Experienced & Independent

10 Considerations when looking for a Premises Loan 

Owning surgery premises may have benefits but finding the right finance can be time-consuming and daunting. Here we look at some things to consider. 

One issue which comes around all too often for GP Partnerships that own their property, is that of sorting out premises finance. New or re-finance is usually required when there is a partner changes, or now more than ever, on loans maturities where the existing lender does not want to lend again. 

Premises finance is usually not the top priority and is sometimes left until the last minute. Time is always short, and it is tempting to take the first solution offered with the view that it will ‘do the job’ and anyway all banks are as bad as one another! However, it pays to plan and will be better in the long run if you take time to find the right package for your practice rather than a quick fix. Consideration should be given to: 

If you are faced with a loan maturity or partners changes and need to find the right loan package here are ten things to consider: 

Be clear who is borrowing the money. 

Should the borrowing be in the name of individual partners, the partnership or even a limited company? How the loan is set up will affect the cost but may also impact the ease of borrowing in the future if partners changes etc. Also consider any connected issues e.g. partners changes will mean you need to update your partnership agreement or there may be the need for a lease; are there any tax implications? 

Don't assume your bank will give you the best deal. 

A common assumption is that your current bank will provide the best deal. They might; but often the best rates are used to attract new custom or ’switchers’. As with some insurance and utility contracts, banks can take advantage of your loyalty. Also make sure the person you talk to at the bank understands GP Premises Finance and that the bank has specific credit and pricing policies which reflect the sectors ‘low risk’.  

Decide whether to minimize repayments or minimize outstanding debt. 

Some GPs want to pay the minimum they can each month so they can take any ongoing ‘profit’ along the way, with less equity when they leave. Others may want to pay off their loan as soon as possible and take any benefit at the end as a lump sum. The right loan may allow some partners to do it one way and some the other. 

Don’t get fooled by headline rates. 

Most people look at the proposed interest rate as the main comparison between providers. You should question whether the rate covers the entire loan or just any ’secured' element; can it change for any reason after say 3 years; is it fixed or variable? As with many things what appears to be the cheapest may not be the best value or the best deal for you. 

Compare offers like-with-like 

There are different ways banks ‘commit’ funds, and this will impact the rate offered. Some will commit for the full term of say 25 years; others want to review every 5 years. In general, the shorter the commitment the lower the interest rate but subsequent renewals may see the rate rise and additional fees incurred. When comparing rates make sure you compare offers with the same terms and commitment. 

If it’s complicated go step-by-step 

Existing arrangements can be complicated with historic partner loans, some with fixed rates and penalties, others at very cheap rates, and all with different maturity dates. Refinancing every loan and every partner at the same time may not be possible. Decide how the ideal structure would look and then work towards it in stages if necessary. Make sure the bank works with you to provide what is best for the practice. 

Future-proof the loan 

Try and make sure the loan has sufficient flexibility to allow for future partners changes, retirements etc. Consider what might happen; is there the possibility of a merger or surgery development? Do not commit to fixed rates if the contract may have to be ‘broken’ incurring large penalties. Also build in some flexibility to enable lump sum capital reductions or potentially increase the borrowing if circumstances change. 

Don’t over commit. 

A major consideration should be the monthly loan repayment commitment. What may be comfortable now may not be in a couple of years and remember if interest rates rise your repayments will increase. For this reason, do not over-commit and if appropriate go for a slightly longer loan term e.g. 25 years instead of 20, with the option to repay early without penalty.  

It doesn’t have to be either-or. 

You will probably be asked to decide between fixed rates or base rate linked; 20 or 25-years term, full repayment or interest only (if available). With the right provider however, it need not be ‘all or nothing’; as an example, you may be able to have part fixed, part variable and possibly some interest only. Decide what is best for you and get in built into your loan 

Understand all the ’small-print’  

All contracts and agreements tend to have more 'terms and conditions’ than the headline features. Make sure you understand anything which may impact your plans or mean additional fees. As examples, are personal guarantees required, are there restrictions on early repayments or the need for regular re-valuations at your expense?  

At the start of this article it was suggested the choices around practice loans can be daunting: the 10 items above probably reinforce that view! This leads to the final suggestion: use an experienced, independent specialist broker to help you build the best loan package for you. Make sure they understand GP premises finance, work with specialist accountants and lawyers, and the specialist teams in the provider banks. 

Finally, the good news is that if you work with the right broker, there should be no cost for their support as the bank will pay them an ‘introducer fee’ which is not passed on to you. It may sound too good to be true, but you really can get a lot of specialist support fee free. 

Ian Crompton ACIB 

Mobile: 07802 750707 

E-Mail:  Ian.crompton@primarycarefinance.co.uk