Medical Office Building Loans - During Current Conditions

By Author: John Tang
Total Articles: 507
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We get a lot of loan requests from Doctors seeking to purchase a new facility, or refinance an existing medical office building loan. Many Doctors are surprised to learn about the current state of the market and how their options are becoming limited. The landscape has dramatically changed. One of the harder things for many Doctors to believe or accept is that the decline rate from the major national banks is currently at 90-95%. That means that out of 100 loan applications that are turned in, 90 to 95 of them are declined... Even for Doctors. Many banks are only considering perfect deals.

Doctors that are used to banks chasing them down and throwing money at them are shocked when they are actually declined. Doctors that currently have a loan in place are even more shock when banks exercise their "Call Provision" meaning the banks right to force the borrower to pay off the loan (and yes 99% of traditional bank loans have this provision which gives them the right to force the borrower to seek new financing).

For example we just closed a cash out refinance of a Doctor in Metro Detroit that had his loan called by ...
... a major national bank. The issues boiled down to declining revenues (due to a partnership dispute) and a relatively low credit score at 630. His existing bank, getting beat up by the Michigan economy called his note in fear that he would go out of business and they would be out $2,000,000.

As far as solutions and options Doctors should become more open minded towards SBA loans and USDA loans. Often funding banks that have guarantees from the SBA will become much more aggressive and will not only close, but also will offer better terms than conventional financing. For example, 90% financing on purchases is common compared to 70% on the conventional. Rates are normally right in line with conventional financing being in the low 6%'s.

Many people shy away from the SBA due to the bad rumors that are mostly unwarranted. The process when dealing with a PLP Lenders is much the same as with conventional financing. The key here is to work with SBA PLP lenders, which means that the loan is underwritten only once. If you work with a bank that is not PLP your loan will get underwritten once by the funding bank than by the SBA. This causes the 90 - 120 day closing processes that you hear about.

Lastly a major point to get in mind is that not all SBA lenders are the same. They all have different loan programs and terms. For example we work with a bank that pays for all the SBA fees on behalf of the borrower which is a huge consideration in that the SBA fees are normally 2.75% of the loan amount.