Buying the building your medical practice operates from is a lending decision first and a property decision second. Lenders assess the practice's income, the property itself and your personal position together, so preparing all three before you apply gives you the strongest footing.
For a Glen Waverley practice owner, the choice is usually between continuing to lease and moving into a commercial property you own. This guide covers how the finance works, what a lender looks at, and how the loan structure affects your monthly cash flow.
How Does a Medical Practice Building Loan Work?
A medical practice building loan is a commercial property loan secured against the building you are buying. It sits under commercial lending rather than standard home lending, so lenders assess it differently.
A lender will generally want to see that the practice can cover the repayments from its own earnings. They also look at the property's value, its location and how easily it could be sold or re-let. Many lenders lend a lower percentage of the property's value for commercial purchases than for homes, which means a larger deposit is usually needed. The exact figure depends on the lender and the property.
A secured business loan of this kind uses the building as collateral. The trade-off is that if repayments cannot be met, the lender can sell the property to recover the debt. Some lenders may also ask for additional security, such as a residential property, which puts that asset at risk too.
What Lenders Want to See From Your Practice
Lenders want evidence that your practice earns enough to comfortably service the loan. They usually ask for business financial statements, personal and company tax returns, and details of existing debts.
The key measure is often the debt service coverage ratio. This compares the income available to pay debts with the repayments the new loan would add. A higher ratio shows more room to move if patient numbers dip or costs rise.
A practice that has traded for several years with steady billings generally presents more strongly than a newer one. If you are a doctor buying into or building a practice, the lending approach for medical professionals can also be relevant, as some lenders have specific policies for the profession. Checking your borrowing capacity early shows you what range to search within before you inspect any property.
Interest-Only or Principal and Interest: A Worked Example
An interest-only period lowers your repayments for a set time, but it raises the repayments that follow because the full loan balance must then be repaid over a shorter term.
As an example, consider a practice owner borrowing $1,000,000 for a commercial building. The figures below use an illustrative interest rate of 6.75% p.a. and are not a quote or a current market rate. The loan amount is also illustrative and is not a property value.
- Principal and interest over 25 years: about $6,910 per month.
- Interest-only for the first five years: about $5,625 per month.
- Principal and interest after the interest-only period, over the remaining 20 years: about $7,604 per month.
The owner in this scenario uses the lower interest-only repayments while the practice is bedding in a new fit-out, which frees roughly $1,285 a month for cash flow. The outcome is that the balance is still $1,000,000 after five years, and repayments then rise by about $694 a month compared with the original principal and interest figure. The owner needs to be confident the practice's income can absorb that step up.
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Fixed Interest Rate or Variable Interest Rate?
A fixed interest rate gives repayment certainty for a set period, while a variable interest rate can move up or down with the lender's pricing. Which suits you depends on how much certainty your practice needs.
Fixing can help when your budget is tight and you want predictable costs. The trade-off is that fixed loans often limit extra repayments and can carry break costs if you exit early. A variable rate usually allows more flexible repayment options, such as extra repayments or an offset or redraw feature, but your repayments can rise.
Some borrowers split the loan, fixing one portion and leaving the other variable. This spreads the risk, though it adds some complexity to managing the loan. Your broker can compare how different lenders treat these features for commercial loans.
Should You Buy Through Your Business, Personally or in Super?
The ownership structure affects who is the borrower, what security is offered and how the rent is paid. Common options include a company, a trust, your own name or a self-managed super fund.
Some practice owners explore buying through a self-managed super fund, and commercial SMSF loans exist for this purpose. This route comes with strict rules, and lenders often require a larger deposit and limit the options available. Each structure has different tax and legal consequences, so speak with your accountant and a licensed adviser before you decide.
What Costs Come Beyond the Purchase Price?
Beyond the purchase price, expect to pay stamp duty, legal and conveyancing fees, valuation and lender fees, and possibly building inspections. You may also need funds for fit-out or upgrades to suit clinical use.
Stamp duty on commercial property differs from residential rates, so use the stamp duty calculator and confirm figures with the State Revenue Office or your conveyancer. Keep a cash buffer for the first months of ownership as well. If the practice needs funds for equipment such as dental chairs or imaging machines, equipment finance is a separate product that can keep that spending away from your property loan.
Why Work With a Broker Based Near Glen Waverley?
A broker can compare loan options from the lenders on their panel and prepare your application so the lender sees the practice in its strongest, accurate light. Different lenders treat medical income, commercial property types and SMSF buyers differently, so comparing before applying matters.
Glen Waverley is a well-known south-east Melbourne hub with The Glen shopping centre and a busy railway station, which are the kind of foot traffic and access points that patients and staff consider when choosing where to attend. A local broker understands the area and can speak with you about timing and structure. Our Glen Waverley broker page has more on how we work with local clients, and our business loans page outlines the wider options available.
If you are weighing up a purchase, Call one of our team or book an appointment at a time that works for you. We will review your practice's numbers, outline the loan structures available and help you decide whether owning the building suits your goals.
Frequently Asked Questions
How does a medical practice building loan work?
It is a commercial property loan secured against the building you are buying. Lenders assess the practice's income, the property and your personal financial position together.
What is the difference between interest-only and principal and interest repayments?
Interest-only repayments are lower during the interest-only period, but the balance does not reduce. Repayments then rise because the full balance is repaid over a shorter remaining term.
Should I choose a fixed interest rate or a variable interest rate?
A fixed interest rate gives repayment certainty but can limit extra repayments and carry break costs. A variable rate usually offers more flexibility but repayments can rise.
Can I buy a medical practice building through my SMSF?
Some lenders offer commercial SMSF loans, but strict rules apply and deposit requirements are often higher. Speak with your accountant and a licensed adviser before choosing this structure.
