A startup practice is the hardest version of practice lending, because the one thing that carries every other file in this category (a collections history) does not exist. There is no trailing twelve months to normalize, no aging to read, no payer mix to test. What the desk has instead is a construction budget, an equipment quote, a lease, a demographic study, a projection somebody wrote, and a person with a license and a personal balance sheet.
That does not make it a weak credit. De novo practice lending is a well-established category with a long track record, and the underwriting has a shape: fund the three cost blocks in full, structure the payments around a ramp instead of pretending it away, and get comfortable with the founder. This piece covers what goes into each of those, and where startup files most often break.
The three cost blocks
Every startup budget decomposes into buildout, equipment and working capital. Founders reliably estimate the first two with some care and the third with wishful thinking, which is why the third is the one that sinks projects.
| Block | What it covers | What drives the number |
|---|---|---|
| Leasehold buildout | Plumbing, electrical, HVAC, cabinetry, shielding, finishes, permits, design fees | Shell condition, operatory or exam room count, local construction costs, specialty requirements |
| Equipment and technology | Chairs or exam tables, imaging, sterilization, practice management and clinical software, computers, phones | Specialty, whether imaging is in-house, new versus certified pre-owned |
| Working capital and ramp | Payroll, rent, supplies, marketing, insurance and loan payments until collections cover them | Length of the ramp, credentialing timelines, fixed cost base |
Buildout costs vary enormously by market and by how much mechanical work the space needs, a second-generation clinical space with usable plumbing is a fundamentally different project from raw shell in a new building. Get real contractor bids rather than a per-square-foot rule of thumb, and include a contingency line. Projects that come in over budget are almost always over on buildout.
The ramp is the whole underwriting question
A new practice opens with a fixed cost base on day one and a collections curve that starts near zero. Rent is full price in month one. Payroll is close to full because you cannot hire half a hygienist or half a front desk. Collections build over months as marketing works, referrals establish and (critically) as credentialing completes with each payer.
| Period | Collections pattern | Cash position |
|---|---|---|
| Months 1 – 3 | Minimal; first claims filed, credentialing still in process | Deeply negative; funded entirely from working capital |
| Months 4 – 6 | Building as claims pay and recall begins | Still negative but improving |
| Months 7 – 9 | Approaching fixed cost coverage | Near breakeven on operations |
| Months 10 – 12 | Covering operations and beginning to cover debt service | Working capital draw slows or stops |
This shape is illustrative and varies substantially by specialty, location, marketing investment and payer credentialing timelines. Some practices ramp faster, particularly where the founder brings an existing patient following or joins an underserved market. Others take longer. The point is that the curve exists and has to be funded.
Structures built for a ramp
Because the cash flow curve is known in advance, startup practice loans are commonly structured with some accommodation in the early months. Interest-only periods and graduated payment schedules both exist for this purpose. Availability, length and terms vary by lender and program, and none of it should be assumed until it is in a term sheet.
What the accommodation does not do is replace working capital. An interest-only period reduces the loan payment during the ramp; it does not pay the staff. Founders sometimes treat one as a substitute for the other and arrive at month five short of cash with a fully built practice.
The projection a lender will actually engage with
Every startup file contains a projection. Most of them are not believed, and for a consistent reason: they show a straight line to a mature production number with no visible logic behind it. A projection earns credibility when it is built from the bottom up out of quantities somebody can check.
Build it from chairs and hours, not from a target
Start with capacity: how many operatories or exam rooms, how many clinical days per week, how many patients per day at what average production per visit. Multiply. That gives a ceiling. Then apply a fill rate that starts low and rises month by month, and be explicit about what drives it: marketing spend, referral sources, credentialing completion dates.
Model collections, not production
Apply a realistic adjustment percentage based on the contracts you intend to sign, then lag the collections behind the production by the number of days claims actually take to pay. A projection that shows collections equal to production in the same month tells an underwriter the model was not built by someone who has billed a claim.
Then stress it. Show the same model with the ramp running three months slower. If the practice survives that on the working capital you are requesting, say so explicitly in the file. It is a stronger statement than any optimistic case.
Site selection is credit analysis
For a startup, the site is not a real estate decision made separately from the financing. It is a substantial part of what the desk is underwriting. The relevant questions are demand and supply: how many households are in the draw area, what the demographic profile looks like, how many comparable providers already serve it, and whether the existing providers are accepting new patients.
Visibility, parking, signage rights and access matter more than founders expect, particularly for practices that depend on walk-by awareness rather than referrals. So does the co-tenancy: a clinical practice in a center anchored by daily-traffic retail gets exposure that a suite in an office park does not.
On the lease itself: negotiate the term long enough to cover the loan, get tenant improvement allowance in writing, secure renewal options, and have the landlord's consent process understood before you sign. A landlord who will not consent to a lender's collateral assignment can stall a closing after the buildout has been designed.
The founder's personal file
With no business history, the personal side carries more weight than it would in any other practice transaction. Personal credit, reserves after closing, and existing obligations all get examined closely. So does clinical experience, a founder with several years of associate production history has demonstrated the ability to produce, which is exactly what the projection assumes.
Education debt is normal here and is underwritten on the monthly payment rather than the balance. What matters is documentation: the plan, the current payment, and the fact that it is current. Add your household's other fixed costs and be honest in the model about what you need to draw personally during the ramp. Underwriters have seen the version where the founder claims to need nothing for a year, and they do not believe it.
Sequencing a startup file
The order that avoids dead ends
- Define the specialty, service mix and target patient volume, and write the capacity model first.
- Run demographic and competitive analysis on two or three candidate sites before signing anything.
- Get a letter of intent on the preferred site with tenant improvement allowance and term specified.
- Obtain contractor bids on the actual space, not a per-square-foot estimate, plus a contingency line.
- Get itemized equipment and technology quotes, and decide new versus certified pre-owned item by item.
- Build the collections model bottom-up, lag collections behind production, and run a slow-ramp stress case.
- Size working capital from the stress case, including loan payments and founder living costs.
- Start payer credentialing as early as the process allows; timelines vary by payer and state.
- Assemble the personal file: credit, two years of returns, personal financial statement, student loan documentation, CV and license.
- Line up the professional team: accountant, attorney, and an equipment or design consultant if the specialty warrants it.
The sequencing matters because several of these steps constrain each other. Equipment selection changes buildout requirements. Site choice changes both. A founder who signs a lease before pricing the buildout has removed a lever they will want back.
Can I get startup financing with no ownership experience?
Yes. Nearly every de novo founder is a first-time owner, and this is a well-established lending category rather than an exception. The desk substitutes clinical production history, personal credit and the quality of the plan for the business history that does not exist yet. Requirements and terms vary by lender and program.
How much cash do I need to put in?
Injection requirements vary by lender, program and the strength of the file, and can be affected by whether you contribute equipment, deposits or pre-opening expenses already paid. Beyond any required injection, plan to hold personal reserves after closing, a founder with no cushion is a materially different risk than one with several months of household expenses banked.
Should I finance used or refurbished equipment to save money?
Selectively. Certified pre-owned imaging and sterilization equipment can be sound value, while items with heavy patient-facing impact or short technology cycles often are not worth the saving. Note that some lenders treat used equipment differently for collateral purposes, so confirm before you build a budget around it.
How long before a startup practice covers its own costs?
It varies widely by specialty, market, marketing investment and credentialing timelines, and any specific figure would be misleading. What is consistent is the shape: a period of full fixed costs against minimal collections, followed by a build. Model your own curve and fund the area under it rather than relying on a benchmark.
Can I open while credentialing is still pending with some payers?
Practices do it regularly, but understand the cash consequence. Production for patients under a pending payer either waits to be billed or is handled under whatever policy that payer allows, and either way the collections arrive later than the work. Build credentialing dates into the model explicitly instead of assuming everything is live at opening.
Is it better to buy an existing practice instead?
They are different risks, not better and worse. An acquisition has proven collections and immediate cash flow but you pay for goodwill and inherit someone else's systems and staff. A startup costs less at the outset and is built the way you want it, but you fund a ramp with no revenue. Founders with strong local demand and patience often prefer a startup; those needing income quickly usually should not.
Does a personal patient following help my file?
Meaningfully, if it is real and can be described. A founder who has been producing in the same market for several years, within the limits of any existing non-compete, has a plausible path to a faster ramp and should say so and quantify it. Be careful to describe it in terms of your production history rather than a claim about patients following you.
What is the single biggest budgeting mistake?
Underfunding working capital, by a wide margin. Buildout and equipment get quoted by third parties, so they tend to be roughly right. Working capital is estimated by the founder, who is usually optimistic about the ramp and forgetful about their own living expenses. Size it from a stress case and add contingency.
Where to start
Build the capacity model before you look at a single space. Rooms, clinical days, patients per day, production per visit, adjustment percentage, collection lag. That gives you a defensible ceiling and a monthly curve, and everything else: how much space you need, what equipment is justified, how much working capital to raise: falls out of it.
Then take the model and slide the ramp three months to the right. The amount of cash that scenario consumes is what you should be financing. If the numbers still work there, you have a plan a lender can engage with rather than a forecast.
Qualified Commercial Underwriting Desk
Credit and capital markets
The Qualified Commercial underwriting desk reviews commercial real estate, dealer and Main Street files daily. The Academy is written from that work (how files are actually read, priced and declined) rather than from a rate sheet.
Educational content only. Nothing here is a commitment to lend, an offer of credit, or tax, legal or accounting advice. Program terms, timelines and thresholds vary by lender, file and market conditions, and any figures shown are illustrative.