Financing a dental practice premises

A dental surgery is specialised premises because of the plumbing, radiation shielding and services in the fit-out, but the shell is usually a strata suite or a converted shopfront that other uses could occupy. Lenders value the property as commercial premises and lend against it under medico policy: 80 per cent without additional security, or higher for a dentist with established practice income, sometimes with a home taken as additional security to reach 100 per cent. Terms run 15 to 25 years and pricing is close to residential rates for eligible borrowers.

A new dental fit-out costs hundreds of thousands of dollars per chair once chairs, imaging, sterilisation, cabinetry and compliance works are counted. Lenders finance it as equipment finance or a chattel mortgage secured on the equipment, over three to seven years, sometimes with a balloon. Some medico lenders offer a fit-out loan for the building works that cannot be secured on equipment. Financing the fit-out separately keeps the property loan clean and matches the loan term to the life of the equipment.

When a retiring dentist sells the practice and the freehold together, the buyer needs three components: the property loan, the goodwill loan for the patient base and business, and the equipment. Medico lenders will fund the goodwill for an eligible dentist, sometimes at 100 per cent for a first practice purchase, assessed on the practice's historical billings and the buyer's projections. The freehold carries the lowest rate and longest term, the goodwill loan the highest, and the split of the purchase price between them matters for both tax and finance.

Most dentists buy the premises in a separate entity, often an SMSF or a trust, and lease it to the practice company. That separates the property from practice risk and lets the practice pay deductible rent. Lenders are used to it and will finance the property in the holding entity with guarantees from the dentist.