Financing with the Bank
Shayan Rashid: Hi, I’m Shayan Rashid, partner with SRJ Chartered Accountants. Today I’m joined by my colleague Craig Gibson, senior manager from Scotiabank Healthcare Banking. Welcome to part two of our series about healthcare finance and accounting for doctors and dentists. Craig, one of the questions I get asked quite often by different clients is if I want to purchase a building that I’m currently occupying for my practice or if I’m looking to buy a new practice, should I also acquire the building? Is this something the bank is okay financing? If so, what are the terms of those deals?
Craig Gibson: Yeah, we actually encourage our clients to look at buying their building if they can, because with dentists and doctors we find that they’re in their space for a long time. 25, 30, sometimes even 40 years. Rather than paying rent and not getting any equity, it is always a great idea, if you can afford it, to buy that building. So, we always say to them, if you can buy it and you can afford it, then definitely consider buying it. Obviously, talk to your accountant and talk to your lawyer first, but we recommend and we have a program for financing it.
Shayan Rashid: And in terms of the loan, is there a specific length of time that you will give the financing for?
Craig Gibson: Yeah, we break it into two portions. 75% of the loan is over 25 years, and 25% of the loan is over 15 years. It’s 100% financed, which is based on the appraised value or the purchase price, whichever is lesser.
Shayan Rashid: Is it an open loan? Can they pay it down as they please? Or is it set up like a mortgage?
Craig Gibson: No, so it’s an open loan. It’s the 25 and the 15 year part but they’re completely open. So, there are no pre-payment penalties, they can pay it as fast as they would like to.
Documentation for the Bank
Shayan Rashid: Okay. And what documentation do you look for from the physician or the dentist when they’re looking to purchase the property?
Craig Gibson: So, we need a purchase and sale agreement for sure, just to establish the name and also the price of the practice. We would have to get an appraisal done by a third party. There’s some environmental paperwork we have to fill out, in terms of checking on the status of the building environmentally. And then the client would also give us their financial statements and their personal tax returns for the past two years.
Holding the Property – Buy or Lease?
Shayan Rashid: Usually when we’re structuring these transactions, we look at various entities or corporations to hold the property, because we don’t want to necessarily have the property into the MPC or the DPC, the professional corporations. Is there any issue with the bank if, let’s say, it is held within a Holdco, or if the physician or the dentist wants to hold it personally?
Craig Gibson: No, they usually always do hold it under a holding corporation. It can be owned by a spouse or a family member. The only stipulation we have, whether it’s an owned property or a leased property, is we want to provide the financing to the dentist or doctor for their main purpose. So, it has to be for a dental office or for a medical office and also, there has to be a lease in place. The lease has to run for as long a time period as the loan. If it’s a 10 year loan for the build out of the practice, the lease has to be at least 10 years long with renewal options. Same as if you lease it, we need a 10 year lease also.
Shayan Rashid: And let’s say in the instance where it’s not viable for them to buy the property, or it’s a new practice, are there any other considerations you may have in terms of red flags or things that the physicians or dentists should be aware of?
Craig Gibson: The main thing we would say is when you’re leasing a premises we always want to make sure that you’re going to have the ability to be there for at least a 10 year period or longer for your practice. You have to look out for things like demolition clauses and such things where your practice could be in jeopardy. When you own the building, you have much more flexibility and freedom, because as the owner you can do a lot more with that premises, that space. You could renovate, add, do more things to the practice without getting permission from a landlord. So, we always tell our clients that it’s better if you can buy, as long as you can afford it, because it does give you not only flexibility, it also gives you flexibility down the road so you could sell that practice, you could keep the building, you could sell both, you could rent it back to the next person that buys from you. You have a lot more options down the road if you own the premises.
Shayan Rashid: So we’ve talked about the external structure and buying the building, but how about the internal leasehold specifically? Will the bank finance that on top of the actual building itself
Craig Gibson: Yeah, if it’s an existing office then there’s not much required, it’s minimal. But say you were buying an empty building or a shell, we would also provide you financing, usually under your medical corporation, or your dental, for the build out purchase of any equipment, leasehold, soft costs of actually opening up the premises.
Shayan Rashid: Okay, that’s fantastic. I think we’ve covered most of the areas there. If you or your colleagues have any questions, specifically about buying the property for your practice, you can give Craig a shout. If you have any other tax or accounting questions, you can reach out to me directly. We have our contact information below. Stay tuned for our next video, which is going to discuss cash flow requirements for your business and how to stay on top of your bills and even investments.