a lender would let the practice spend on all loan payments in a year. Subtracting existing payments, then converting the remainder into a loan amount at the expected rate and term, gives the supported borrowing. When a request sits above that figure, lenders commonly respond with a smaller loan, a longer amortization, more equity or seller financing.
The rate itself is set by the lender on the file. Floating loans are usually priced as a spread over prime, and fixed loans as a spread over a government bond yield matched to the fixed term, with lender fees on top. Because the spread depends on the borrower, the collateral and the lender, the check does not assume one. It asks for the rate from a quote, or works backwards to the highest rate the cash flow can carry at 1.25x.
Purchases: price, cash flow and transferability
For a practice purchase, the rebuilt cash flow sets the price-to-cash-flow multiple a lender sees. That multiple is often higher than the one implied by the seller's presented figure. Lenders also look at how much revenue the selling owner produces personally. When that share is high, they commonly ask how patients will transfer, and often look for the seller to stay on through a transition period. See revenue transferability when buying a healthcare practice.
Documents lenders commonly request
| Request | Core documents |
|---|---|
| Practice purchase | Signed letter of intent or purchase agreement. Three years of the seller's financial statements and tax returns (T2 corporate returns in Canada, business returns in the US). Production reports by provider. A valuation. The lease or the landlord's consent to assign it. The buyer's personal net worth statement, personal tax documents (Notices of Assessment in Canada, personal returns in the US), licence and CV. |
| New clinic | A business plan with three-year projections. Equipment and leasehold improvement quotes. A signed lease or letter of intent. Personal net worth statement, personal tax documents, credit report, licence and CV. |
| Expansion or renovation | Three years of financial statements, year-to-date statements and tax returns. Contractor or leasehold improvement quotes. The lease for the new or expanded space. |
| Equipment | The equipment quote or invoice. Two years of financial statements, year-to-date statements and personal tax documents. Smaller equipment requests are often approved on a shorter application. |
| Refinance | Three years of financial statements, year-to-date statements and tax returns. Current statements for the loans being refinanced. |
| Working capital | Three years of financial statements, year-to-date statements and tax returns. An accounts receivable aging report and six months of business bank statements. |
Frequently asked questions
What debt service coverage ratio do lenders require for a clinic loan?
Many lenders look for at least 1.25x on rebuilt cash flow. Thresholds commonly sit between 1.20x and 1.50x, and each lender sets its own based on the specialty, the borrower and the loan type.
Which add-backs do lenders accept when someone buys a practice?
Documented one-time expenses and owner pay above a market replacement wage are commonly accepted with proof. Personal expenses and above-market related-party rent are often discounted. Projected savings and growth are usually excluded.
How much can a clinic borrow?
The supported amount comes from cash flow, not revenue. At 1.25x coverage, rebuilt cash flow divided by 1.25, less existing loan payments, sets the yearly payment ceiling. The rate and term convert that ceiling into a loan amount.
How is a new clinic underwritten without financial history?
Lenders weigh the owner instead of the practice: licence and years in practice, personal credit and net worth, the cash contribution, and a business plan with projections. Some lenders build an interest-only period into a startup loan while the clinic ramps up.
Does the check run a credit inquiry or share any information?
No. The check runs in the browser and involves no credit inquiry. Nothing is shared unless an introduction is requested and consent is given.
Is Klindeck a lender or a broker?
No. Klindeck is not a lender, broker or financial advisor. Where an introduction is available, the request goes to a financing provider serving that market. Any referral fee the provider pays Klindeck is disclosed at the point of introduction.
Related reading
How to read this. The check describes how lenders commonly rebuild a clinic's cash flow and test it against the proposed payments. It does not approve, decline or price credit, and it is not accounting, tax, legal or financial advice. Conventions such as 1.25x coverage are in common use at time of writing. Each lender sets its own criteria. Decisions remain your own.
Introductions and referral fees. Klindeck is not a lender, broker or financial advisor. Klindeck does not charge for introductions. Where a financing provider compensates Klindeck for an introduction, that relationship is disclosed at the point of introduction. A summary is only shared with your consent. See the Terms of Use.