How to refinance your medical practice

One of the key issues for healthcare practices is managing the property side of their operations, especially when welcoming a new partner or seeing existing partners exit or retire.

For practices that own their buildings, any change in partnership will have implications on the ownership of that property.

New partners will be required to buy into the building (although no actual cash investment is required), while existing partners will likely want to release the equity that they have in it as part of their departure plans.

To achieve these twin outcomes, the practice will need to refinance its premises.

In order to manage the process as efficiently as possible, and to ensure you’re aware of all the available options for your partners’ and practice, it’s helpful to have expert advisors at your side right from the very beginning.

Before starting the refinancing process, it’s essential, first of all, to check which names are on the building deeds. This ensures that everyone knows what changes need to be made to reflect the new partnership arrangements. It will also help to avoid delays at the legal stage where former retired partners are potentially still named on the deeds.

Getting an up-to-date valuation for the property is a crucial step. As most healthcare practices are well cared for it’s likely that the property will have gone up in value. This has implications for the practices’ remaining partners as the refinancing process could potentially generate extra capital to access.

If they are not reducing their shareholding in the business, this money will not be liable for Capital Gains Tax. However, when the time comes for them to leave the partnership, they will need to remember that they have already had the benefit of this money when assessing the tax due on the sale of their share of the building.

From a lender’s perspective, GP practices are understandably seen as a good investment. As a result, banks are likely to give them better terms compared to other commercial clients with refinance deals of 100% LTV, or occasionally even better, readily available.

Your professional advisors can provide information on current loan options available on the market. This is true for both the practice and partners as individuals, albeit practice loans tend to provide for improved terms. Personal loans would also still be secured on the practice premises rather than on any personal assets.

The partners and partner(s)-to-be will then need to consider all the options presented to them before deciding on the most appropriate one for their needs.

Your advisors will liaise with the chosen lender to ensure the refinancing process runs smoothly. Your lawyers should also be engaged to make the required changes to the title deeds.

It’s likely, in the present climate, to take a few months to complete the process. Nonetheless, getting all the necessary information about the practices’ finances together as early as possible should help it progress to a successful conclusion.

With the latest sector research revealing earlier this year that over 30 per cent of current GP partners are aged 55 or over, the surge that we’re currently seeing in refinancing arrangements within healthcare is unlikely to ease off any time soon.

And, with these arrangements often involving significant seven-figure sums, getting the right kind of guidance as the process plays out is more important than ever before.

For further information or advice on the process of  GP practice refinancing, and on all business and financial aspects of healthcare, please contact Maxine Pott via maxine.pott@r-m-t.co.uk or on 0191 256 9500.