Bank Financing & Cash Flow

Bank Financing & Cash Flow

Green calculator

by Cheryl Dorman, Healthcare Relationship Manager and Bonnie Vieira, Business Development Officer, Columbia Bank Healthcare

Owning a veterinary practice is incredibly rewarding—but let’s be honest, managing financing and cash flow can feel overwhelming. Rates change quickly, deal structures vary, and your team depends on predictable cash flow for payroll, reimbursements, and vendor payments. A lower interest rate might look appealing, but if it disrupts operations or hides extra costs, it could end up costing you more in the long run. The key? Understand the full terms of any financing offer and how it impacts your cash flow.

This guide gives you practical, no-sales-pitch tips to help you compare offers, protect your cash flow, and make confident banking decisions in 2026.

1) Rates Aren’t Everything—Look at the Big Picture

It’s easy to focus on interest rates, but that’s just one piece of the puzzle. Fees like underwriting, appraisal, and documentation can add up quickly. Longer amortization periods can lower monthly payments, which is great for cash flow during ramp-up—but remember, you’ll pay more interest over time. Prepayment penalties matter too—if you plan to refinance, make sure you won’t get hit with unexpected costs. Things to consider:

  • Fees: underwriting, appraisal, environmental report, documentation, construction monitoring, title, lender fees.
  • Amortization & term: Longer amortization can lower monthly payments. This will increase the total interest paid over the life of the loan but can be beneficial up front for cash flow purposes; particularly during ramp up periods.
  • Prepayment penalties: Lockouts or yield maintenance matter if you plan to refinance. If you choose a longer amortization and term, will you be able to prepay the principal balance with excess cash flow without penalty?
  • Draw schedules: Slow draws can delay projects and increase costs. Does the lender have experience with healthcare loans and the construction/renovation process
  • Guarantees: Unlimited vs. limited guarantees can significantly impact your risk. Can they be split among owners?
  • Banking Relationship: Will you have a dedicated banker who understands your industry and can support your growth?
  • Structure: Loan amount, amortization/term, rate, covenants and financial reporting, prepayment penalties

Practice pointer: Build a side-by-side comparison including payment amount, total interest, fees, and prepayment terms. Ask for a plain-language summary and review with your CPA or financial advisor.  

2) Cash Management: Keep the Money Moving

Switching banks isn’t just about opening a new account—it affects payors, payroll, and vendor auto-debits. To avoid disruptions:

  • Phase the changeover: Keep old accounts open for 2–3 reimbursement cycles. Slowly transition payers and vendors incrementally.
  • Map linked services: Merchant services, accounting integrations, patient financing.
  • Fraud controls: Positive Pay, ACH filters, dual approvals during transition.

Practice pointer: Create a migration checklist before signing. Operational headaches often outweigh rate savings. Ask to see if the bank will assist in this process to make the migration easier and less disruptive.  

3) Real Estate & TI Projects

Building, buying, or renovating? Here’s what to keep in mind:

  • Loan Amount: Loan amounts are usually based on the lower of appraised value or cost to build (typically 75–80%). If your vision exceeds the appraisal, how will you cover the gap? What about the remaining 20% to 25% needed? Will you need to inject cash or will the bank provide a loan to the operating entity for the difference?
  • Budget realistically: Add 10–15% contingency for TI costs. This may already be required by the lender and will come in handy if there are any cost overruns. It’s better to be safe and have a cushion “just in case” than not have enough.
  • Understand draw process: Who pays inspectors? How fast are funds released? What if you prepaid some items, how will you be reimbursed?
  • Interest-only periods: Preserve cash during ramp-up. Can typically be built into the loan but can also be paid in cash as you go. Shortens the overall amortization for the loan but allows more cash flow during the renovation and/or building phase.
  • Refi timing: Set reminders 12-18 months before maturity. Is there an option to refinance the loan at maturity or before if warranted?

Practice pointer: Understand up front how the loan amount will be calculated and if there will be a gap you need to fill. Ask if the lender is including additional contingency for the project as well as a sample draw timeline before closing.

4) Equipment Financing

  • Match loan term to useful life: Typically 5-7 years. Most terms for equipment financing are shorter to match the useful life of the loan.
  • Bundle vs. separate: Bundling simplifies payments but limits flexibility. Sometimes equipment loans can be rolled into a larger loan with funds used for multiple purposes. Check with your CPA or financial advisor on costs/benefits.
  • Tax planning: Section 179 and bonus depreciation—coordinate with your CPA.

Practice pointer: Compare amortization for multiple terms and pick what fits seasonal cash flow. Discuss with your CPA or financial advisor on terms for the loan and if bundling into a larger loan makes sense.

5) Covenants & Reporting

Banks use covenants to monitor your financial health. Common ones include Debt Service Coverage Ratio, leverage, and liquidity requirements. Know how these are calculated and how they affect distributions. Also, understand reporting requirements—they can be costly and time-consuming.

  • Types of covenants: Debt Service Coverage Ratio (cash flow needs to be a certain amount more than the debt payments, this can be calculated on a pre or post-distribution basis), Cash Flow Leverage (total debt compared to the cash flow), Liquidity Requirement (maintain a certain amount of liquidity in the operating entity or personally). What are the lenders’ requirements?
  • Know your numbers: How are the covenants calculated and how does that impact cash flow? If the cash flow for the calculation is after distributions, will you have to limit distributions in order to meet the covenant?
  • Waivers & cure periods: Understand timing and fees. If there is a “covenant violation, what happens?
  • Financial reporting: All banks will collect some level of financials and it is helpful to know exactly what and how often as some requirements can be expensive and/or feel onerous.
  • Seasonality: Request annual testing or adjustments if revenue fluctuates. Covenants are usually tested annually with the collection of annual financials—how does this look for your practice’s revenue cycle and seasonality? 

Practice pointer: Covenants are how a bank will test your loans and frequency of testing (typically annually). Each bank has preferred covenants and it is important to know that they are and how they are calculated. Ask for a covenant workbook upfront.

6) Plan for Seasonality & Surprises

Tourism, university schedules, and even unexpected events like COVID can impact cash flow. 

  • Keep 2–3 months of expenses liquid or on a line of credit. You may not need to use it but always a good idea to have it available for unforeseen circumstances.
  • Align debt payments with revenue cycles. Would you prefer your loan payment to be the first of the month or middle of the month?
  • Update a 12-month cash forecast quarterly. Work with your CPA or financial advisor on forecasts. 

7) Comparing Offers

  • List non-negotiables: Draw speed, covenant simplicity, fraud controls, flexibility in loan structure.
  • Calculate total cost: Fees + interest + prepayment risk.
  • Consider relationship value: Advisory resources, treasury tools.
  • Stress test: If revenue dips 10–15%, which structure protects cash?

8) Fraud Controls

  • ACH filters and Positive Pay
  • Dual approvals for wires and payroll
  • Vendor change verification

9) Quick Checklist

Before signing:

  • Rate, term, amortization, payment amount
  • Total fees
  • Prepayment terms
  • Covenants & reporting calendar
  • Draw process for TI/build-outs
  • Banking migration plan
  • Treasury controls
  • Working capital plan
  • Tax impacts
  • Exit/refi plan 

Final Thought 

The best decision balances cost, structure, and operational practicality. Use these tips to engage lenders confidently and choose what supports your patients, team, and long-term goals. Financing isn’t just about getting the lowest rate—it’s about finding a structure that supports your practice’s growth and stability. Take the time to compare offers, understand the details, and lean on your CPA or financial advisor for guidance.

The views expressed are informational and not financial, tax, or legal advice. Please consult your professional advisors.