Beginner's Guide to Buying a Medical Practice Building

Buying the building your medical practice operates from changes the financial structure of your business.

Instead of paying rent to a landlord, you're building equity in a commercial asset while maintaining control over the premises. For medical professionals in Richmond, where commercial property values have remained stable due to proximity to major hospitals and consistent patient demand, this shift from tenant to owner can be structured through either secured or unsecured business finance depending on your circumstances.

How Secured Commercial Property Loans Work for Medical Buildings

A secured business loan uses the property you're purchasing as collateral. The lender registers a mortgage over the commercial title, which allows them to offer larger loan amounts and lower interest rates compared to unsecured options. Most lenders will finance up to 70% of the property value for commercial premises, though some specialist medical lenders may extend to 80% depending on your practice revenue and patient base.

Consider a GP who has been leasing rooms on Bridge Road for eight years. The building owner decides to sell, and the GP wants to purchase rather than relocate the practice. The property is valued at $1.8 million. With a 30% deposit of $540,000, the GP secures a loan of $1.26 million at a variable interest rate. The loan structure includes interest-only repayments for the first three years, allowing the practice to manage cash flow while patient numbers transition under new ownership arrangements. After three years, the loan converts to principal and interest repayments over the remaining 17-year term.

Variable vs Fixed Interest Rates on Commercial Property Finance

Variable interest rates move with market conditions. When the Reserve Bank adjusts the cash rate, your repayments will typically change within a few months. This structure often includes a redraw facility, meaning any extra repayments you make can be accessed again if your practice faces unexpected expenses or equipment upgrades.

Fixed interest rates lock your repayment amount for a set period, usually between one and five years. You'll know exactly what your monthly outgoing will be, which helps with cashflow forecasting and business planning. The downside is less flexibility during the fixed period, and you won't benefit if variable rates drop. Some medical practitioners split their loan between fixed and variable portions to balance certainty with flexibility.

Loan Structure and Repayment Terms for Medical Practice Buildings

Commercial property loans typically run between 15 and 30 years, though the loan term you choose should align with your retirement plans and practice succession strategy. Interest-only periods are common in the first few years, which reduces initial repayments and preserves working capital for the practice itself.

The loan amount will depend on the property valuation, your deposit size, and your practice's financial performance. Lenders assess your business financial statements, profit and loss records, and debt service coverage ratio to determine how much you can borrow. The debt service coverage ratio measures whether your practice generates enough income to cover loan repayments comfortably. Most commercial lenders look for a ratio of at least 1.25, meaning your practice income should be 25% higher than your loan repayments plus other business debts.

Flexible repayment options become important when your practice income fluctuates seasonally or when you're investing in new equipment or staff. A loan structure that allows additional repayments without penalty gives you the option to reduce debt faster during profitable periods.

What Lenders Assess for Medical Practice Property Finance

Your business credit score affects both your interest rate and your ability to access commercial lending. Lenders also review your practice's trading history, typically requiring at least two years of financial statements. If you're purchasing the building from your current landlord and the practice is already established at that location, this strengthens your application because there's no relocation risk.

The property's location and condition also matter. A medical building in Richmond with consistent foot traffic, good public transport access, and proximity to hospital precincts like Epworth Richmond or the Austin Health network will be viewed more favourably than a property in a declining commercial precinct. Lenders will order an independent valuation and may also assess whether the building layout suits ongoing medical use or could be adapted for other commercial tenants if needed.

Collateral isn't limited to the property you're purchasing. If you own your principal place of residence or other investment properties, these can be used as additional security to increase your borrowing capacity or secure a lower interest rate. Some lenders also accept equipment financing arrangements or business overdraft facilities as part of a broader commercial lending package.

When Unsecured Business Finance Makes Sense

Unsecured business finance doesn't require property as collateral, but loan amounts are typically lower and interest rates higher. This option suits medical practitioners who want to purchase a practice building but don't have a large deposit or want to preserve equity in their home for other purposes.

A specialist who has built a strong patient base in Richmond but recently arrived from interstate might not have accumulated enough deposit for a secured loan. If the practice generates solid revenue and the specialist has a high personal income, some lenders will offer unsecured business finance up to $500,000 based on income and business performance alone. The loan term is usually shorter, between five and ten years, and repayments are structured as principal and interest from the start.

This approach works when the building purchase price is lower or when the practitioner is buying a share of a larger medical building rather than the entire property. It also avoids the need to offer your family home as security, which some professionals prefer to keep separate from business dealings.

Preparing Your Application and Settlement Timeline

You'll need your last two years of business financial statements, personal tax returns, a current cashflow forecast, and a business plan outlining how the practice will continue to generate revenue after you purchase the premises. If the building is tenanted by other medical professionals or allied health practitioners, include lease agreements and rental income statements.

Lenders will also want to see that you have working capital in place to manage the practice during settlement and the first few months of ownership. If the purchase will require building modifications, include quotes and timelines so the lender can factor renovation costs into the loan structure or arrange progressive drawdown as the work is completed.

Richmond's position as a medical hub, with multiple hospitals, specialist clinics, and established patient demand, makes it a lower-risk location for commercial property lending. Even smaller practices on side streets near Victoria Street or Burnley benefit from the area's reputation and accessibility, which lenders recognise when assessing location risk.

Call one of our team or book an appointment at a time that works for you. We'll assess your practice's financial position, explain which commercial property loan structures suit your circumstances, and connect you with lenders who understand medical practice acquisitions. If your practice also needs finance for equipment or working capital, we can structure a combined facility that addresses both property and operational needs through commercial lending options tailored to Richmond-based medical professionals.

Frequently Asked Questions