How to apply for business loans

Hi guys,

I was wondering how getting a business loan for a GP practice would work?

I understand that personal loans are usually based on assets and earnings capacity.
How do business loans differ?
And how do they take into account loans one has for personal purposes eg own home into that equation?
And who would i go to - are there brokers who are separate from home loan mortgage brokers? Or would i just go to a bank?

I am looking at hopefully purchasing a small GP practice down the line, working there myself.
Any ideas on structure that would be appropriate? Some sort of trust?

Primary interest is in long haul share investments though

goponcho said:

Hi guys,

I was wondering how getting a business loan for a GP practice would work?

I understand that personal loans are usually based on assets and earnings capacity.
How do business loans differ?
And how do they take into account loans one has for personal purposes eg own home into that equation?
And who would i go to - are there brokers who are separate from home loan mortgage brokers? Or would i just go to a bank?

I am looking at hopefully purchasing a small GP practice down the line, working there myself.
Any ideas on structure that would be appropriate? Some sort of trust?

Primary interest is in long haul share investments though

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It's similar to most other loans, the Bank will want to know what the business earns or is likely to earn, what collateral you can put up to secure the loan, and probably a basic business plan to make them feel comfortable that you are going to be able to run the business profitably and pay them back.

Business plan can lay out things like exactly what the borrowed money will be spent on, start up costs eg advertising, fit out of premises etc

I wouldn't purchase another practice. Be smart about advertising and location and set up from new. Will save you years of working off someone else's profit. Not sure how much it costs to set up a GP practice (100K? or a lot less) but you did say small so like most small businesses I wouldn't bother with a loan either. Do a very detailed requirement of equipment and fit out cost then a super detailed break-even analysis to see how much you need to cover yourself including your own personal expenses then just draw against your mortgage and use saved cash. Lots of banks will set you up to be able to draw against your home and they don't need to know what for. You will probably get a lower interest rate too.

Small biz loans suck.

There are plus and minuses for either option.
Purchasing a small practice will give immediate earning potential with the opportunity
To build.
Lenders will require some collateral generally bricks and mortar.
Startups without collateral are hard to finance.

Loans of any sort used wisely are the life blood of any expanding business.
To shy away from business loans is to limit time and options.

goponcho said:

Hi guys,

I was wondering how getting a business loan for a GP practice would work?

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You're a GP or an investor? I'm assuming investor.

Much better to buy an established practice. It ensures cash flow in the critical early stages. But if you're a GP and you're going to take over and bring new people in, you absolutely must ensure your personality and style of practice is very, very close to those doctors you're replacing. If not the same, then better. By better I mean more professional, attentive, knowledgeable, quick (on time) than those you're replacing. If they're not as good on those measures, you will end up losing a lot of money because patients will simply go elsewhere.

Keep in mind there is a strong trend among the higher socio-economic group to shun medicine in most cases. And for good reason. Whilst medicine is very advanced in terms of diagnosis, investigation and testing, they are absolutely useless at actually curing the large majority of conditions. All they can do is help a little bit with drugs (most of which have side effects). The number of conditions they can cure 100% you could count on one hand.

So you don't want to set up in a well-to-do area, but a poor area. There's a very strong positive correlation between health and wealth. So think like a casino. No casino would dream of setting up a pokies venue in Toorak... but Dandenong or Footscray, there's your cash cow.

Hi GoPoncho,
If you are a medical professional then you will find several of the larger banks will fund. As far as the business goes they will fund up to $1.0 m unsecured for a business purchase or start up. We (broking business) have funded several with ANZ , Suncorp and BOQ also play in this medico/health space.
Always best to keep the family home away from business purchases if possible.
Cheers Centaur

I'm considering becoming a GP which takes two years. Don't own any practices currently, just looking into its profitability.
Thanks for the info, looks like applying is relatively straightforward. Whether to use debt is another question, but probably reasonable in moderation.

Price of the business itself varies greatly to buy an existing practice depending on the number of rooms and the number of allied health/associated services.

Business loans do sometimes depend on your capital or guarantee or security that you can place with the bank. You have to be of a certain standing and credit worthiness when you're applying for loans of any sort so it'll be a good idea to get financing professional to help you take a quick look at where you stand and advise you the best option for you to start your applications. Good luck with that and your future business!

goponcho said:

And who would i go to - are there brokers who are separate from home loan mortgage brokers? Or would i just go to a bank?

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BOQ has a specialist group for medical finance. They acquired this business from Investec a few years back. You will get loan officers who are knowledgeable about the industry. They'd know a thing or 2 about typical GP practice financial metrics which might be helpful to you.

https://www.boqspecialist.com.au/specialties/medical

goponcho said:

I am looking at hopefully purchasing a small GP practice down the line, working there myself.
Any ideas on structure that would be appropriate? Some sort of trust?

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On structure: Yes you'd want some kind of trust just from an asset protection point of view. The malpractice lawyers can't takeaway your business if it is housed in the trust structure. Obviously speak to financial advisor on the details and other pros and cons..

Gringotts Bank said:

Keep in mind there is a strong trend among the higher socio-economic group to shun medicine in most cases. And for good reason.

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What?! Where do you get this idea from. When you say "in most cases" - where's the source? Or just anecdote?

Gringotts Bank said:

So you don't want to set up in a well-to-do area, but a poor area. There's a very strong positive correlation between health and wealth.

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Yes there's a correlation between health and wealth... but it's not because the wealthy "shun medicine". The lower socio-economic areas often have more problems with obesity, substance abuse and other domestic issues - and much of the patients come to a GP for social / life reasons as much as health reasons. Here's a good article on a day in a GP's life. http://www.smh.com.au/comment/gp-re...that-no-one-wants-to-pay-20170211-guao54.html

And while we are on this topic... there's a huge difference between the work style, potential income and possible sub-specialisation of a 100% bulk bill and a private billing practice. Set up a private billing GP in a lower socio-economic area and you will have no business.

goponcho said:

I'm considering becoming a GP which takes two years. Don't own any practices currently, just looking into its profitability.

Price of the business itself varies greatly to buy an existing practice depending on the number of rooms and the number of allied health/associated services.

Click to expand...

The biggest problem with buying a GP practice is that your biggest asset walks out the door every night. I don't know too many GPs who sign up to fixed term contracts so you got to be pretty sure that they won't leave with the change in ownership. And if you can't step in and do the hours (when one doctor is on leave or the odd Saturday etc) it can really impact your revenue. Many GP practices change hand when the original GP retires - but these are often single GP practices which can be sub-scale (some still use paper based patient record).

Some practices earn an income from renting space (at crazy rates) to a pathology collection centre. The government is thinking about capping the rent on these arrangement so beware of this.

The actual set up of a practice is not expensive... the bigger cost is probably the ramp up period where you still have to pay your fix costs. Some GPs work in a practice for a few years before setting up their own in the same area, thereby having some sort of patient base from the beginning. Whether it's the right thing to do to your old practice that's another debate.

P.S. My wife is a GP and we've looked at setting up a practice in the past. It's a fair amount of work that is totally different to actual medicine and the financial rewards are not actually that great unless you really have the ambition and skill to scale it up.
There's a short course and seminars run by RACGP about setting up a practice which should definitely be attended. http://www.racgp.org.au/your-practice/business/

skc said:

Gringotts Bank said:

All they can do is help a little bit with drugs (most of which have side effects). The number of conditions they can cure 100% you could count on one hand.

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What?! Where do you get this idea from. When you say "in most cases" - where's the source? Or just anecdote?
P.S. My wife is a GP

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Oh so you are part of the industry.. big GP !!!

Trembling Hand said:

Oh so you are part of the industry.. big GP !!!

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? Not sure what you mean?

skc said:

? Not sure what you mean?

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Big pharma, Big Sugar, Big Oil now we have shrills like you from Big GP spreading the lies that medicine works...

Trembling Hand said:

Big pharma, Big Sugar, Big Oil now we have shrills like you from Big GP spreading the lies that medicine works...

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Ha... I see. I get paid millions by the big pharmas to post on forums like these. Oops... I probably shouldn't say that out loud.

Thanks skc for the detailed answer, much appreciated.

Regarding the affluency of the suburb the GP practice is situated, I had a brief chat to a GP practice owner should said in the more affluent suburbs more practices charge a GAP fee. This means there isnt as much pressure on the GPs to churn through patients, and the problems they come in with may be more interesting/significant.

In years to come i feel there will be a glut of doctors which will hopefully reduce costs, and an ever increasing demand driven by aging, with costs for users supported by the government. Hopefully over the next couple of years i can get a feel for the costs/revenue. I'm more interested in the business aspect than the medicine tbh!