Top 10 Ways to Finance a Medical Practice Building

Buying the building your medical practice operates from changes both your business structure and your borrowing position. A secured commercial property loan typically offers lower rates than unsecured business finance, but lenders assess your application differently than a residential purchase, focusing on rental income, lease terms, and the property's commercial value rather than your personal serviceability alone.

Secured vs Unsecured: Which Loan Structure Applies

A secured business loan uses the commercial property as collateral, which reduces lender risk and typically results in a lower interest rate. When you purchase a medical practice building, the property itself secures the loan, meaning the lender holds a registered mortgage over the title. Unsecured business finance does not require property as security but carries higher rates and stricter serviceability tests, making it less suitable for property purchases above $500,000. Most medical professionals in Surrey Hills buying their practice premises will use a secured commercial lending structure, particularly when the property value exceeds $1 million, as the rate difference can amount to several thousand dollars annually.

Loan Amount and Deposit: What Lenders Expect

Lenders typically require a 30% deposit for commercial property purchases, though some will consider 20% if the borrower has strong financials and the property is in a high-demand area like Surrey Hills. The loan amount is calculated against the property's valuation, not the purchase price, so if the valuation comes in lower than expected, you may need to increase your deposit to maintain the same loan-to-value ratio. In our experience, medical practitioners with established practices and consistent cash flow can sometimes negotiate a lower deposit requirement, particularly if they are purchasing the building from their current landlord and have a proven rental history at that address.

Interest Rate Options: Fixed vs Variable

A variable interest rate on a commercial loan allows you to make extra repayments without penalty and often includes redraw facilities, which can be useful if your practice has seasonal cash flow variations. A fixed interest rate locks in your repayments for a set period, typically one to five years, providing certainty for budgeting but usually restricting additional repayments and charging break costs if you exit early. Consider a buyer who fixes 60% of their loan and keeps 40% variable, allowing them to make extra repayments against the variable portion while maintaining rate certainty on the majority of the debt. This split structure is common among medical professionals who want flexibility without full exposure to rate movements.

Flexible Repayment Options and Loan Terms

Commercial loans typically offer terms between 5 and 30 years, with most medical practice purchases settling on 15 to 20-year terms to balance repayment affordability with total interest cost. Flexible repayment options include interest-only periods, which can be useful in the first one to three years while you transition from tenant to owner, and principal-and-interest repayments that reduce the debt over time. A business line of credit or redraw facility attached to the loan allows you to access equity as your property value increases, which can fund practice expansion, equipment financing, or working capital needs without requiring a separate application.

How Lenders Assess a Medical Practice Purchase

Lenders evaluate commercial property loans based on the property's income-generating capacity, your business financial statements, and the debt service coverage ratio. The debt service coverage ratio compares your practice's net operating income to the loan repayments, with most lenders requiring a ratio of at least 1.25, meaning your income must be 25% higher than the debt obligation. If you are the sole tenant of the building you are purchasing, the lender will assess your practice's cash flow and profitability from the last two years of tax returns and may request a cashflow forecast showing projected income post-purchase. Your business credit score also influences the outcome, though it carries less weight than your financial statements and the property's valuation.

Loan Structure for Owner-Occupied Medical Buildings

When you occupy the entire building, the loan structure differs from an investment property because there is no third-party rental income. Lenders assess your ability to service the debt from practice revenue, so your business plan and financial statements become central to the approval. In a scenario like this, a GP clinic in Surrey Hills purchasing a two-storey building on Union Road for their practice would need to demonstrate consistent revenue over multiple years and provide a lease agreement between the practice entity and the property-owning entity if they are structuring the purchase through a trust or company. This internal lease formalises the arrangement and allows the lender to assess rental coverage even though the tenant and owner are related parties.

Progressive Drawdown and Settlement Timing

Most commercial property purchases settle within 60 to 90 days, but if the property requires fitout or renovation before you can occupy it, a progressive drawdown structure allows you to access the loan in stages as work is completed. This approach is less common for established medical buildings but applies if you are buying a vacant commercial space and converting it into a clinic. Settlement timing also affects your existing lease obligations, so if you are currently renting elsewhere in Surrey Hills, you will need to coordinate your lease exit with the property purchase to avoid paying both rent and loan repayments simultaneously.

Using Your SMSF to Purchase the Building

Some medical practitioners choose to purchase their practice building through their Self-Managed Super Fund, which allows the super fund to own the property and lease it back to the practice. SMSF loans are structured as limited recourse borrowing arrangements, meaning the lender's security is restricted to the property itself and does not extend to other super fund assets. This structure can provide tax advantages and build retirement wealth, but it also introduces complexity around lease terms, rental rates, and compliance with superannuation law. If you are considering this option, the loan application process takes longer, and lenders apply stricter criteria, including higher deposits and lower loan-to-value ratios.

How Location Affects Borrowing Capacity in Surrey Hills

Surrey Hills sits within Boroondara Council and is recognised for its high median household income, established residential streets, and proximity to Box Hill Hospital and private specialist clinics. Lenders view commercial property in this area favourably due to strong demand from medical and allied health professionals, which supports property values and reduces vacancy risk. A medical practice building on Canterbury Road or Union Road benefits from high foot traffic and accessibility via public transport, which lenders factor into their risk assessment. The suburb's demographic profile, with a higher proportion of families and professionals, also supports the viability of GP clinics, dental practices, and specialist consulting rooms, which strengthens your application when purchasing a building in this precinct.

What Documents You Will Need for Approval

You will need to provide two years of business financial statements, personal tax returns, a copy of the contract of sale, a property valuation arranged by the lender, and details of your existing business debts and liabilities. If you operate through a company or trust, you will also need to provide the trust deed or company constitution, and directors may be required to provide personal guarantees. The lender will order a valuation independently, and if the valuation comes in below the purchase price, you may need to renegotiate with the vendor or increase your deposit. The approval process for commercial loans typically takes two to four weeks once all documents are submitted, though express approval options are available from some lenders if your financial position is strong and the property is in a high-demand area.

Purchasing your practice building is both a business decision and a property investment, and the loan structure you choose will affect your cash flow, tax position, and capacity to expand. Call one of our team or book an appointment at a time that works for you to discuss how a commercial property loan applies to your situation and what loan amount and structure aligns with your practice's financial position.

Frequently Asked Questions