Medical Practice Loans - Rates from 7.59%

Most lenders on Emu Money's panel finance 50 to 70% of the purchase price of an established business with a clean trading history, strong cash flow and verified financials, so the remaining 30 to 50% comes from you as a deposit or equity. The loan is a secured term loan of $50,000 to $2,000,000 from 7.59%, secured against the practice's assets or other security you nominate. Some specialist medico lenders publicly offer up to 100% of the price of an existing practice or partnership share, secured against goodwill and equipment rather than your home, with terms to 15 years and interest-only periods of up to five years with some lenders, subject to credit approval.

Lenders typically assess three things: the practice, you and the structure. For the practice they read two to three years of financials, the billing mix, how much of the revenue depends on the departing principal, the lease and the staff arrangements; for you, your registration, your years in the profession and, ideally, time already spent working in the practice you are buying or one like it. The structure is whether you are buying shares, assets or equipment, what the vendor warrants, and how the price is split between tangible assets and goodwill.

An associate buying into the practice they already work in is typically the deal lenders like most, because the lender can already see that associate's billings inside the practice. The purchase settles through your solicitor with the sale contract, and the lender releases the loan at completion.

Goodwill lending is finance secured against a practice's patient base and billings as well as its equipment, and it is where specialist medico lenders and the mainstream panel differ. Goodwill is the part of the price not attached to identifiable assets such as equipment, fit-out or stock, and for tax it is a single capital asset inseparable from the practice. The ATO will generally accept the amount the vendor and purchaser allocate to it, provided its requirements are met; the split sets the tax treatment and the security, so have your accountant sign it off first.

Mainstream lenders on Emu Money's panel secure a purchase against tangible assets, other property or a personal guarantee, and most finance 50 to 70%. Some specialist medico lenders publicly accept the goodwill itself as security, which is how they can advertise up to 100% of the price, subject to credit approval; at least one requires life and income protection cover for the goodwill-secured balance. Either way, the lender will usually want evidence the goodwill survives the change of owner.

That evidence is the valuation. Valuers commonly capitalise future maintainable earnings: for dental practices the published multiples run from roughly 2.5 times owner earnings for a small practice to 5 to 7 times for a multi-chair practice with a strong associate structure, and some accountants still use a rule of thumb of 60 to 90% of gross fees. Under either method the driver valuers stress most is how much revenue depends on the departing principal, so get a valuation before you sign.

A start-up practice can be financed without trading history, subject to lender approval, but of the three ways in (buy-in, buyout, start-up) it is the most conservative conversation a lender will have with you. With no financials to read, the lender assesses you as the practitioner: your registration, your billing history as an associate or employee, and a business plan with projected billings and a fit-out budget. Through Emu Money the routes are an unsecured business loan of $5,000 to $500,000, or a secured term loan where you can offer security, priced on the application rather than at the product floors; Emu Money's unsecured loans page notes start-up rates typically start from around 12%.

The equipment is usually the easier part, because the asset itself is the security. It is financed on its own facility from 6.59% over 1 to 7 years, and a practice using simplified depreciation can generally deduct the full cost of eligible assets under $20,000 each in the year of first use; check eligibility with your accountant. Fit-out is harder, because fit-out finance may require additional security for items that become fixtures.

Some specialist medico lenders publicly advertise practice build loans of up to 100% for property, construction and fit-out, with staged payments, subject to credit approval. Whatever the route, line the paperwork up in order: current registration, then the lease, then, if you bill Medicare, the provider number for the new location, which most health professionals get immediately when they apply through HPOS. A lender will usually want those plus the fit-out quotes before settlement.

Medical, dental and allied health practices are paid after the work is done: Medicare rebates, health-fund claims and patient invoices follow the consult, while wages, rent, consumables and quarterly tax fall due on a fixed calendar. A vet clinic or pharmacy is largely paid at the counter but carries stock and wages ahead of the takings, so the gap is the same shape. Working capital finance bridges that gap, and through Emu Money it comes in three shapes: a line of credit from 7.99% for $5,000 to $500,000, an unsecured business loan from 9.95% for $5,000 to $500,000 over 3 months to 5 years, and a business overdraft from 14.55% for $10,000 to $250,000.

Use a revolving facility for a gap that repeats, and a term loan for a one-off. A line of credit or overdraft suits a practice whose billings arrive in lumps, because you draw on it while you wait for the claims and repay it as they land, paying interest on what is drawn. An unsecured term loan suits a defined cost with a defined payback, such as a locum to cover leave, a new nurse's first quarter, a pharmacy stock order or a tax bill.

Keep working capital out of the practice purchase loan where you can. Folding it in stretches a five-year facility over a cost that should clear in months, and it makes the practice's own borrowing harder for the next lender to read.

A practice carrying an equipment lease, a vehicle loan, an overdraft and a fit-out facility can often refinance them into one secured term loan of $50,000 to $2,000,000 from 7.59%, with one repayment and one security arrangement. It is a standard business loan application: the lender looks at the practice's financials and the facilities being refinanced, and the existing facilities are paid out at settlement. The gain is usually cash flow and simplicity rather than a lower headline rate, so compare the total cost over the remaining terms, including any break costs on the facilities being paid out, not the rate alone.

Personal debts are consolidated separately. A personal debt consolidation loan through Emu Money rolls credit cards, personal loans and buy now pay later balances into one fixed repayment of $2,000 to $100,000+ over 1 to 7 years, and some lenders pay the old creditors directly at settlement so the accounts close.

Keep the two apart deliberately. Interest on a business loan is generally deductible only for the business share, so mixing personal debt into a practice facility forces an apportionment and blurs the practice's accounts for the next lender. Your accountant can confirm the treatment for your entity and turnover.

Buying the rooms rather than renting them is a separate loan against a separate asset. A commercial property loan through Emu Money runs from $100,000 to $10,000,000+ over 1 to 30 years, and lenders on the panel apply standard loan-to-value ratios of 65 to 80%, so you generally need a 20 to 35% deposit. Low doc loans typically require a 35 to 40% deposit.

Keep the property loan and the practice loan in separate entities where your accountant advises it. Many practices hold the premises in a different structure from the operating business, so that the practice pays rent to the owner of the rooms and each asset carries its own debt, and a lender will usually want the lease between the two in writing. If you are building rather than buying, the start-up section above covers the practice build loans some specialist medico lenders advertise.

Budget beyond the price. Stamp duty on the transfer, legal fees, the fit-out and any equipment sit outside the loan-to-value ratio, and on a $1,000,000 purchase with a 30% deposit the available funds needed are around $360,000 once purchase costs are included.

Interest on a practice loan is generally deductible as a business expense to the extent the money is used in the practice, and the borrowing costs are claimed differently. Establishment fees, valuation fees the lender requires and any broker fee you pay are generally deductible over five years or the term of the loan, whichever is shorter, and immediately if they total $100 or less; the interest itself is claimed separately.

The purchase price is split for tax. Goodwill is a capital asset for tax rather than something you depreciate, so its cost generally sits in the CGT cost base until you sell, while the equipment and other depreciating assets bought with the practice are claimed through depreciation, including, for small businesses with aggregated turnover under $10 million, the $20,000 instant write-off for eligible assets under $20,000 each, and any stock is claimed separately as trading stock. That is why the split between goodwill and tangible assets in the contract matters to you as much as to the vendor.

GST can be nil on the purchase itself. The sale of a business as a going concern can be GST-free if the conditions are met, including that the sale is for payment, the purchaser is registered or required to be registered for GST, and both parties agree in writing that it is a going concern. This is general information, not tax advice: confirm the treatment of the whole purchase with your accountant and solicitor before the contract is signed, because the going-concern clause has to be in it.

Compare the deposit before the rate. The gap between the 50 to 70% most lenders on Emu Money's panel finance and the 100% some specialist medico lenders advertise is a $90,000 to $150,000 question on a $300,000 buy-in, and with the security taken, any interest-only period and the lender's appetite for a start-up it decides whether the purchase happens at all; the rate decides what it costs once it does.

Then compare the facility on total cost. A five-year secured term loan from 7.59%, an unsecured loan from 9.95% and a line of credit from 7.99% each suit a different job, and the cheapest headline rate is not necessarily the cheapest facility once establishment fees, ongoing fees and the term are counted. One application through Emu Money shows what 50+ lenders will do on the same deal, at no cost to you, so you can hold any specialist offer against a real comparison rather than a headline.

Finally, plan the timing around the contract. Same-day decisions are available for straightforward applications with complete documents, but a practice purchase settles through your solicitor on the contract timetable, and the lender will usually want the financials, the lease, the valuation and the purchase contract before it releases funds. Subject to lender approval, terms and conditions apply.