Can you afford to buy a medical practice? The 3 numbers lenders check first

Picture the file on a lender's desk. A family physician, six years out of residency, working for a hospital-owned group. She owes $310,000 in student loans, and she's asking for $1.1 million to buy an established primary care practice from a retiring owner.

Most physicians assume that file gets declined on page one. I get why. She wants to borrow seven figures on top of six figures of student debt, and her associate salary has never come close to either one. It looks like a nonstarter.

The lender doesn't decline it. Most of the time, the lender doesn't even slow down. And the reason might be the most useful thing an employed physician can learn about owning a practice. Nobody teaches this stuff in medical school or residency.

In 2012, 60.1% of physicians worked in physician-owned practices, according to the American Medical Association's Physician Practice Benchmark Survey. By 2024, that was down to 42.2% . The AMA estimates that 18-percentage-point drop means roughly 80,000 fewer physicians in private practice. Meanwhile, the Association of American Medical Colleges reports that the median borrower in the Class of 2025 graduated owing $215,000. And 28 percent owed $300,000 or more. So physicians are carrying more debt and owning less than ever. I don't think that's a coincidence. I think a lot of it traces back to one misunderstanding about how lending works.

Your mortgage lender is the wrong reference point

When a physician applies for a mortgage, the underwriter totals every debt, divides by income and declines anyone whose ratio is too high. That's consumer lending, and it's the only kind most physicians have ever dealt with. So they run the same mental math on a practice purchase, decide they're disqualified and never call a lender.

Practice acquisition lending asks a different question. The lender isn't asking whether you can afford the loan out of your paycheck. They want to know whether the practice you're buying makes enough cash after overhead to cover the debt with room to spare.

Put simply, the practice pays for itself. You're the licensed operator who keeps it running. That's why 100% financing exists for physicians and dentists and almost nowhere else in small business. An established practice with a steady patient panel and predictable collections is one of the safest loans a bank can make. Default rates on these loans have historically been very low.

Yes, your student loans are on the file. But the lender looks at the monthly payment, not the balance. To the lender, that $310,000 balance is just a $2,900 monthly payment. One line on a cash flow statement. A practice collecting $1.2 million a year absorbs that line without breaking a sweat.

The three numbers

Whether you're buying a practice outright or buying into a group, three numbers decide whether the deal works. Get all three before you form an opinion about the price. Price is the number everyone fixates on, and by itself it tells you almost nothing.

1. Cash flow after overhead. Not gross collections and not the asking price. Take what the practice actually collects and subtract every operating expense. That means staff, rent, supplies, malpractice and a fair-market salary for the physician. What's left is your number. It's the only one a lender really cares about, and it's the only one that tells you what the practice can afford to pay you. A practice with $1 million in revenue and 70% overhead leaves $300,000. A practice with $800,000 in revenue and 55% overhead leaves $360,000. The cheaper practice is the better one. I see buyers miss this all the time.

2. Debt service coverage. Divide that cash flow by the annual loan payment on the purchase. Lenders generally want the practice to bring in 20 to 25% more cash than the debt payments. That's a coverage ratio of roughly 1.2 to 1.25. Below that, approval gets harder and the deal gets harder to live with. Above it, you've got room for a slow quarter, a nurse who quits or a payer that cuts your rates. If a broker can't show you this number, that tells you something. Calculate it yourself. It takes five minutes.

3. Your own current production. Lenders want to know what you produce today, where you work now. Not what you think you'll produce once you own the place. That's their proof you can bring in the collections the practice depends on. Most employed physicians have never looked it up. Their employers aren't in a hurry to show them, either. Ask your practice administrator for your trailing 12 months of collections. If it's well below what the practice you're eyeing needs, that's a gap to close before you buy. It's not a reason to give up on the idea.

Buying in versus buying out

The three numbers behave differently depending on the transaction.

In a partnership buy-in, the cash flow question is about your share, and the document that matters most is the operating agreement. What are you actually buying? A piece of the practice's equity? A piece of the real estate? Or just a spot in a distribution formula the other partners can change with a vote? A lot of physicians buy into a group thinking they bought an asset. Later they find out they bought a seat at a table they don't control. Have a health care attorney read the agreement before you sign anything. And I mean anything.

In an outright purchase, the numbers are cleaner because you own all of it. The risk is all yours, and so is the cash flow. Here's my bias, and I'll own it: if you can buy the whole practice, and ideally the building, do it. Partnerships can work well, and I've seen plenty that do. But I'd rather your income didn't depend on a formula other people can vote to change.

Don't wait until you feel ready

People mistakenly think they need to feel ready before getting started. That's backward. You'll feel ready only after you take steps toward ownership.

Get your three numbers first. Then talk to a specialty health care lender this month. Not someday, and not after you've found the perfect practice. Ask what you could borrow today. That conversation costs nothing, and it changes how you look at every listing after it. You stop asking whether you can afford to own and start asking which practice makes sense.

The physician in the file at the top of this piece was approved. The practice covered the debt with room to spare. Her production backed up the collections. And her student loan payment? Just one line among many. For six years, the only thing keeping her employed was the assumption that she'd get turned down.

She never asked. Ask.

Brian Hanks, MBA, CFP®, is the founder of Dental Buyer Advocates, a buyer-side practice acquisition advisory firm, and the author of "How to Buy a Dental Practice," now in its fifth edition. He has advised on more than 1,500 clinical practice acquisitions across 49 states and works exclusively on behalf of buyers.