Financing premises for a healthcare business
Buying a clinic, consulting suite or other commercial property can give a healthcare practice greater control over its location and fit-out. It may also create a long-term property asset. However, commercial lending is assessed differently from a standard residential home loan and requires careful planning.
The right structure depends on why the property is being purchased, who will own it, how the practice will occupy it and how the debt will be repaid. A lender may assess the healthcare professional personally, the trading business, related entities, lease arrangements and the property offered as security.
Occupation and industry experience may support the overall application, but they do not guarantee particular terms. Lender appetite, acceptable property types, required contribution and financial evidence can vary considerably.
Common reasons to seek commercial property finance
An established practice may purchase its existing premises to gain greater certainty over occupancy and future costs. A growing practice may require a larger site, additional consulting rooms or a second location. Some healthcare professionals purchase commercial property as a separate investment and lease it to an unrelated tenant.
These scenarios have different risks and cash flows. An owner-occupied clinic relies partly on the strength of the operating business. A tenanted investment relies on the lease, tenant and property market as well as the borrower’s position. A new site may involve fit-out costs and a period before patient revenue reaches its expected level.
Clarifying the purpose at the outset helps identify the appropriate loan type, security structure and evidence. It also helps separate property finance from funding for equipment, working capital or business acquisition, which may require different facilities.
What a commercial lender may assess
Commercial lenders commonly review the purchase price and valuation, property type and location, lease terms, borrower contribution, business performance, existing liabilities and the proposed repayment source. They may request financial statements, tax returns, business activity statements, bank statements, forecasts and details of the ownership structure.
For an owner-occupied property, the lender may examine whether the practice generates sufficient cash flow after normal operating expenses and existing commitments. For an investment property, it may consider rent, lease expiry, tenant quality and the property’s ability to be re-let.
Specialised properties can require a more cautious assessment because they may be harder to sell or adapt for another tenant. A conventional office or retail-style suite may be viewed differently from a highly specialised medical facility.
Deposit, loan term and security considerations
Commercial property loans often have different loan-to-value ratios, terms, fees and repayment arrangements from residential loans. The required contribution depends on the lender, property, borrower strength and transaction.
The lender may seek security over the property and guarantees from directors or related parties. In some cases, additional residential or commercial property is offered as security. This can support a transaction but may also expose other assets and reduce flexibility, so the consequences should be understood before agreement.
Loan terms may be shorter than a residential mortgage and can include periodic reviews, covenants or requirements to provide updated financial information. Compare these conditions alongside the interest rate. A cheaper facility with restrictive terms may not suit a growing practice.
Plan for the complete cost of the project
The purchase price is only one component. Allow for due diligence, legal and valuation costs, stamp duty, building inspections, fit-out, equipment, relocation, technology and an adequate working-capital buffer. Timing matters because rent, loan repayments and operating costs may overlap during the transition.
Stress-test the plan against delays, cost increases and lower-than-expected revenue. If several facilities are required, coordinate their repayment terms and security rather than arranging each in isolation.
Obtain legal, accounting and tax advice on the ownership and leasing structure. The entity that owns the property may be different from the entity operating the practice, and changes can be costly after contracts are signed.
Compare lenders before committing
Commercial lending policy and pricing are often tailored to the transaction. A lender familiar with healthcare businesses may better understand the operating model, but the whole proposal must still be sound and supportable.
Prepare a clear summary of the purchase, borrower entities, experience, financial performance, contribution, security and future plan. A well-presented application can make the transaction easier for a lender to assess and reduce avoidable delays.
Lending Association can help healthcare professionals compare commercial property lending options and coordinate the finance with existing personal and business debts. Early involvement is valuable, particularly before signing a contract or committing to a fit-out timetable.
Frequently asked questions
Can I buy my medical practice premises through a commercial loan?
Potentially. The lender will assess the property, business cash flow, borrower contribution, structure and security. Legal and tax advice should be obtained before deciding which entity will purchase and occupy the premises.
How much deposit is required for commercial property?
There is no universal percentage. It depends on the property, location, use, lender and strength of the borrower. Commercial requirements can differ materially from residential lending.
Can fit-out costs be included in the finance?
Some lenders may fund part of a fit-out or offer a separate facility, subject to quotes, valuation, borrower contribution and policy. Equipment and working capital may require different products.
Will the lender use the practice income?
For owner-occupied premises, the lender will usually consider the operating business and its capacity to service the debt. It may request historical financial information and forecasts.
Can my residential property be used as additional security?
It may be possible, but doing so can place that property at risk and link facilities together. The benefits and consequences should be reviewed before offering additional security.
Should finance be arranged before signing a contract?
Ideally, seek lending and legal advice early. Commercial approvals, valuations and due diligence can take time, and contract conditions should provide appropriate protection where possible.
Speak with Lending Association
Planning to purchase or expand healthcare premises? Speak with Lending Association early to review the transaction, required contribution and suitable commercial finance options.
General information only. The information in this article is general in nature and does not take into account your objectives, financial situation or needs. It is not credit, legal, tax or financial advice. Before acting on it, consider whether it is appropriate for your circumstances and seek personalised advice. All applications for credit are subject to the lender’s credit assessment, eligibility criteria, terms and conditions, fees and charges. Lender policies, including occupation-based policies and LMI waivers, may change and are not available to all borrowers. For advice on the tax implications of borrowing or investing, speak with a registered tax agent. Commercial and business-purpose loans may not be regulated under the National Consumer Credit Protection Act 2009 (Cth).
Lending Association Group Holdings Pty Ltd, ABN 33 687 304 392, Australian Credit Licence 569606.
