Key Takeaways
- Lenders assessing a medical practice purchase loan typically deduct a market wage for your own clinical work before deciding how much goodwill the practice’s earnings can support.
- Goodwill may attract transfer duty in Queensland, while New South Wales abolished duty on goodwill from 1 July 2016, so a Gold Coast purchase may cost more upfront than a Coffs Coast one.
- A buy-in is assessed on the share being acquired, the shareholder agreement and your billing history at the practice.
- Unresolved payroll tax on contractor practitioners can reduce the earnings a lender is willing to rely on.
The vendor’s accountant has sent through a price, and most of it is goodwill. The books look healthy and the patient list is full, yet no lender can repossess patient loyalty. A medical practice purchase loan is assessed on future earnings, not on an asset the lender could sell.
Goodwill finance also sits apart from property lending. When a sale includes the freehold, the premises are usually financed separately, often through a commercial property loan broker, while the goodwill, equipment and working capital are assessed on the practice’s cash flow.
This cash-flow loan is the one a general practitioner (GP), specialist or dentist typically needs when buying an established practice outright or buying into one.
How Do Lenders Fund a Practice Purchase or Buy-In?
Lenders typically weigh the practice’s earnings, the security available over its assets and the people behind the borrowing. That balance sets how much of the price they cover and on what terms:
Goodwill as Loan Security
Because goodwill offers little resale value, lenders usually register a general security agreement over the practice’s other assets on the Personal Property Securities Register (PPSR). Goodwill rests on the patient base, referrals, reputation and location, so most of its value disappears if the practice fails.
Health Professional Lending Policy
Many lenders treat registered medical and dental practitioners as lower-risk business borrowers. Some with dedicated health teams may fund a high proportion of the price, goodwill included, with a small cash contribution. The same appetite sits behind the professional home loan policies a mortgage broker for doctors works with.
Conditions typically include current registration with the Australian Health Practitioner Regulation Agency (Ahpra), specialty, time since qualifying and experience in the type of practice being bought. Dental practice finance generally follows the same approach. General business lenders without a health policy may cap goodwill lending far lower or decline it.
Guarantees and Additional Security
Where a company or trust borrows, its directors are typically asked for personal guarantees, which puts personal assets behind the practice debt.
Some lenders may also ask for a mortgage over your home. This can lift the amount offered or improve pricing, but it places the home at risk if the practice struggles. Drawing on home equity to fund your cash contribution creates a separate home-secured loan, and a home equity loan broker can model how the two debts interact.
Loan Terms and Repayment Profiles
Practice acquisition loans are usually shorter than home loans, because lenders expect goodwill to be repaid while the earnings behind it remain current. An interest-only period over the handover months may be available before principal repayments begin.
Many facilities carry covenants, such as annual financial reporting and a minimum level of debt service cover. A breach can allow the lender to review pricing or terms.
Low-Doc and Cash-Flow Options
A buyer with a recent Australian Business Number, or a practice with incomplete financial statements, may still be assessed on business activity statements (BAS) and practice management reports in place of full tax returns. These arrangements typically carry higher pricing, a lower proportion of the price funded and shorter terms. Bringing the practice’s bookkeeping up to date before applying may widen the choice of lenders.
What Costs Does a Practice Acquisition Involve?
A practice acquisition usually costs more than the headline price. Lenders typically fund goodwill, equipment and working capital, and expect duty and transaction costs from your own funds, although the split varies by lender:
Goodwill
Goodwill is usually the largest part of the price. How the contract allocates the price between goodwill, equipment and other assets affects the lender’s assessment, the duty calculation and your future tax position. The allocation needs to reflect genuine market values, so it is worth settling with your accountant before signing.
Plant and Equipment
Lenders typically value the clinical equipment, furniture and computer systems transferred with the practice at used-asset values. A PPSR search before settlement shows whether any item is still under finance and must be cleared.
Working Capital
Working capital covers wages and running costs between settlement and the first full cycle of receipts, and lenders may build a buffer into the facility or offer a separate overdraft.
Accrued staff entitlements, such as annual leave and long service leave, often transfer with the business and are commonly adjusted in the price at settlement, which changes the cash needed on the day.
Transfer Duty
Transfer duty on goodwill may apply to a Gold Coast purchase but generally not to a comparable Coffs Coast one, depending on what else the contract transfers.
The Queensland Revenue Office (QRO) lists goodwill, business names and statutory business licences among the business assets that can attract duty, and notes that the existence of goodwill may make a purchase dutiable. Buying a partnership interest in a practice with Queensland business assets may also attract duty. Duty is calculated on the greater of the business assets’ value and the price paid.
Revenue NSW confirms that duty on business assets such as goodwill was abolished in New South Wales from 1 July 2016. Duty can still apply where the deal includes land or an interest in land, such as a lease transfer, and is payable within three months of the liability date.
Due Diligence
An independent valuation, accounting due diligence and legal review of the contract and lease are normally paid before approval and are spent whether or not the deal proceeds. Lenders rarely fund them, and some insist on their own panel valuer even where the vendor has supplied an appraisal.
Lease Assignment
Taking over the lease usually requires the landlord’s consent and may involve the landlord’s legal costs, inherited make-good obligations and a new bank guarantee or bond. Most lenders want the assignment finalised by settlement, so these costs fall due early.
How Do Lenders Test Goodwill Value and Cash Flow?
A price is financeable when the practice’s earnings can carry the debt after paying for the work you will do yourself. Lenders and valuers typically test this through several lenses, and weakness in any one can reduce the amount offered:
Normalised Maintainable Earnings
Maintainable earnings are the profit a practice can reasonably keep producing under new ownership. The calculation usually starts with reported profit, adds back the vendor’s personal and one-off costs, then deducts a market wage for the clinical and management work the owner performs.
This last deduction is easy to overlook. Where a practice reports $600,000 in profit and $350,000 of it reflects the vendor’s own work at market rates, the earnings left to justify goodwill and repay the loan may be closer to $250,000. The figures are illustrative only.
Goodwill Multiples and Valuation
Valuers generally apply a multiple to maintainable earnings, adjusted for location, referral base, practitioner mix, lease security and earnings trend. Stable earnings spread across several clinicians may attract a higher multiple than earnings built on one practitioner. Where the lender’s valuation falls short of the agreed price, the gap typically comes from your own funds or is renegotiated.
Debt Service Cover
Debt service cover compares the earnings available for repayments with the repayments themselves, and lenders usually want a clear buffer between the two. Personal commitments such as a home loan and car finance are often counted alongside the practice debt. Many lenders also test the deal against higher interest rates or a dip in patient numbers during the handover.
Vendor Dependence and Patient Retention
When much of the billing belongs to the departing practitioner, some patients may leave with them, so lenders typically discount that revenue. Signed agreements with the associates who will remain, a handover period with the vendor staying on and a restraint of trade covering a reasonable area and time can each make the earnings more likely to survive the change of owner.
Billing Mix and Incentive Income
Lenders check where revenue comes from, because some general practice income depends on billing rules a new owner may change. Since 1 November 2025, practices in the Bulk Billing Practice Incentive Program have received an extra 12.5% incentive on Medicare Benefits Schedule benefits from eligible services, split evenly between the practice and its GPs, according to the Department of Health, Disability and Ageing.
The program requires every GP at the practice to bulk bill all eligible services for all Medicare-eligible patients. A buyer planning to introduce private or mixed billing may lose that income, so lenders may assess earnings on the billing model the practice will run after settlement.
Payroll Tax Exposure
Payroll tax can reduce the earnings a lender relies on. This happens where a state revenue office treats payments under a service-fee model, in which practitioners pay the practice a share of their billings, as taxable wages.
The QRO states that wages paid by a medical practice, other than a hospital, to contracted or employed GPs are exempt in Queensland. The exemption is framed around general practice, so specialist and dental practices need to assess their own position.
In New South Wales, a rebate for contractor GP wages applies where at least 80% of a clinic’s GP services in metropolitan Sydney are bulk billed or billed under veterans’ arrangements, according to Revenue NSW. Elsewhere in the state, including the Coffs Coast, the threshold is at least 70%.
Buying shares in the practice entity can also bring any historical liability with it, so payroll tax findings in due diligence often shape the purchase structure.
Remaining Lease Tenure
Lenders generally want the lease term, including options, to comfortably outlast the loan, because goodwill tied to a location depends on the right to stay there. A short lease, a steep rent review or a relocation or demolition clause can cap the loan term or amount. A lease extension secured before settlement may change the lender’s answer.
How Are Partnership and Equity Buy-Ins Financed?
Buying a share of a practice you already work in usually means a smaller loan, but the agreements behind it carry more weight. A practice buy-in loan differs from outright purchase finance in several ways:
Share Versus Asset Purchase
Buying shares means inheriting the practice entity’s history, including any tax liabilities, while buying assets usually means restructuring the practice first. With a share purchase, the lender may also take security over the shares.
A buy-in may involve shares or units in the entity that runs the practice, or a proportion of the business assets bought into your own entity. An asset-based buy-in can be cleaner, but the restructure needs every existing owner’s agreement.
Minority Interest Valuation
A 25% share is not always worth 25% of the practice. A minority holder may have limited control over decisions, distributions or a future sale, and some valuations apply a discount for that. The valuation formula in the agreement sets your price on entry and on exit, and lenders generally fund against the earnings your share is entitled to.
Associate Income History
Buying into a medical practice where you already bill gives the lender direct evidence of what you contribute. The profit share you are acquiring is modelled on top of, or in place of, your associate income. A long, stable billing history at the practice typically strengthens the application, while recent changes to sessions or fee splits may prompt questions.
Staged and Vendor-Financed Buy-Ins
Staged and vendor-financed buy-ins spread the price over time. Some start with a smaller share and options to increase it. In others, the selling principal accepts part of the price in instalments, known as vendor finance.
The primary lender usually requires vendor finance to rank behind its own loan and counts the instalments in its servicing assessment. Earn-outs, where part of the price depends on future performance, are typically assessed the same way.
Shareholder Agreement Terms
Lenders often read the shareholder or unitholder agreement closely, because clauses on default, death or disability buy-backs, insurance funding, restraints and distributions all affect how secure your share is.
Where the practice entity already carries debt, a new owner may be asked to guarantee all of it, not just a portion matching their share. That exposure can far exceed the buy-in price.
How Does the Borrowing Entity Change the Loan?
The entity that owns your interest in the practice usually does the borrowing, which shapes who signs, who guarantees and how income is assessed. Where the practice also runs a service entity, often a company or trust that employs staff and holds the lease, lenders typically treat its service agreements as the revenue source. The tax merits of each structure sit with your accountant, and the lending treatment typically looks like this:
Sole Trader
You borrow in your own name and carry full personal liability. Assessment is usually simpler because income appears on your personal tax return, but the practice debt is not separated from your personal assets.
Partnership
Partners are generally jointly and severally liable for partnership debts, and a lender may require every partner to sign. One partner’s financial difficulty can therefore affect the others’ borrowing.
Company
The company borrows and its directors typically give personal guarantees. Lenders assess the company’s financial statements alongside each director’s own position.
Discretionary Trust
A trustee, often a company, borrows for the trust. Lenders usually review the trust deed to confirm the trustee can borrow and give security and may look at how income has been distributed.
Unit Trust
Unit trusts suit practices with several owners, because each holds a fixed number of units. Lenders may take security over the units being acquired and review the unitholders’ agreement.
What Documents Do Lenders Request for a Practice Acquisition?
A typical lender request includes:
- Heads of agreement or sale contract, including the price allocation.
- Practice financial statements and tax returns for three years, plus year-to-date figures.
- BAS and practice management reports showing billings by practitioner.
- Premises lease, option terms and the landlord’s position on assignment.
- Independent goodwill valuation, where the lender requires one.
- Ahpra registration and Medicare provider number arrangements.
- Personal statement of assets, liabilities and income.
This is a general guide only. Requirements vary between lenders and with the size and structure of the deal.
Confirming Bankable Goodwill
Whether a goodwill-heavy price is bankable becomes clearer once its earnings, lease and payroll tax position have been tested the way a lender would test them. The practical next step, before signing heads of agreement, is to ask the vendor’s accountant for the normalised earnings workings behind the price and have them reviewed against a lender’s assessment.
If you are weighing up a practice purchase or buy-in, the team at Q Financial can talk you through how lenders may view the practice you have in mind.
Frequently Asked Questions (FAQs)
Generally not. Credit used wholly or predominantly for business purposes usually falls outside the National Credit Code, which governs most home lending. The Australian Securities and Investments Commission has made clear that a signed business purpose declaration is not enough on its own, and a lender is expected to make reasonable inquiries about how the money will be used. Because fewer statutory protections may apply, the facility’s terms and covenants carry extra weight.
A self-managed super fund (SMSF) generally cannot lend to or financially assist its members or related parties, and the Australian Taxation Office (ATO) states that private company shares cannot be acquired from a related party. In practice, your fund generally cannot be used to buy the practice or its goodwill for you.
Business real property is the recognised exception. An SMSF may own premises used wholly and exclusively in a business and lease them to the practice at market rent, and borrowing for that follows separate rules an SMSF loan broker can talk through alongside your accountant.
Interest on money borrowed to earn assessable income may be deductible, depending on how the loan is structured and used. The ATO treats goodwill as a single capital gains tax asset, and the amount paid for it generally forms its cost base, which typically matters when the goodwill is later sold. Your accountant can confirm how this applies to your structure before the purchase is finalised.
Usually, yes. Home lenders typically count the practice loan repayments or the business’s financial position, along with any personal guarantees you have given.
A guarantee over a large practice debt can reduce home borrowing even when the practice repays its own loan comfortably, so planning the sequence of both loans may help. The factors home lenders weigh are set out in our article on borrowing power for doctors.
Some lenders may consider registrars on an accredited training pathway, particularly with a billing history at the practice. Newly fellowed practitioners are often viewed more favourably, though policies differ. The size of the share, the practice’s performance and the shareholder agreement all affect the outcome. A larger cash contribution or a guarantee may be requested where your track record is short.
Approval commonly takes several weeks from a complete application, and longer where the valuation or lease assignment is slow. Services Australia requires a health professional to hold a Medicare provider number for each practice location, so arranging yours for the new location early may help avoid a gap in billing after settlement. Timeframes are a general guide and depend on the lender and the complexity of the transaction.
This article is general information only. It does not take into account your objectives, financial situation or needs. You may wish to speak with a qualified professional, such as an accountant, solicitor or licensed finance professional, before acting on it.
