Medical Practice Management · September/October 2003

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providing the long-term mortgage. One of the assets that

the practice has that can influence its leverage with the lo-

cal banks is its own practice account. Often, doctors will-

ing to move their practice account to the bank that gives

them their mortgage loan will help "sweeten the deal" for

the local bank to be more aggressive in its terms.

Another source of mortgage money is from institu-

tions. Typically, these are insurance companies that have

allocated a certain part of their investment portfolio to fi-

nancing medical office buildings. It is not unusual for such

an insurance company to define the particular character-

istics of the types of loans that they wish to place. This

could be financing buildings between a quarter of a mil-

lion and three-quarters of a million dollars, or only over

five million dollars or some other financial limit. They may

also be looking for particular types of groups, such as

multi-specialty or single-specialty groups. Typically, these

loans are arranged through a mortgage broker.

There are also several governmental programs that

may assist with financing. Typically, the money actually

flows from a local bank, but the government program can

result in preferential rates. The most common program

Figure 1. Flow chart of decision-making and design process.

consists of loans backed by the Small Business Admini-

stration. Discuss with your local mortgage broker or your

local banker what types of governmental programs are

available in your area.

actually build the building. To make funds available to

them as they perform the work, you need another loan, a

construction loan. This is the money that you use while the

. . . several governmental programs . . . may

building is actually built.

assist you with your financing. The most

Follow this process:

1. First, you get a mortgage loan commitment from an

common program consists of loans backed

institution.

by the Small Business Administration.

2. With this commitment in hand, you can then go to

your bank and arrange construction financing. Because

Another type of financing is a bond. Typically these

the bank knows that you have a mortgage loan ulti-

are used on multi-million dollar projects. The bonds have

mately behind your project, they know that the con-

to be underwritten and sold for you to develop your mort-

struction loan that they are giving you will be of short

gage financing. The initial underwriting of the bonds can

duration.

be an expensive process, so it is important to get appro-

3. When the building is completed, you close the con-

priate legal and accounting advice.

struction loan and activate the mortgage loan.

Some institutions will allow you to arrange a mort-

gage loan and then allow you to use those monies to build

CONSTR UCTION

the building. This cuts out the need for a construction

The entire reality of your project can be summed

loan and can save you some financing dollars as you con-

up in a relationship between three variables: quality, quan-

struct a building. This needs to be discussed with your

tity, and cost. This is illustrated in Figure 2. As the owner,

local institution.

you and your team of professionals can control two of

these elements; the third will float in the marketplace. For

On smaller projects, the most common

instance, if you must have 5,000 square feet (quantity)

financing source is a local bank.

and you want a particular quality of space, then the con-

tractor (the marketplace) will tell you what the cost will be.

On the other hand, if you have a budget of $500,000 and

There are several sources for long-term loans or mort-

you have a particular quality expectation, the marketplace

gage loans. On smaller projects, the most common fi-

will determine whether you get 5,000 square foot of space

nancing source is a local bank. It is very common for an

owner to meet with several local banks to receive quotes for

or 8,000 square foot of space.