It is still a surprise to me that many borrowers are not aware of how much they can raise when seeking finance for a project.
In most cases, potential borrowers underestimate what they can raise and, therefore, what they can purchase.
When looking at buying a dental practice, the amount you can borrow is often linked to several things and lenders (Banks) all have different policies, limits and requirements.
Who am I dealing with when I borrow finance?
It is very important to ensure that you are dealing with a lender who has experience and knowledge of the dental market. Many bankers are “generalists” and deal with many types of businesses.
Several lenders have set up specialist healthcare teams, staffed with knowledgeable staff who can assess your application in the correct way.
These specialist teams are rarely located in local branches and their experience (as you would expect) varies with how long they have been with the team.
When seeking finance for a project, borrowers often underestimate their borrowing potential. It’s crucial to work with lenders experienced in the dental market, as they can accurately assess your application. Specialist healthcare teams within certain lenders can provide valuable insights and tailored financing solutions for dental practice acquisitions.
What determines what I can borrow?
Bank Policy determines this, and this can vary as to:
- Lending an amount per dentist for each transaction
- Lending a percentage of the goodwill valuation
- Lending a percentage of the goodwill valuation plus lending against security
- Sometimes lenders vary the amount they will lend according to where you are in the UK
- Your professional experience – lenders require between 3 and 5 years minimum in a practice
- Some borrowers restrict the term of the loan to 10 years, others to 15 years
- If you are setting up a squat (start-up) then 70% finance may be available
What does this mean in terms of how much I can raise?
If you take a figure of 70% -80% as a guide for purchasing an NHS or private practice, this will give you a good idea of what can be achieved.
However, loans can be available for up to 95% with security.
Before everyone goes off to look at that £1,000,000 practice, there are some basics to remember.
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Loans must be affordable. The EBITDA of a business (Earnings before interest, tax, depreciation and amortisation) will demonstrate whether a business can afford to support a borrowing. You will need to have cash available for a deposit, solicitor’s costs and fees that lenders charge.
You may need to look at how the business will perform in the future with you as the owner. Will you keep on the seller and the existing associates? What new services will you introduce? What will you change?
Lenders may require projections as evidence of how you intend to grow the value of the business.
Your borrowing capacity is determined by various factors outlined in bank policies, such as lending amount per dentist, percentage of goodwill valuation, professional experience, and location. Typically, loans can range from 70% to 80% of the practice’s value, with up to 95% available with security. However, affordability is paramount, considering the business’s EBITDA and your ability to cover costs like deposits and fees. Lenders may also require projections demonstrating how you plan to enhance the business’s value under your ownership.
How to navigate the maze when applying for finance
You could contact your own bank and see if they can assist. However, considering all the differences would that be the right structure and cost for you?
Could you get a better deal elsewhere? Remember this is going to be for 15 years!
With all the differences in pricing, fees, loan terms, commitment periods and early repayment penalties it is best to shop around.
So why use a broker?
As brokers, we are independent. We are not tied to any lender and will look at the market for you, we act solely for you.
We will assess your own situation as an individual case, we will approach several lenders who we believe can help you, using our own experience and knowledge of the industry.
We will obtain offers of finance for you from several sources so that you can compare the offers and decide which is best for you and your business.
We will negotiate on your behalf to get the best price for you and liaise with the lender through the process of due diligence, valuation, taking of security and any other requirements they may have.
You will have us by your side throughout the process, utilising 200 years of banking experience across the team and the knowledge of us having completed so many deals in that time.
- Independence: Brokers are not tied to any specific lender, allowing them to impartially assess the market and find the best fit for your needs.
- Personalized approach: Brokers evaluate your unique situation and approach multiple lenders they believe can offer suitable solutions based on their industry expertise.
- Access to multiple offers: Brokers obtain finance offers from various sources, enabling you to compare terms and select the most favorable option for your business.
- Negotiation support: Brokers advocate on your behalf, negotiating with lenders to secure competitive pricing and favorable terms.
- Expert guidance: With years of banking experience and numerous deals completed, brokers provide invaluable support and guidance throughout the entire process.
We will make sure that you see what is available across the market.
Business Loans for Healthcare Businesses
We’ve been helping to fund the future of British healthcare businesses for over 20 years and our team are made up of former bankers with decades of experience in the UK’s healthcare lending sector.
You can find out more about working with Samera and the financial services we offer by booking a free consultation with one of the Samera team at a time that suits you (including evenings) or by reading more about our financial services at the links below.
For more information on raising finance for your healthcare business, including more articles, videos and webinars check out our Learning Centre here, full of articles and webinars like our How to Guide on Financing a Dental Practice.