8 Steps to Take Before Applying for a Physician Practice Loan

A successful physician wants to expand their practice. The growth is there, the patient base is loyal, and the vision is clear. But the loan application gets delayed—twice. Why? Vague purpose, incomplete financials, and a loan amount that didn’t quite make sense on paper.

It happens more often than you’d think.

Whether you’re running a solo practice or managing a mid-sized clinic, applying for a physician practice loan is a serious financial step that requires more than a few documents and a confident attitude. Lenders want to see a complete, credible financial picture that demonstrates preparedness, professionalism and profitability.

Here are eight essential steps to take before you apply. These aren’t just best practices. They’re make-or-break actions that can define whether your application gets funded or forgotten.

 

 

Step 1: Know exactly why you need the loan

What’s the purpose behind your loan request? It might sound like a basic question, but it’s one too many practice owners can’t answer clearly. That’s a red flag for lenders.

Whether you’re planning to upgrade diagnostic equipment, expand your facility or invest in new staff, clarity matters. Vague intentions like “improve cash flow” or “general business improvements” won’t build lender confidence. The more specific you are, the better.

If you need $200,000, break that down. Maybe it’s $120,000 for leasehold improvements, $50,000 for medical equipment and $30,000 as an operating cushion while you ramp up staffing. When lenders see that level of detail, it shows you’ve done your homework.

This step also helps you avoid borrowing the wrong amount. Overestimating can lead to higher interest costs and unused capital. Underestimating can leave you scrambling later. Both are signs of poor planning.

Pro tip: Match your loan type to the purpose. For example, if you’re purchasing high-value equipment, an equipment loan may offer lower interest rates than a general business loan. In contrast, a working capital loan might be more appropriate if you’re bridging short-term operating costs.

According to a 2023 report from the Federal Reserve’s Small Business Credit Survey, nearly 40% of small businesses were denied or partially approved for loans due to weak documentation of how the funds would be used. That’s a significant number—and a compelling reason to clarify your funding goals from day one.

So before you talk to a lender, ask yourself, “What do I need, why do I need it, and how will it improve the financial health of my practice?”

Step 2: Get your personal finances in order

Before a bank evaluates your business plan or revenue projections, they’re going to look at you (the owner or primary physician), especially if you’re providing a personal guarantee.

That means your personal finances need to be in top shape, even if your practice is financially sound.

Start with your credit score. A FICO score above 700 is typically considered good, and most traditional lenders prefer a score in that range or higher. But that’s just the beginning. They’ll also want to see:

• Personal tax returns (usually for the past two years)
• A current personal financial statement
• Documentation of other loans or liabilities
• Income outside the practice (if applicable)

Lenders use this information to determine your personal capacity to repay the loan in the event the practice defaults. If there are late filings or unresolved IRS issues, get them resolved now. Waiting until after you apply will only delay or derail the process.

If you’re planning to be a co-signer or guarantor, make sure your house is in order. Having a certified public accountant (like us) review your personal financials before you approach a lender can help you identify and address red flags early.

Step 3: Clean up your practice’s books

Your practice’s financial records are the backbone of your loan application. Lenders will comb through them to evaluate cash flow, profitability and how well the business is managed financially.

Here’s what they’ll typically request:

• Year-to-date profit and loss (P&L) statement
• Balance sheet
• Three years of business tax returns
• Cash flow forecasts
• AR/AP aging reports

But simply having these documents isn’t enough, they must be accurate, timely and reliable. If your books haven’t been updated in months or your accounts haven’t been reconciled since Q2, you’re inviting extra scrutiny. Incomplete or outdated records signal disorganization and increase your risk profile in the eyes of the lender.

This is where outsourced accounting and controllership services (especially those designed for healthcare) can give you an edge. Having professionals manage your books ensures you’re presenting financials that meet lender expectations and highlight your practice’s strengths.

We often help healthcare clients prepare lender-ready financial packages that instill confidence and credibility. Clean books show you’re serious about managing your business and that builds trust where it matters most.

Step 4: Calculate the right loan amount for your needs

How much should you borrow? This question requires more than a guess or a round number that “sounds right.” Too little, and you’ll fall short before the project is complete. Too much, and you’re paying interest on funds you didn’t need.

Start with a detailed budget that breaks down your projected costs:

• Buildout and construction (if expanding your facility)
• Medical and office equipment
• Technology upgrades
• Staffing and training
• Working capital to cover any lag between expansion and revenue generation

Once you have a total, build in a buffer (typically 10–15%) for cost overruns or delays. But don’t inflate this number without justification. Lenders will ask how you arrived at your request, and you should be prepared to walk them through your numbers with confidence.

A common pitfall is forgetting about indirect costs like installation fees, delivery costs, software implementation or staff onboarding time. These all impact your actual cash needs and should be included in your ask.

The most credible loan applications don’t just ask for money; they justify every dollar. A clear funding breakdown reassures lenders that you’re financially disciplined and that your loan has a defined ROI.

 

 

Step 5: Run a repayment feasibility check

You’ve figured out what you need. Now it’s time to ask: Can your practice realistically pay it back?

This is where many loan applications fall apart — not because the business isn’t viable, but because repayment assumptions aren’t grounded in reality. Lenders are going to look closely at your debt service coverage ratio (DSCR) which accounts for your net operating income divided by your total debt payments.

In most cases, a DSCR of 1.25 or higher is preferred. That means your practice earns $1.25 for every $1.00 you owe in loan payments. Anything less signals tight margins and higher risk.

Start by projecting your post-loan monthly cash flow. Include:

• Your current overhead
• Projected increases in revenue from the loan (e.g., more patients, more services)
• New expenses tied to the loan (interest, insurance, additional staff, maintenance)

Be conservative with your projections. It’s tempting to assume best-case outcomes, but lenders want to see you’ve stress-tested your plan. What happens if patient volume is 10% lower than expected? What if insurance reimbursements are delayed? Build in scenarios so you’re prepared.

Financial modeling is one of the most valuable tools we offer our healthcare clients during loan planning. It can mean the difference between confidently saying, “We can manage this loan” and hoping things work out.

Step 6: Compare lenders and lending types

Not all loans or lenders are created equal.

One of the most common missteps we see? Accepting the first offer that comes through the door. When you’re busy and a lender expresses interest, it’s tempting to say yes and move on. But just like choosing a treatment plan, your financing strategy needs comparison and customization.

Start by identifying what type of loan best suits your needs:

• Term loans are ideal for one-time investments like building renovations or acquisitions.
• Equipment loans can come with lower rates and better terms if your purchase qualifies as collateral.
• Lines of credit offer flexible access to funds, better for working capital, short-term needs or seasonal expenses.

Let’s say you’re buying a $150,000 MRI machine. Some lenders offer equipment-specific loans at lower interest rates with minimal down payments, because the asset itself secures the loan. That may beat a general business loan, both in cost and in repayment terms.

You should also watch for loan covenants, which are conditions written into the agreement that could restrict your future flexibility. For example, some loans limit your ability to take on additional debt or require you to maintain certain financial ratios (like liquidity or DSCR thresholds). Violating these covenants can trigger default penalties even if you’re making payments on time.

Don’t forget to review:

• Interest rate type (fixed vs. variable)
• Prepayment penalties
• Collateral requirements
• Origination fees

A helpful resource is the Small Business Administration (SBA), which outlines different loan options available for medical professionals and small healthcare providers. Their programs often offer longer repayment terms and lower down payments (ideal if cash flow is a concern).

Finally, talk to at least three lenders, and request term sheets so you can compare side by side. We recommend reviewing these with your CPA before making a decision. A good rate doesn’t always mean a good deal.

Step 7: Polish your professional profile and story

Yes, the lender cares about your numbers. But a good lender also cares about you, your leadership, your experience and your vision for the practice. Think of your loan application as a pitch. You’re asking a lender to invest in your business. Why should they?

Numbers open the door, but your story gets the approval. If you’re a physician-owner, your lender wants to know:

• What is your specialty?
• How many years have you practiced?
• Have you managed or grown a business before?
• What’s your reputation in the community or healthcare network?

Include a brief business history as well. How long has the practice been operational? What are your growth metrics? Are you affiliated with hospitals or surgery centers?

Build a narrative that connects your financial ask to your track record. For example:

“Over the past five years, we’ve grown from a two-provider practice to a five-provider team serving over 1,500 patients a month. This loan will allow us to renovate our second location and hire additional support staff to accommodate rising patient demand.”

That’s the kind of language that connects with lenders. It shows that you’re not just asking for capital and that you have a plan, and the experience to make it work.

If you need help compiling this information into a concise, lender-friendly format, we can work with you to develop a complete package.

Step 8: Bring in your CPA and your network

Your lender will review your numbers, but your CPA should review them first.

We’ve helped countless physician practices secure loans with confidence, and the most successful ones loop us in early. Your CPA isn’t just a tax preparer; they’re your strategic partner. We help validate your cash flow projections, ensure your financial statements are lender-ready and identify potential red flags before they become obstacles.

You should also reach out to your professional network. Fellow physicians, hospital administrators and industry peers can offer candid insights on which lenders understand healthcare best, who offers competitive rates and what covenant terms to avoid. There’s no substitute for learning from someone who’s already been through it.

Smart lending starts with strong planning

To sum up, applying for a physician practice loan is about more than filling out an application and hoping for the best. It’s about being strategic, clarifying your goals, cleaning up your finances, and building a case that shows lenders you’re both capable and committed. It’s about getting the right loan, with the right terms, from a lender who understands the complexity of your practice.

Each of these eight steps contributes to a stronger, more confident loan submission. And when you’re asking a lender to invest in your practice’s future, that confidence makes all the difference.

Contact a James Moore professional today to ensure your practice is financially ready to take the next step.

 

 

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