Whether you decide to rent or purchase, understanding your loan options can boost the long-term financial health of your practice. In the third and final article in a series, we explore some of the key loan options available to eye health professionals in the year ahead.
Owning a practice is a major business decision that requires careful business and financial planning. It’s exciting and there is a lot at stake. Navigating the process of owning a practice that’s right for your future plans and understanding the financial options available to you is vital.
There are seven things to consider when looking at loan options, in 2017 and beyond.
Find a Suitable Finance Structure
First and foremost, you need to make sure you find a suitable finance structure that meets your needs in both the short and long term. It’s easy to sign up for a loan that meets your immediate requirements, but it might not fit in with your medium or long-term goals.
There are seven things to consider when looking at loan options, in 2017 and beyond
Finance professionals can certainly play a key role in this part of your business planning – whether it’s professional finance, tax or legal advice. It’s worth having a conversation with a variety of lenders and financial specialists to help you navigate the different options so you get the solution that’s right for you now, and in the future.
It’s also worth looking at lenders who can help with the other costs associated with purchasing a property, such as conveyancing, legal fees and stamp duty. These can all add up, so it’s definitely better to factor these in to your planning sooner rather than later.
Goodwill and Practice Purchase Loans
Goodwill and practice purchase loans are available with variable and fixed interest rate options, and can be structured through different entities. They can be structured through a partnership, company or as trust entities.
It may also be more beneficial to you to structure your loan, without using your home as security. BOQ Specialist often does this for clients through securing a loan against practice goodwill, taking into account the sustainability of your business and your tangible assets such as the equipment and computers as well as your intangible assets such as your brand, your people and your intellectual property.
Commercial Property Loan
A commercial property loan is a mortgage secured by your business’ building or office. Occupying your premises gives you the opportunity to borrow up to 100 per cent of the value in a variety of ways – with fixed or variable rates or a combination of the two.
Commercial mortgages can assist with your cash flow and can also help you realise some of the benefits of owning over renting. Buying your own premises could be as achievable (and manageable) as renting if you can negotiate low or no deposit options.
Asset Purchase
With this loan type, the lender purchases the assets you need and then leases them to you over an agreed contract period, which is generally up to 60 months. You use the assets over the period of the contract, but the lender owns them until the loan and interest have been repaid in full.
The advantages of doing this are that the loan is secured by the assets purchased, which generally means interest rates are lower (compared to an overdraft facility or personal loan), your repayments are fixed, there are generally no ongoing fees and you may be able to claim the interest and depreciation as a tax deduction.
Chattel Mortgage
This loan is similar to a commercial hire purchase as you own the assets for tax purposes from the time of purchase, however you may be able to claim the GST back in full in your next BAS lodgement. It also has terms of up to 60 months and is secured against the assets being purchased. This generally means interest rates are lower, your repayments are fixed, there are generally no ongoing fees and you may be able to claim the interest and depreciation as a tax deduction.
Lease
Under a lease agreement the lender purchases your assets, and your payments are split into a number of monthly lease payments and a residual. Over a term of up to 60 months you pay rent on your assets and, at the end of the period, you can elect to purchase the goods for the residual amount. Once the residual is paid, the ownership of the assets is transferred to you. There are generally no ongoing fees and your full lease payments may be tax deductible.
Professional Overdraft
An overdraft facility can be secured or unsecured, and you can make interest-only repayments or pay down the overdraft with principal repayments. You only pay interest on what you use rather than the whole credit limit, and the interest may be tax deductible. Be aware that some banks charge ongoing and annual fees, so make sure you understand the overall cost of the facility (especially if you are providing security). BOQ Specialist’s One Account includes an option for an overdraft facility (subject to credit approval) of up to AU$100 000 with no account keeping or annual fees. You may want to use a facility like this initially to cover consumables, materials and operating costs – another way of keeping your finances in check.
While understanding the different loan options can take time, there are plenty of financial specialists on hand to help you navigate and find your preferred pathway.
BOQ Specialist’s Practice Purchase Guide is designed to help you navigate the process of owning a practice that’s right for your future plans and to help you understand the financial options available. To download a copy, visit www.boqspecialist.com.au/expertise/guides/practice-purchase-guide, alternatively, you can call 1300 131 141 to speak with a financial specialist.
Dr. Brett Robinson is a qualified medical specialist and the Chief Executive Officer of BOQ Specialist, a company that provides tailored financial services to core specialist niches including medical professionals such as doctors, eye health professionals and vets.
The information contained in this article is general in nature and has been provided in good faith, without taking into account your personal circumstances. While all reasonable care has been taken to ensure that the information is accurate and opinions fair and reasonable, no warranties in this regard are provided. BOQ Specialist is not offering financial, tax or legal advice. We recommend that you obtain independent financial and tax advice before making any decisions.
