Finance Your Hospice Acquisition with an SBA Loan

Before engaging an SBA lender, identify a hospice agency with at least two years of Medicare certification history, an average daily census of 40–150 patients, and no active CMS investigations or OIG enforcement actions. Pull the target's Medicare cost reports, review ADC trends, and request a preliminary payer mix breakdown. Confirm the target is not in a Certificate of Need (CON) state that would restrict license transfer, or if it is, understand the CON transfer process. This preliminary diligence protects you from wasting SBA lender relationships on deals that cannot close.

Not all SBA lenders understand Medicare-reimbursed businesses. Identify lenders with a documented track record of closing hospice or home health acquisitions — ask specifically about their experience with Medicare CHOW transactions and whether they accept Medicare receivables and provider agreement value as part of their collateral analysis. Submit a loan inquiry package including 3 years of the target's tax returns, interim financials, a normalized EBITDA bridge, your personal financial statement, and a brief operational biography demonstrating your healthcare management experience.

Once you have a lender indication of interest, submit a signed LOI to the seller establishing purchase price, deal structure, earnest money, exclusivity period, and key contingencies including SBA financing and satisfactory completion of due diligence. Structure the LOI to allow 60–90 days for full diligence and loan underwriting. Open escrow and engage a healthcare M&A attorney experienced in Medicare CHOW transactions — this attorney will manage the CMS 855A change of ownership filing in parallel with your SBA loan process, which is critical because CHOW approval timelines can run 30–90 days and must not delay your loan closing.

Conduct comprehensive due diligence with emphasis on Medicare cost reports and cap calculations, RAC audit history, QAPI records, survey deficiency history, referral source concentration analysis, and staff licensure and turnover data. Engage a healthcare compliance attorney or consultant to review OIG exclusion databases for all clinical staff and referral sources. Your SBA lender's underwriter will require a clean compliance picture — any undisclosed Medicare overpayment demands or active investigations can kill the loan. Document normalized EBITDA by adding back owner compensation, personal expenses, and one-time costs, and present this clearly to the lender.

Once the lender issues a conditional commitment or term sheet, finalize the purchase agreement with your M&A attorney incorporating the agreed structure — typically an asset purchase with Medicare provider agreement novation, a seller note on full standby, and an escrow holdback of 5–10% of the purchase price held for 12–18 months to cover potential Medicare billing adjustments or compliance contingencies discovered post-close. Confirm the seller note terms satisfy SBA standby requirements. Order the business valuation from a qualified appraiser with healthcare industry experience, as SBA requires an independent valuation for acquisitions above $250K in goodwill.

Your healthcare attorney will file the CMS 855A Change of Ownership application, triggering CMS review and a new Medicare provider number issuance or provider agreement novation depending on whether the deal is structured as an asset or stock purchase. In an asset purchase, the buyer receives a new provider number and Medicare billing does not begin until CMS approval — plan for a 30–90 day billing gap and ensure working capital is budgeted accordingly. Coordinate the SBA loan closing date with CHOW approval timing. Once CHOW is confirmed and loan documents are executed, funds are disbursed, the seller receives proceeds, and the escrow holdback is established per the purchase agreement.