A Guide to Inheritance Tax

The inheritance tax nil rate band has been frozen at its current level of £325,000 since 6th April 2009. The nil rate band is the amount of your estate that is exempt from inheritance tax. 

It will remain at its current level of £325,000 until 5th April 2026 – a 17-year freeze! However, since 6th April 2017, a new additional nil rate band has been available for the ‘family home’.

Click here to read our guide on income tax and National Insurance.

Generally speaking, effective inheritance tax planning should be carried out on a long-term basis. However, it is worth remembering the following points, which should be considered on an annual basis. 

Annual exemption

The first £3,000 of gifts made by any individual during each tax year is completely exempt for inheritance tax. In addition to this, if the previous year’s annual exemption was not fully utilised, it can be carried forward into the following (current) tax year.

This means, in one tax year you are able to have up to £6000 of gifts that will be exempt from any tax only if you have not made any gifts during the previous tax year.

This exemption is specific to a per person basis, so married couples can also make gifts of £3,000 each.

Small Gifts Exemption

Gifts of up to £250 per tax year made to any one individual are also exempt from any inheritance tax and do not count towards the annual exemption. These types of small gifts are an exemption for you as you can make as many of these gifts as you like to different people.

However, the annual exemption cannot be used for further gifts to the same recipient in the same tax year. 

Habitual Gifts Out of Income

Habitual gifts out of income are an exemption from inheritance tax, in order for these gifts to be classed as ‘habitual’, they need to be made consistently for a number of years. Which is why it is important to remember to keep these up every tax year. 

The Family Home

An additional nil rate band is available for the ‘family home’ for any deaths occurring after 6 April 2017. This exemption is only available on a property which has been the deceased residence at some point during their life. If the deceased has passed while owning more than one or multiple qualifying properties, the personal electives can elect which property this exemption should apply to.

The exemption is only applied once the property is passed. This is usually done to a direct descendant of the deceased and in this case, any stepchildren, foster children or adopted children are all accorded the same status as one another for this sole purpose.

Similar to the £325,000 nil rate band, any unused proportion of the exemption will pass to the deceased’s partner or spouse.

When a person downsizes or ceases to own a home after 8 July 2015, the residence nil rate band is available to them as well as assets of an equivalent value, up to the value of the additional nil-rate band, are passed to direct descendants.

The residence nil-rate band that was introduced in 2017/18 and increased from £100,000 to its current value to £175,000. This level is set to remain until 5 April 2026.

Click here to read more about inheritance tax.

Inheritance Tax: Example

Margaret divorced her husband many years before her death in June 2021.

She leaves her estate, worth £600,000, to her daughter.

Margaret’s estate includes her former home, which is worth £250,000 at the time of her death. The residence nil rate band available for 2021/22 exempts £175,000 of the value of Margaret’s former home. This reduces her taxable estate to £425,000 before deduction of her main nil rate band of £325,000, which reduces it to £100,000.

The IHT payable on Margaret’s estate at 40% is thus £40,000. The residence nil rate band is withdrawn from estates worth in excess of £2 million (this threshold is also frozen until 5th April 2026).

This withdrawal is at the rate of £1 for every £2 by which the estate exceeds £2 million. Any mortgages or other loans secured over a property will have to be taken into account when allocating the exemption. For example, where the deceased held a property worth £250,000 which was subject to a mortgage of £180,000, the exemption will be limited to just £70,000.

Further Information on Accounts & Tax

Our team of specialist accountants and tax experts can help manage, process and structure your business’s finances. From management accounts and payroll & pensions to tax planning and cash flow management, we can take care of the full back-office function of your business.

Book a free, no-obligation consultation with one of the team to find out how we can make your accounts & tax easier, quicker and cheaper.

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Secondary Sources of Finances

Dental Business Guide Podcast Episode | 8th February
Arun Mehra and Nigel Crossman

You can find all episodes of the Dental Business Guide Podcast here.

Exploring Secondary Sources of Finances for Dental Practices in the UK

Running a dental practice is a big job. From buying equipment to hiring staff, it costs a lot of money. Getting money to help your practice grow is really important. There are different ways to get money, like loans from banks or online lenders. In the UK, there are also other ways like getting money from private supporters or investors, or using crowdfunding. Each option has good and bad parts, and we’ll talk about them. You’ll learn about all these choices and how to decide which one is best for your practice. By the end, you’ll know more about how to get money for your dental practice.

Click here to read our article on How to finance a healthcare business.

Introduction to secondary sources of finances for dental practices

When you’re running a dental practice, having a strong financial base is really important. People usually get money from banks as loans, but there are other places to get money from too. These other places can give you more help and flexibility in the UK.

These other places to get money are called secondary sources of funds. They’re different from the usual ways of getting money. They can give dental practices extra money in different ways.

One of these other places is crowdfunding. Crowdfunding lets dental practices ask lots of people for money to help their business. This can be a good way to raise money and get support from the community.

Another way is peer-to-peer lending. This is when you borrow money from regular people or groups, not just banks. There are websites that connect people who want to lend money with people who need it. This helps dental practices get money at good interest rates.

There are also grants and subsidies you can get in the UK. These are like gifts of money from the government, charities, or groups that help certain industries. You can use these grants for things like making your practice bigger, getting better equipment, or doing research.

Looking at these other ways to get money can give dental practices more choices. By using different sources of money, practices can have better chances of getting the money they need. This helps them make more money, grow, and do better things. But, it’s important to read and understand the rules of these other ways to get money so they match what the practice wants and can afford.

Read our article on why you should use a commercial finance broker.

Traditional financing options for dental practices in the UK

When it comes to getting money for a dental practice in the UK, there are a few usual choices. Many dental experts have used these choices for a long time, and they are still good ways to get money.

One common choice is a bank loan. Banks have special programs for healthcare professionals like dentists. These loans have good interest rates and flexible ways to pay back the money, which is helpful for dental practices.

Another usual choice is a line of credit. This is like having an amount of money that you can use for different things, like buying equipment or growing the practice. With a line of credit, you only borrow what you need and pay interest on that.

Leasing is another choice for dental experts. Instead of buying expensive equipment all at once, you can rent it for a while by paying regular amounts. This helps save money and keeps your practice up-to-date with new technology.

Some dental practices might also think about working with other dental experts or investors. This could mean sharing the financial responsibility or getting money from investors who want a part of the practice’s profits.

While these usual ways to get money have worked for most dental practices in the UK, it’s important to look at the terms, interest rates, and how you’ll pay back the money for each choice. Checking out different options and talking to financial experts can help dental experts make good decisions about which choice is best for their needs and goals.

Alternative financing options for dental practices in the UK

When it comes to getting money for a dental practice in the UK, there are more choices than just regular bank loans. Actually, there are other ways to get money that dental experts can think about. They can use these options for different reasons, like making their practice bigger, getting new equipment, or paying for unexpected things.

One option is peer-to-peer lending. This is when people lend money to other people directly. Dental professionals can use this method to get money quickly and maybe at lower interest rates than regular banks. Peer-to-peer lending is a good choice for dentists who might not meet all the strict rules of regular banks or want a simpler process.

Another option is using lending companies that specialize in dentistry. These companies know a lot about dental practices and give loans that fit their needs. They understand the challenges dentists face and can help them with the money they need. These companies also give expert advice and support during the lending process.

Crowdfunding is also a way for dental practices to get money. They can show their ideas to a big group of people through crowdfunding websites and get money from people who believe in their plans. This method gives money and helps build a community of supporters and potential patients.

Dentists can also think about leasing equipment. This means they can use the newest dental equipment without buying it all at once. This can save money, especially if they’re just starting or growing their practice.

In short, dentists in the UK have many options to get money beyond regular bank loans. Trying out these options can give more flexibility, speed, and tailored help for their special needs. Whether it’s peer-to-peer lending, dental-focused lending companies, crowdfunding, or equipment leasing, dental professionals can find the money they need to reach their goals and succeed in a competitive field.

Peer-to-peer lending platforms

Shared lending platforms have become a good choice for dental practices in the UK to get money. These platforms are different from regular banks. They let people who need money connect directly with individuals who want to lend it. This way, dental practices can get the money they need without going through a long and complicated process.

One big advantage of these platforms is that they can offer lower interest rates. Since the lenders are regular people and not big banks, they often give loans with better terms. Also, using these platforms online makes it quick and easy to apply for a loan, saving time and effort.

Moreover, these lending platforms help dental practices reach more potential lenders. These platforms have many individual lenders with different backgrounds and interests. This makes it more likely to find people who really want to help dental practices. This is especially useful for new practices or those with special needs.

When thinking about using these lending platforms, dental practices need to do research and be careful. It’s important to choose a platform that is trustworthy and has a good history of successful lending. Reading reviews, understanding the platform’s terms, and looking at how they approve loans are important steps to pick the right lending platform for a dental practice’s money needs.

In short, shared lending platforms offer another option for dental practices in the UK to get money. With lower interest rates, a diverse group of lenders, and an easy application process, these platforms can help dental practices get money for growing, buying equipment, or other money needs.

Crowdfunding for dental practices

Crowdfunding has become a popular and effective way for dental practices in the UK to get money. In the past, dentists would ask banks or other money places for loans to grow their practice, get new equipment, or start a new one. But now, crowdfunding lets dentists get funds directly from a big group of people who believe in their ideas and want to help them succeed.

With crowdfunding, dental practices can reach more potential supporters, like patients, friends, family, and even strangers who are interested in new healthcare solutions. By making an interesting campaign, dental practices can show what makes them special, explain how they’ll use the money, and offer cool rewards to encourage people to support them.

A great thing about crowdfunding is that it helps build a community with supporters. Dental practices can use this chance to connect with their patients and make a group of people who not only give money but also talk positively about the practice. This can lead to more loyal patients, word-of-mouth recommendations, and a better reputation.

But, it’s important for dental practices to plan carefully when using crowdfunding. A successful campaign needs good research, a clear plan, and a story that makes sense to supporters. It’s also important to set realistic funding goals and be honest about how the money will be used.

In the end, crowdfunding is a good option for dental practices in the UK to get extra money without just relying on banks. By using crowdfunding well, dental practices can get the money they need and also build a strong community of loyal patients. With good planning and a great campaign, crowdfunding can really help dental practices grow and improve.

Dental practice financing companies

When it comes to getting money for your dental practice in the UK, it’s important to look beyond just regular banks. There are other ways to get funding that can really help your business grow. While banks are the common choice, there are also special companies that focus on giving money to dental practices. These companies understand the unique challenges dentists face and have solutions designed just for them.

These dental practice funding companies really know about the dental field. They understand what you need and can give you advice on how to use the money. They offer loans and other types of support that fit exactly what dental practices need, like buying equipment, expanding your practice, or even having enough money for daily operations.

One great thing about these funding companies is that they know dentistry well. They can offer flexible ways to pay back the money, good interest rates, and options that match your goals and needs.

Plus, these funding companies usually make it easy and fast to apply and get approved for the money you need. They might also offer other helpful services like renting equipment, getting insurance, or having a line of credit.

Dentists should take time to research different dental practice funding companies to find the best one for them. You should look at things like interest rates, how you’ll pay back the money, what other people say about the company, and how much experience and help they offer.

To sum up, dental practice funding companies can be a really good way to get money for dental practices in the UK. They understand dentistry, offer tailored solutions, and know how to help dental practices succeed. By checking out these different funding options, dentists can open up new possibilities and make sure their practices do well in the long run.

Exploring lease financing for dental equipment and technology

Lease funding is a smart choice for dental practices in the UK who want to get new equipment and technology without spending a lot of money all at once. This type of funding lets dentists borrow the equipment and pay for it over time.

One great thing about lease funding is that it’s flexible. Dental practices can pick from different options for how long they want to lease and how they want to pay. This helps them manage their money well and use it for other important parts of their practice.

Lease funding also lets dental practices keep up with new technology. Since dental tools are always improving, it’s important for practices to have the latest equipment to give the best care to patients. By using lease funding, dentists can upgrade their equipment as needed, staying at the forefront of dental advancements.

Also, lease funding means dental practices don’t have to spend a lot of money upfront. Instead of using a lot of money to buy equipment, they can use that money for other things like hiring good staff, advertising, or growing their practice.

Lease funding for dental equipment and technology often comes with extra benefits, like tax advantages. Many times, the payments can be counted as an expense, which can lower the amount of taxes the practice has to pay.

When looking into lease funding options, it’s important for dentists to read and understand the lease agreement carefully. Knowing the interest rates, how long you have to pay, and any possible fees will make sure the funding plan matches what the dental practice needs and wants.

In short, lease funding is a good option for dental practices in the UK. It’s a smart way to get equipment and technology without spending a lot upfront. With its flexibility, staying up-to-date, saving money, and possible tax benefits, lease funding helps dental practices improve while also being financially stable.

Read our guide on asset finance for dentists.

Understanding the benefits and drawbacks of secondary financing options

When it comes to getting money for dental practices in the UK, thinking about both main and extra ways is important. While some people might prefer main sources like bank loans or personal investments, there are also other options that can be really helpful.

Before choosing any extra funding options, it’s crucial to understand the good and not-so-good things about them. One option is getting money from lenders or financial places that focus on dentists. These lenders know a lot about the dental field and can offer loans that fit what dental practices need.

The good things about this kind of funding are that these lenders understand dentistry well, which can lead to better loan deals. They might also be more flexible when approving loans because they understand the challenges dentists face, like irregular income or the need for new equipment.

However, there are some things to think about carefully. These dental-focused lenders might have higher interest rates compared to regular banks. They could also ask for stricter terms or things like collateral to get the loan. That’s why it’s really important to read and understand the terms of any extra funding option to make sure it matches what the dental practice wants and can do.

Another extra funding option to consider is leasing or equipment financing. This can be really useful when dental practices want to get expensive equipment or technology. Leasing lets practices spread out the cost over time instead of paying a lot upfront. It also allows practices to upgrade equipment as technology improves, without the pressure of owning it.

But there are some downsides to think about with leasing or equipment financing. Over time, leasing might end up costing more than buying the equipment outright. Also, leasing deals might have specific terms and rules, like how the equipment can be used or what happens if the lease is ended early. It’s really important to think about these things and compare them with the long-term money impact before making a decision.

In short, understanding the good and not-so-good things about extra funding options is really important for dental practices in the UK. Lenders focused on dentists can offer tailored loans but might have higher interest rates. Leasing or equipment financing is flexible but might be more expensive in the long run. By carefully thinking about these factors, dental practices can make informed decisions to get the money they need for growth and success.

Tips for successfully securing secondary financing for your dental practice

Getting extra money for your dental practice can be a big help when you want to make your business bigger, upgrade equipment, or hire more staff. But you need to approach this process carefully to make it work. Here are some important tips to help you get extra funding for your dental practice in the UK:

Make a detailed plan: Before you talk to any potential lenders, take time to create a plan that explains your goals, how much money you’ll need, and how you’ll pay it back. This will show that you’re serious and capable, increasing your chances of getting funding.

Research and compare options: There are different places to get extra funding for dental practices, like regular bank loans, government-supported programs, and lenders that focus on dental funding. Look into each option, compare interest rates, terms for paying back, and any other benefits or requirements.

Keep your credit in good shape: Lenders will look at your credit history to see how reliable you are with money. Make sure your personal and business credit profiles are good by paying bills on time, settling debts, and fixing any mistakes that might hurt your credit score.

Build relationships with potential lenders: Meeting and connecting with possible lenders can be really helpful when you’re looking for extra funding. Attend industry events, join professional groups, and talk to lenders to build trust and understanding. This can help you stand out and maybe get better terms.

Get all your paperwork ready: When you apply for extra funding, you’ll need to provide lots of financial documents, like tax records, profit and loss statements, balance sheets, and predictions of how much money you’ll make. Make sure these documents are accurate, up-to-date, and organized to make the application process smoother.

Seek expert advice: Talking to financial advisors or industry experts can give you really useful information and guidance throughout the funding process. They can help you understand complicated money terms, negotiate terms, and figure out the best funding options for your dental practice.

By following these tips, you can improve your chances of getting extra funding for your dental practice in the UK. Remember, planning ahead, doing research, and building professional relationships are key to finding the right funding solution that will help your practice grow and succeed.

Resources and organizations that can assist with finding secondary financing options

When it comes to finding extra funding options for dental practices in the UK, there are some helpful places and groups that can offer valuable support. These are specialized in helping businesses get more money beyond the usual methods.

One of these helpful places is the British Business Bank, a government organization that helps small and medium-sized businesses grow. They have programs to help businesses, including dental practices, get funding. They work with banks and partners to offer guidance and support for alternative funding options.

Another group that can be really useful is the Dental Business Support Network (DBSN). This group has experts who know a lot about the dental field. They provide business help for dental practices. They’re really good at helping practices figure out the financial side of things, including finding extra funding. Their personalized help can be super useful in finding the right solutions for your needs.

Apart from these special places, it’s important to look into local business support groups and development agencies in your area. These groups often have programs to help businesses get extra funding. They can guide you, give advice, and maybe connect you with banks or investors who know about funding dental practices.

Also, connecting with others in the dental world can be a good way to find more funding options. Joining dental associations, going to industry events, and talking to other dental professionals can give you tips and leads on extra funding that others have used successfully.

Remember, when you’re checking out extra funding options, make sure you research and understand each opportunity and its terms really well. Get advice from professionals like financial advisors or accountants to make sure you make smart choices that match your practice’s financial goals and future success. With the right help and connections, you can confidently explore the world of extra funding options for your dental practice in the UK.

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.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

Funding Options for Dentists

Asset Finance

Asset Finance is a type of commercial funding that enables you access to vital business assets such as equipment, tools and vehicles or it could enable you to release cash from the value in assets that you already own. 

Read out samera learning centre for more information.

Asset finance includes: 

  • Hire purchase
  • Finance leases
  • Equipment leasing 
  • Operating leases
  • Asset refinance
Dentist Chair

An ‘asset’ can be anything that you own, and with a wide choice of alternative lenders across the market, you can find assets in almost anything you own from an iTero scanner to vehicles. In many cases, companies do not have the upfront cash they need which is where asset finance provides a very useful form of commercial financing. 

Read on to find out more.

Acquisition Finance

Acquisition financing is the capital that is obtained for the purpose of buying another business – like an existing dental practice. It allows users to meet their current acquisition aspirations by providing immediate resources that can also be applied to the transaction. Acquisitions and mergers finance is the commercial funding required by a business or sole trader to purchase another business. Businesses usually do not come cheap and, therefore, it is common to need to raise acquisition finance to make the purchase. 

Acquisitions can take a number of forms, such as a straightforward business purchase, or a Management Buy-Out.

Read on to find out more.

Contact us to find out more

Working Capital Finance

A business’s working capital is the amount of ready cash it has to meet its day-to-day operations and debts. Working capital finance is commercial funding specifically designed to boost the working capital available to a business. 

Working capital is calculated by subtracting the total of the current liabilities from the value of the current assets. 

cash flow finance

Businesses that cannot meet their expenses or pay their debts will probably need to raise working capital finance. It is most often used for specific growth projects such obtaining a bigger contract or investing in a new market. 

Read on to find out more.

Tax Loans

Only 2 things are certain in life, and unfortunately, tax is one of them. Taxes are an inevitable cost in any business. Every business is responsible for paying their tax bill however, this can be extremely inconvenient at times. It is normal for a business’ cash flow to fluctuate however, it is imperative that money is put aside to meet tax obligations. This is where tax loans become an ideal way to spread out a tax demand across affordable monthly repayments without becoming a huge burden on your cash flow. 

Sometimes, your tax bill can make a serious dent in your business’s cash flow. For this, and other reasons, your business may need to raise commercial funding to cover your tax bill.

Read on to find out more.

Commercial Property Finance

Commercial property finance is the funding raised by a business or sole trader to purchase a commercial property. There are a range of commercial property finance options available to you to individually suit your growth objectives and current financial circumstances, whether you are acting alone as an owner of a small business or as an established limited company. 

There are various different channels and methods of commercial funding available to businesses seeking to purchase, expand or refurbish their commercial property.

Read on to find out more.

Bridging Loans

Bridging Loans are a short-term form of commercial funding used by businesses to ‘bridge’ a gap in their cash flow. They can be useful when you need immediate capital, integrate cash flow or make necessary refurbishments. They are loans that are priced monthly rather than annually, and lenders may lend anything between £25,000 to £25m. 

Click here to read our article on The Guide to Buying a Dental Practice

They are commonly used in commercial property financing and can be a very useful way to raise quick, short-term working capital. Bridging loans are one of the most useful and viable options when you need to move quickly to buy a property. 

Read on to find out more.

Join the Buyer’s Advisory Service

If you’re thinking about buying a dental practice and you want to make sure you find the right practice at the best price, contact us today.

We strive to ensure that we find you the practice that matches your precise specifications. Simply let us know what your dream practice looks like and we’ll get to work making that dream a reality.

Business Loans for Dentists

We’ve been helping to fund the future of the UK’s dentists for 20 years and our team are made up of former bankers with decades of experience and contacts in the UK’s healthcare lending sector.

You can find out more about working with Samera Finance 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.

Dental Practice Finance: Further Information

For more information on raising finance for your dental practice, including more articles, videos and webinars check out our Learning Centre here, full of articles an webinars like our How to Guide on Financing a Dental Practice.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Tax Loans

Tax bills are a recurring expense for all businesses including dental practices that can often take their toll. This is where tax loans come in and help manage this overbearing expense by helping you take control of your cash flow. They also help ease the costs of taxes by spreading the costs of your tax bill into manageable monthly payments. 

The amount of taxation that a business incurs is based on current tax laws that determines their tax liability. Tax liability is the amount of tax debt owed by an individual, business, corporation or any other entity. Tax liabilities are therefore incurred from earning any income from a business, a gain on the sale of an asset, estate or other taxable events. 

When a business’s tax liability is due, as a dental practice, they have to ensure that they have enough cash flow at hand to meet the demand of the tax laws in place. Unfortunately owing tax isn’t an easy debt to get out of. A tax bill cannot be put off until the business itself pays the bill. HMRC do not hesitate in issuing penalties for late or non payments. The tax rules are very strict and failure to adhere to them can become very costly for you and your business. 

In some instances, late penalties are one of the more tranquil consequences that the HMRC gives out. Penalties for late payment or non payment can have very bad consequences on your business. If you default on your payments for a very long time, the interest of your tax bill increases and so does your fines. This could lead to you having to liquidate a company in its entirety or its assets in order to fully pay HMRC what is owed through your tax liabilities. 

It is normal for a business’s cash flow to fluctuate over the different seasons, however, it is imperative that funds are put aside in order to meet tax obligations. However, this is often not always the case. The cash flow may not always be there and unforeseen circumstances do occur to hinder you from being able to pay your taxes. This is where tax loans come in handy for businesses. 

VAT and corporation tax payments come around regularly but they can still be a problem if your business does not have sufficient funds. Tax loans are designed to help manage your cash flow. Tax loans can fund personal tax, corporation, capital gains, inheritance tax amongst other overbearing tax bills you may incur. Tax loans allow you to spread the cost of your tax demand into more affordable monthly payments, allowing you to pay your tax bill comfortably. 

Contact us to find out more

What is VAT funding?

When quarterly VAT payments are looming for your dental practice and there is limited cash in the business to secure paying this bill, access to additional finance is very useful. 

VAT funding enables businesses to pay your quarterly VAT payments over the course of an agreed term (usually 12 months). This will be paid back over a series of monthly payments. This loan provides the liquid funds needed for businesses to settle their VAT bill without provoking any consequences from HMRC. Obtaining this loan will boost the company’s overall cash flow position as well as pay your VAT bills smoothly. 

As a business owner, there are a few things that may be worrisome for you. Owing the government funds can unfortunately often be part of that worry. A lot of business owners are not aware of the options that are available to them when they do not have enough working capital to pay the necessary bills. 

Businesses try to optimise their profits and strive to have working capital to reinvest and take advantage of business opportunities. For this reason, tax loans are becoming increasingly popular. These loans allow businesses to free up cash flow while meeting the demands of HMRC on time.

Forfeiting a tax payment or paying late is something you must try to avoid at all costs. Owing a debt to the HMRC is not something to be taken lightly. Often those who default on their tax payments are dealt with enforcement actions being taken against them. 

Regardless of what your business is, taking out a tax loan can be the financial solution that you need as it will enable you to spread out the cost of your tax bill over the course of  a 6-12 month term helping businesses navigate through the costs of tax while avoiding the wrath of HMRC and racking up late payment charges. 

Why are tax loans useful?

Tax loans are incredibly helpful and convenient to help pay your tax bill on time. On the one hand, it is in your best interest to stay within HMRC’s good graces by paying all your tax bills on time while on the other, you also want to leave yourself available cash for the essential day to day running of your business. Tax loans help you do both, very comfortably. 

Many lenders design your loan specific to your needs, there are loans that are specifically designed to pay tax bills. In some cases, funding a VAT bill can have tax benefits. This is because interest payments are often offset against corporation tax later in the financial year. 

Benefits of tax loans

  • Improved cash flow as well as control of cash flow
  • Easy, fixed monthly repayments
  • Flexible repayment terms
  • Easy quick and simple to arrange
  • HMRC receive payments directly and on time
  • Protects existing bank facilities
  • Keeps your bank funding lines open
  • Fixed rates
  • Fast decisions and fast funding
  • Personal service and dedicated account manager 

Many tax loan facilities operate in ways to enable you to receive the funds you need in a simple and timely manner. The main benefits tax loans have to businesses is that this loan will allow their cash flow to remain in their control, lift the weight of their tax bills by spreading out the costs into manageable monthly payments and avoiding any late payment consequences. 

How do I apply for tax bill funding?

As a dental business owner, VAT or tax payments can be detrimental to your business profits. Time constraints are very common, especially when it comes closer to the time to pay your tax bills. This is why the process of applying for funding is quite quick and simple. 

Unlike many other loans, detailed business plans and security assets are not needed, nor is it necessary to make long winded appointments to discuss the security of your loan. Many processes are flexible and quick with great affordability and transparency. 

Tax refund

Loan against tax refund

Taking out a loan against your tax refund is also known as a refund-advance loan. It is a type of secured loan. This means that you need to put up something in this loan to use as collateral. Usually this would mean an asset or an estate but in this case collateral refers to your anticipated tax refund. 

Tax refund loans are short term loans that must be repaid when you receive your tax refund. You will often receive this loan as a deposit into your bank account . When you get your tax refunded, it will be deposited into that same bank account and the loan amount will be deducted from the amount given. Interest and other fees will also be deducted from the amount of tax refund given to you. 

Pros and cons of tax refunded loans

Here are a  few things to consider before you take out a tax-refund loan. 

Pros of tax-refunded loans

Fast funding

When you apply and are approved for a ta-refund loan, the funds are available to you as little as 24 hours after you are approved. Usually the time it takes from your tax to actually be refunded to you is a minimum 21 days. 

Cons of tax-refunded loans

Fees

Unfortunately getting a tax refund loan may often involve paying interest on said loan. This is not the case with all tax refund loans, there are some lenders that are able to give you an interest free loan. However, even with an interest free loan, there still may be fees you will need to pay, for example, administrative fees that are associated with transferring your refund.

High risk 

There are potential risks with this kind of refund loan. The key risk being that the amount of the loan is based on how much you anticipate getting back in the refund. This may not accurately represent how much your tax refund will actually be. There are several factors that could impact that amount you are expected to receive and the actual amount you are given. 

An example of this is that if you owe a state debt such as a student loan or back taxes. These debts will be taken from your tax, therefore, your tax refund will be reduced. This will result in you receiving less funds than you had anticipated when taking out the loan. 

Tax refund loans

While tax refund advance loans can be a helpful and timely option to get the quick cash flow you need, there are many factors you must keep in mind before you decide to apply for this type of loan. 

If you do decide to apply for a tax-refund advance here are a few things we advise: 

Proceed with caution:

These loans can often come with a high interest rate and hidden fees.

Read the terms and conditions carefully:

To allow yourself to make the most out of this loan, you must ensure that you fully understand the terms and conditions of the loan and all the costs in their entirety. This includes any contractually included late fees or any prepaid card costs associated with the loan. 

Contact us to find out more

Corporation Tax Loan 

Corporation tax is the one of the most important taxes your business, however large or small, will pay. If you are unable to pay your corporation tax bill, you will be hit with penalty charges which will increase the longer you default on your payment and will exceed the overall amount you originally owed, fundamentally resulting in you being in a worse financial situation.

Charges begin from the day your payment is late, the interest of the lay payment will also continue to rack up over time so it is important to meet your payment deadlines.

If you are unable to pay your tax bill because the time for paying your taxes has come at a very inconvenient time for you, then a corporation tax loan would be ideal for your situation. It is an effective way to spread your tax demands across monthly repayments that are affordable for you.

What is corporation tax?

Corporation tax is a tax that all limited companies must pay. It is a tax that is payable against the profits the company makes. A corporation tax bill is based on the level of income a business has earnt through trading. It is the income derived from taxable events throughout the tax year such as asset sales. You are liable to pay corporation tax if your business is a member’s only club, a trade association, a limited company, a trade or housing association, or a group of individuals outside a partnership operating as a business. 

The current rate in the UK for corporation tax is 20%. This also applies to any companies you may have overseas but have an office or branch residing in the UK. HMRC usually calculates your corporation tax bill roughly 9 months after the business accounting year comes to an end. 

If your tax liabilities are not paid on time, similar to your business tax expenses, there will be penalties issued by HMRC. If your tax bill is quite high, the business itself could be forced to liquidate completely in order to pay your tax bill. The real truth for many businesses is that they sometimes simply are not in a position to be able to pay their bill which is why corporation tax bills can be very useful. It is important to note that HMRC will not send reminders about your tax bill until you are overdue.

This is a difficult situation to be in, especially if your current available capital does not allow you to meet the demanded amount of the corporation tax bill. Ideally, the best option is to set aside funds during the year to meet your tax bill however, It is normal for cash flow to fluctuate over the year based on different activities. This makes it hard to put a large amount of money aside especially when you have unexpected costs to pay. This is why corporation loans are becoming increasingly popular to help regulate cash flow and pay for a business’s tax bill. 

Who pays corporation tax?

All limited companies are liable for corporation tax. The tax is also aligned to the financial year of the business. However, there are a few exceptions such as when a new business changes its year end accounting date. 

Businesses are bound to pay taxes on any profits the business makes in its financial year. Corporation tax is also due on any money the business makes from investments and any chargeable gains. 

Benefits of a corporation tax loan

Corporation tax loans improve a businesses cash flow which is why they are increasing immensely in popularity amongst many different types of businesses. This added stable cash flow allows businesses to take advantage of this added capital to their business to fund unexpected costs or any drops in income.

A major benefit of a corporation taking a loan is the added cash flow to your business. The loan also helps avoid the risk of high and very costly charges for late or non payment of your taxes. The loan itself will improve the flow of your capital, this means that when your next corporation tax loan is due, you will be in a much better position to comfortably pay the bill. 

Regardless of the type of business you operate, it is possible for you to qualify to apply and receive a corporation tax loan. The loans have various options that are flexible for you and they will enable you to spread your tax bill over the course of several months. You will have fixed monthly or quarterly payments to repay your loan. 

There are a variety of lenders who specialise in commercial finance loans. They are able to design a plan that is flexible and suited to your specific repayment abilities to ensure that you will be able to pay your tax bill comfortably with monthly installments. 

Using corporation tax funding allows businesses to avoid the potentially costly HMRC penalties for late or non payments. You can usually get a decision on your corporation tax loan inquiry within as little as 24 hours in most cases. 

Where to apply for a corporation tax loan

There are a number of lenders who specialise in finance loans specific to paying tax such as corporation tax loans, which gives you many options to choose from. There are various online comparison tools that will be perfectly aligned to the needs of your business. These comparison tools and websites will also help you filter through different loans that are best suited to you with the lowest interest rates. 

Click here to read our article on How to finance a healthcare business.

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.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Bridging Loans

What is a Bridging Loan?

Bridging loans are a short term financing option that are quite different from a standard bank loan. They are often used by property buyers to essentially ‘bridge’ the financial gap between the sale of their current home and the final sale of their next property investment. However, these loans can be very helpful in many ways for businesses to use immediate funds to obtain quick capital for their dental practice, integrate cash flow or make necessary refurbishments. They are one of the most useful and viable options when you need to move quickly to buy a property. 

Bridging loans are usually offered between 1-18 months, with the loan repayable in full at the end of the term. An open bridging loan does not have a repayment date, but will still be a short term loan. For example, a 12 month bridging loan must be repaid on the 12th month or before the 12 month period ends. It is in your interest to repay the loan as early as possible in order to save on interest payments.

Bridging loans are very easily accessible and immediate financing which means that they typically have high interest rates and fees. 

What is Bridging Finance?

Bridging finance is a kind of commercial property finance which is usually used by companies and sole traders to quickly fund the purchase of a property. Traditional commercial mortgages often take months to arrange. Bridging finance companies can lend money much faster. This type of funding allows clients to obtain immediate funds to complete the purchase of a property or to bridge the gap between selling and buying a new estate. The loan will usually be secured against a charge of the property you are purchasing. 

How Much Can I borrow with a Bridging Loan? 

The amount that you can borrow is solely dependent on the value and the type of security property that you use. Bridging lenders will quote a maximum loan to value (LTV), this is usually between 65-80%. You are able to get a bigger loan depending on your exit strategy. 

Bridging loans are only meant for short term periods, so attempting to get a very large amount of money through a bridging loan without an adequate exit strategy is quite unlikely. 

Why is Bridging Finance Useful?

Bridging finance is useful for dental practice businesses because it is a loan option that is fast and flexible. This short term property loan option can be approved and released so quickly that it could be done in a matter of days. In many cases, this is a very valuable asset to obtain in the property industry. 

These loans are a highly useful tool for businesses to bridge the gap between two property transactions. Bridging loans are a practical solution for those who need extra time to sustain suitable long term finance. 

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What is Bridge Capital?

Bridge capital is temporary funding that helps businesses cover its costs until it can get permanent capital. The repayment terms for bridge capital vary on the individual, but usually payment is made in full when the loan reaches the end of the term. Usually, by this time, the company receives the necessary capital from their investment or a longer term loan. Bridging loans are typically secured on any real estate asset a borrower can offer. This can include commercial or mixed-use properties. 

How do I get a Bridging Loan?

Bridging loans are not widely available and are not offered by a lot of high street banks. Bridging loans are usually highly available from mortgage brokers and advisers. 

Although bridging loans are generally quicker to arrange than a mortgage, do not make the mistake that they are easier because lenders are less thorough. Lenders still make thorough checks of your current finances, the value or your perspective property and your current home. 

How Much do Bridging Loans Cost?

Bridging loans can end up being very expensive because they charge you a range of fees as well as interest. You will be charged monthly interest on your loan. Your lender will not quote the annual percentage rate (APR) as most bridging loans do not even last a whole year. 

You will be charged interest on your loan in 1 of 3 ways:

  1. Monthly interest: This is the most common way interest will be added to your loan. You will pay the interest each month, and it will not be added to the balance of your loan. You will pay off the full balance at the end of the term.
  2. Rolled up interest: This is when you pay all of the interest including your original loan, at the end of the term. The interest will be added each month and accumulated this way, however you will just pay the full amount when your term comes to an end.
  3. Retained interest: Your lender will calculate the amount of interest you will have to pay over the time-frame of your term when you first take out your loan. You will borrow the interest amount from the bridging lender when you apply for your loan including your initial figure. This will cover the monthly interest payments for a set period. You will then pay the loan back and the end of the term including the extra money borrowed for interest payments. 

Exit Strategies for Bridging Loans

An exit strategy is the term used to explain how the bridging loan will be repaid at the end of the term. A strong exit strategy is a vital part of any bridging loan application. It is having a strong exit strategy that makes the process of the loan application faster and lenders to be more flexible with your requests. 

Why is an Exit Strategy Important?

Having a preplanned and strong exit strategy is very important on a bridging finance provider’s checklist. These loans are based on an interest only basis. How you plan to settle the end of your loan at the end of its term is the most crucial part of your loan.

When your term has come to an end, your lender will expect your loan to be paid back in full as agreed. In the case that you are unable to do this, your account will then be put into default. If this happens it could affect your credit record. In order to avoid this situation you will need to resolve the situation as quickly as possible.

Here are a few options for you:

  • Extend your loan with your lender. This may mean that you will continue to add interest on your current loan if you are near your maximum loan to value. It is also important to note that your lender may not agree to renew the loan. If they do agree, they may charge a higher interest rate in exchange for the renewal.
  • Refinance to a new lender. This option could get very expensive for you as you will have to restart the process and pay all setup costs again. 

Remember that if you do refinance your loan, you still need to consider what your exit plan is for your new loan. Refinancing blindly is a temporary solution, you will just be delaying the inevitable unless you plan a way to properly pay back the loan.

What if I can’t Pay Back the Loan by the End of the Agreed Term?

Bridge loans in their nature are arranged for short term requirements and the lender expects all clients to contractually abide by the terms of repayment within the set time frame agreed. 

Bridge loans, like many other loans, are set up with a set plan to arrange how the loan will be repaid. Usually, the lender will not allow the loan to proceed if there are any hesitations about your ability to repay the loan. 

When you hit the end of your term, you are expected to repay the loan in full. Acceptable exit methods are usually sale of property or refinance. There are a range of different exit strategies that may work for you. 

Loans are a contractual agreement, however, it is inevitable that some loans will overrun the agreed term. The lender will often contact you (the borrower) at least 3 months prior to the end of the agreed term to examine how things are going for you and determine whether you will be able to pay back the loan in time of the agreed term. If the lender believes that it is not likely, they will usually recommend other steps that you can take to ensure that you can get back on track and eventually, you will be able to fully repay your loan.

The lender will obviously want the loan repaid as and when agreed but they will normally work with borrowers who have over run their term only if the borrower is open about their situation and is in continuous regular contact with the lender. This way you and your lender are able to work out a plan to get you back on track together. 

We always recommend that when taking out a bridging loan, you opt for the longest term available as many plans can over run the expected timeframe. 

How Long Can I Take Out a Bridging Loan for?

The average term for a bridging loan is approximately 6-7 months. In different circumstances, longer terms can be discussed and arranged. It is often dependent on how much your loan is for that your term can be extended. 

Are Bridging Loans Regulated?

A bridging loan becomes ‘regulated’ when the loan is secured against a property that is or will be occupied by the borrower. A regulated loan can be secured by a first or second charge, the bridging loan will be regulated by the FCA. 

Bridging loans that are unregulated are usually associated with commercial buy-to-let properties. 

Can I Get a Bridging Loan Without a Credit Check?

No. Like most other loans, bridging finance involves a thorough check into the finances of the borrower. 

Applicants with clean credit history are often more attractive to lenders which results in these applicants receiving favourable rates. However, good credit is not only what lenders look for. There are other aspects and details of your loan that will help you get approved by your lender even though you may have a bad credit history. 

Can I Still Get a Bridging Loan if I Have Credit Issues?

Although thorough checks into your credit history will be taken before you take out your loan, bridging loans can still be available to you even if you have a poor credit rating. Your bridging finance is often determined by the security of the property being offered as well as the exit route. Your lender will also take into account the size of your deposit and the assets you put up as security. 

A lender’s biggest concern is that having poor credit history will prevent you from repaying the loan at the end of the term. It is highly dependent on what you put up as security and what your exit strategy is. If you have a strong exit strategy such as, to sell the property or another estate, then there is a lesser chance to have an impact on you taking out the loan. 

Closed-Bridge and Open-Bridge Loans

What is a closed bridging loan?

A closed bridge loan is for people who have set a fixed date to repay the loan. A closed bridging loan includes a feasible exit strategy as part of the lender’s application. If you are able to produce proof to your lender that you are able to repay the debt as soon as your transaction is completed, then a closed bridging loan is the most effective and sensible option for you. They are defined by the set repayment date and are the most common type of bridging finance option available. Closed loans are usually offered with lower interest rates and have the highest rates of approval.

What is an Open Bridging Loan?

An open-bridging loan differs from a closed bridging loan as an open loan does not require a clearly defined exit route in place to provide to the lender.

Due to the unpredictable nature of repaying an open bridging loan, they are a lot harder to arrange. However, if this is your preferred loan type, it would be in your best interest to be able to provide enough security, so that it is more likely that you are able to be approved for this type of finance. 

What is the Interest Rate on a Bridge Loan?

The interest rate on a bridge loan is generally between 1% and 1.5% per month. That being said, there are some lenders who have better rates than others. Because of this, it is always useful to shop around or use the services of brokers in order to get the best possible deal for your loan. 

How Much Can I Borrow for a Bridging Loan?

You are usually able to borrow from 80% – 100% of the property value purchase price with bridging loans. It is important to understand that all lenders are different and have different terms. If you are looking to borrow more, you may need to offer additional security in the form of an additional property or several other properties. 

Contact us to find out more

How Much Does a Bridging Loan Cost?

There are four main factors that will impact the cost of your loan and they are:

  • The term of your loan
  • The amount borrowed
  • The lenders agreed interest rate
  • Start up fees 

The general trend with bridging loans is that your costs will generally increase the longer your term is. This is also the case the larger your loan is. 

To minimise the cost of your loan, it will help your expenses if you compare the total cost of borrowing the funds, not simply the interest rate and arrangement fees on their own. 

There are many fees that are charged in addition to the interest and arrangement fee. Different lenders include their own fees. Here are some common fees charged in addition to your interest rates.

  • Exit fees
    These exit fees are payable on repayment of the loan. There are some lenders that do not charge an exit fee where some others charge from 1 to -1% month’s interest.
  • Valuation fees
    These fees are payable for surveyor’s costs in order to ensure your property is suitable security. Some lenders do not require a valuation.
  • Legal fees
    These fees are to pay lenders own legal costs while they are setting up the loan.
  • Admin fees
    These can also be labelled as asset management fees. These are costs that are payable to the lender as they handle the setup of your loan. 

Pros and cons of Bridging loans

Pros of Bridging Loans:

Bridging finance is quick to arrange. Applications can be completed and authorised quickly allowing you to obtain the funds you need quicker than you could with any other type of loan. Many property deals are highly dependent on factors that are rapidly changing within the business. Being able to obtain funds quickly can be a major attraction.

Bridging loans allow you to complete a property transaction that would otherwise not be possible.

You are able to get funds up to 100%. Usually the most you are able to borrow is 80%, however, provided the security put in place is sufficient, lenders will allow you to borrow up to 100%.

Often with bridging loans there are no monthly repayments, this allows the loan to raise capital for your business where cash flow is tight, while you have assets that can pay back the loan. 

Cons of Bridging Loans

Your home / property you put up as security is at risk if you do not keep up repayments on a bridging loan. 

There are usually several fees which you will have to pay which makes bridging loans more expensive than traditional mortgages. These fees include an arrangement fee, broker fees, valuations fees and sometimes even legal fees, before you are able to take out your loan. If you are borrowing for a long period of time, the interest charges are a lot more expensive than a standard loan.

As most loans are short term, if you have issues with your repayment method, you could potentially face major issues. Failure to repay your loan at the end of the term could have major repercussions. It could lead to your property being repossessed. 

When Would you Need a Bridging Loan?

When a buyer pulls out on an investment into your property, your finances on the offer of your next home and potential deposits could be put in jeopardy. A bridging loan will be able to tide you over until your home is back on the market and is under offer again. 

Bridging finance allows you to buy a second property before selling the first. 

As long as you can provide your lender a valid exit strategy, the money you obtain for a bridging loan can be used for a variety of business reasons from providing your business with working capital to covering cash flow issues. 

Auctions: Bridging loans allow you immediate funds when you are bidding for properties at an auction.

Bridging loans could also be used if you wanted to buy a property with a short lease. You could use the loan to buy the property, then add value by extending the lease. This would also provide a valid exit strategy. 

Refurbishment projects: You can use residential bridging loans for cash flow to refurbish a property before full capital is available.

What is a Commercial Bridging Loan?

Commercial bridging loans are similar to residential bridging loans, they are used when there is a gap in financing that needs to be filled quickly. 

For a commercial bridging loan, the overall use of the property has to be more than 40% commercial. This means that retail units with residential flats on top or at the back have to occupy more than 40% commercial space of the property.

The exit strategy for residential bridging loans usually include landlord or landlord companies to refinance the loan into a buy-to-let mortgage. This is usually done after the loan is used for renovations to make the property more attractive or suitable for rental.

For commercial units that are bought specifically by using a commercial bridging loan, the exit strategy usually involves selling or refinancing the property on to a conventional commercial mortgage after buying or refurbishing the property.  

What is a Bridge-to-let Loan?

This type of bridging loan is specifically aimed at the buy-to-let market. The loan is used to secure a property that is fully intended to rent out without having a basic mortgage organised. This loan would be based around your ability to obtain 100% rental income. This means that your potential rental income should equal your payments. 

You can use this type of bridge loan for both residential and commercial properties. The exit strategy would be to refinance the property on to a conventila buy-to-let mortgage and gaining capital by renting the property out either in part or fully. 

Contact us to find out more

Defaulting on your Bridging Loan

With all bridging finance, you have to put up security therefore, defaulting on your loan will not only affect your credit score, but will also put your asset at serious risk. Even though bridging loans are able to be authorised quickly, all lenders are very thorough with background checks and legal rights.

There are a variety of legal options your lender has at their disposal in order to compel you to pay what is owed to them. This not only includes the right to your security asset but could also include county court judgments, or statutory demand letters which would ultimately force your company into liquidation. 

Breaching the Terms of your Bridging Loan

Bridging loans have many terms and conditions that are different to standard mortgage loans.  A lot of lenders are at liberty to insert their own terms and conditions which is why it is imperative to read the fine print carefully before signing all contracts to understand the fees, repayments, charges and when they are all due. 

Click here to read our article on How to finance a healthcare business.

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.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Commercial Mortgages

The world of commercial loans for dental practices is now more varied than ever. Commercial property finance has many different variants, sometimes making it quite difficult to understand.

There are different platforms that each suit different projects. The usual issue is finding out which one best suits your dental business needs.

Here is our guide to understanding all there is to know about commercial property finance.  

What is commercial property finance?

Commercial property finance is the money that an individual or company obtains in order to fund the purchase or the development of a property. It is very rare for a company or an individual to always have the cash means ready to purchase a commercial property. Therefore, needing to raise money is common, especially in these cases, from a bank or other lender.

Commercial property finance can additionally be used for business expansion (adding more practices) or improvements to a property or even to help with relocating the business. 

A commercial property is one that is primarily used for non-residential purposes. For example, dental practices, surgeries, offices, factories, retail stores and restaurants. Properties that can be used either fully or semi commercial.

A fully commercial building is a building that is wholly used for commercial purposes. A semi commercial building is one that is used for both commercial and residential purposes. For example, a dental practice with flats above it.

There are different types of commercial property finance. Commercial finance was formerly known to come from mainstream lenders, usually banks, but now, there are many alternative modes of finance available too. 

Each type of building in the commercial property market is made up of five main categories. 

These five categories include: 

  • Offices
  • Retail (Stores, shopping centres, shops)
  • Industrial (Warehouses, factories)
  • Leisure (Hotels, pools, cafes, sports facilities, restaurants)
  • Healthcare (Medical centres, dentists, hospital, nursing homes)

A commercial mortgage is any loan secured on a property that is not your residence or intended for residential purposes. 

Why will I need a commercial mortgage for my dental practice?

Commercial finance ensures that your dental business, regardless of size, are able to thrive and hit their targets, rather than miss out purely because they aren’t able to generate enough revenue to expand. 

A dentist might seek commercial finance when a point of growth is impending. Sometimes the obstacle in the way of expanding your dental practice is funding, that is where commercial loans come in handy. 

There are a number of reasons as to why a company or sole trader may wish to raise commercial property finance. A few key reasons that may need to take out a commercial property loan are if you experience growth in your company, through staff or inventory, or you have purchased new equipment or you may need to extend your commercial property.

You may even need a loan in order to purchase a completely new property. Commercial finance allows a way to essentially provide working capital for dental practices.

Better access to commercial finance has paved the way for small dental practices to generate capital through these loans. If your surgery or office has become run down or needs a renovation, you may also need to raise commercial property finance to fund this. There may be cases where you need to build extensions to an existing property or grow your property portfolio.

When these purchases or improvements cannot be funded by existing assets, you may need to consider raising commercial property finance. 

Commercial loans can be used for more than just buying your business a new home, it can also be used to: 

  • Develop new property 
  • Develop existing property 
  • Extend current premises
  • Buy land
  • Commercial developments and projects 

Contact us to find out more

When will I need a commercial mortgage?

There are a number of reasons why a dentist or dental practice owner may wish to raise commercial property finance. If you experience growth in your company, perhaps your staff or inventory has grown or you have purchased new equipment, you may need to extend your commercial property. You may even need to purchase a completely new property. 

If your surgery or office has become run down or needs a renovation, you may also need to raise commercial property finance to fund this. There may be cases where you need to build extensions to an existing property or grow your property portfolio, 

When these purchases or improvements cannot be funded by existing assets, you may need to consider raising commercial property finance. 

How much can I borrow for a commercial property?

Commercial property loans are used to help raise funds for many purposes, such as buying estate for your business. The minimum amount for a commercial property finance deal is usually £150,000 and has no maximum figure. Provided you have all the requirements your lender needs when you are applying for the loans you should have no issue sourcing the funds you need to make your purchase. 

When are commercial mortgages used?

Commercial mortgages generally take over very large amounts that business loans do not allow for. For these kinds of large amounts needed for commercial mortgages, lenders need security in order to reduce risk to themselves. 

What security will I need to provide to the lender?

The main form of security that lenders like for you to provide is property types which are suitable for the lender such as residential or a commercial property. 

The lender will usually require a legal charge over the property put down as security that the finance is being raised for. Depending on the sum of the loan, some lenders consider additional security to support the loan. This could mean that you will be able to borrow up to 100% of the purchase price of the property in question. 

Commercial Mortgages Key Features

Commercial mortgages are similar to regular mortgages in many ways, but there are a few key features that make them slightly different.

There are usually no fixed rates for commercial mortgages. Your rate will be dependent upon how much your loan is and how long you wish to pay it back – amongst other factors your lender will decide on. 

You will usually pay a higher interest rate on commercial mortgages rather than regular residential ones as these types of mortgages are of high risk to lenders. However, due to this high risk you usually need to provide a property as collateral which will allow your lender to give you a better interest rate, as you have put down security. 

If you have a bad credit score you may still be able to apply for a commercial mortgage. However, you may have to pay a higher interest rate in order to make up for the high risk you are to the lender. 

Mortgages are a type of secured loan in which the property itself is often used as security/ collateral by the lender, this means that if you default on any payments, you may lose ownership of the property in question. 

Deposits for commercial loans or mortgages can be quite hefty. So before you apply for your commercial loan you need to ensure that you will be able to pay both the deposit and monthly installments comfortably. 

Lenders prefer to invest in someone who they can be assured will pay them back timely, including interest. If you have not got a lot of experience in trading, many investors / lenders will see that as a high risk. When you have markers that identify yourself as high risk such as lack of experience in trading or a low credit rating, lenders may request for personal guarantees to further ensure that they will not be losing their money.  

Types of commercial finance 

There are several types of commercial finance, the benefits and disadvantages of which depends on your needs and situation. 

Real estate loans are never one size fits all. There are various types of loans that have very different terms, rates and uses. The type of commercial loan you need to get depends on the goal of your loan and how it will be repaid. Loans are broken down into different categories from lenders. Here are some of the more common options on the market.

Refinance loan 

As a dental business owner, you can take advantage of available lower interest rates through commercial real estate refinancing loans. There are various additional fees and costs involved when you are refinancing which can make this option more costly for you. However, when you do a cost benefit analysis, they are usually quite minimal in comparison to your overall savings through lower monthly repayments and less cumulative debt (to banks/ lenders).

Refinancing can boost your profit flow through improvement or expansion of commercial properties. It can also help to pay off any pending expenses you may have.

Property Development Finance

Property development finance is usually used to cover development and building costs, refurbishment costs, but can also be used to purchase a property before renovation. Terms will vary depending on your situation and requirements. However, it is common for lenders to fund up to 70% of development costs over a 24 month term. 

Property Portfolio Finance 

If you have a number of properties in your portfolio, perhaps you own several offices or rent out several apartments, it is likely that you have several, unrelated outgoing loan payments covering all of your properties. Since handling several different loan payments schedules, you may wish to consolidate all your commercial property loan payments into one payment. Property portfolio finance can make it easier for developers and landlords to manage their outgoing debt payments.

Hard money loan

Hard money loans exclusively come from private investors. These investors will be willing to take lending risks based on the value of the commercial property itself rather than the person they are investing in. Banks base their lending on many factors of the business owner themself including their credit score to base their judgement on getting repaid. 

While most commercial loans are made to be long term, especially because of the large amount of money being loaned, hard money loans count as short term financing. They have brief loan terms from just 6 to 24 months. People often turn to hard money loans due to urgency of their situation, which often means that the interest rates of the loan are very high. It can range from 10-18% interest along with costlier up-front administration fees and deposits. 

Bridge loan

A bridge loan is a short-term loan, usually up to one year. These types of loans also have a short approval time which makes them extremely useful when you need immediate funding. It allows the client to meet existing obligations as they provide immediate cash flow. 

Bridge loans are preferable for short term investments for commercial renovations or construction. Bridge loans are also known to have relatively high interest rates and usually need a form of security.  

Term loans (long term fixed interest commercial mortgage): 

These loans are the most standard types of loans you can get. These usually come from a bank or lender and they work similarly to a home mortgage as they carry fixed rates and monthly or quarterly repayment schedules including a set maturity date. 

A term loan usually lasts between 1 and 10 years. When you apply, you need to assess how much money your business needs and how long you will take to repay the commercial loan. 

Short-term loans 

Short term business loans are best for when you need smaller amounts of money that are typically able to pay back within 18 months or less. As these loans are smaller, they have a faster approval process than term commercial loans. Short term loans can even be approved after one day! 

These types of loans are best and most useful for handling emergency repairs, restocking inventory and meeting payroll, amongst a variety of other necessary costs. 

Commercial real estate loans

Commercial real estate loans are for borrowing large amounts of money and have the longest length. These types of loans are for lending very large amounts of money and will help expand your business when you need to buy a new property, such as a warehouse or a secondary office. They are also secured by the property that your business is buying. 

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Equipment loans

This loan refers to buying an expensive piece of equipment or other assets for your business. Equipment loans are able be secured by the asset itself, therefore, your business will not have to put up any other forms of collateral. 

Line of credit

With a commercial line of credit, the lender approves your business for a maximum borrowing amount, such as £10,000. After your business has been approved you can then borrow up to this amount whenever you would like. After you repay the funds, you are able to borrow up to this same amount again. This is not a one time loan, line of credit gives you the option to borrow at your convenience. 

Commercial mortgages

A commercial mortgage is simply a mortgage used to purchase a commercial property. They are available to both limited companies and sole traders. Commercial mortgages tend to last for around 25 years and can fund up to 75% of the mortgage. The terms of the mortgage will depend on several factors, such as the profitability of the business. 

Types of Commercial mortgages

There are three main purposes that commercial mortgages can be used for:

Owner-occupied

Commercial mortgages for owner-occupiers either means that a company wants to purchase the current premise in which they operate in or they want to buy a new property to move into. 

Residential buy-to let

A common scenario for commercial mortgages is the purchase of an estate in order to be let out residentially. This is usually used by professional landlords as well as buy-to-let limited companies that are essentially set up for the same purpose. 

Commercial buy-to-let

You can use commercial mortgages for commercial buy-to-lets as well. This means you may want to buy a warehouse in order to let it out to another business to use it for commercial use not residential. This type of mortgage is very similar to residential buy to let, however, the lender will look at various more factors as it can be more difficult to rent out commercial properties to residential properties. 

Advantages of commercial property finance

A key advantage of commercial property finance loans is that you will be able to continue to have sole ownership of your dental practice. You will be able to get a large amount of money for your business without having to give up any equity. Obtaining a commercial loan is not bringing in an investor who will invest in your practice in exchange for a percentage of it. Your money will be upfront, and you will usually have to repay your borrowed money with monthly payments including interest. 

While interest rates on commercial loans are higher than most loans due to the large amount of money, anything that you pay in interest on your loan will be tax deductible. 

Commercial property finance loans usually extend over a long period of time. This gives you a number of years to pay back your loan. Often lenders are more flexible with the repayment schedule to suit your needs.

Commercial loans have a fixed repayment schedule that is suited to you and how much you are able to pay back monthly. There is no risk of unexpected increase of this repayment. The only increase added to your loan will be interest. 

The immediate benefit of a commercial property finance loan is that your dental practice will immediately obtain the money it needs to expand. This enables you to invest in your commercial property immediately, allowing you to substantially build your capital. Property value increases over time, therefore, when your property gains value, your business’ capital will also increase. 

Commercial mortgages have fixed monthly repayments. As the repayment schedule is divided over a long period of time, your repayments are designed to be  manageable for you, even if your loan is a large amount. This means that your loan will enable you to plan and grow your business accordingly, enabling you to structure the finance of your business with certainty. 

When you buy an estate with additional space, there is potential for rental income. You are able to monetise that space by renting out the surplus space in order to generate more income. Subletting any extra space in the property should be done after obtaining lender permission first. 

Disadvantages of commercial loans

A key disadvantage for commercial property finance is that a substantial amount is needed for a deposit on a commercial property loan. 

As the property you invest in will be solely yours, all maintenance, developments and general upkeep costs of your practice will need to be taken care of by you. Unfortunately this can often end up being very costly.

Property prices are continuously fluctuating and can sometimes affect the value of your property which can result in reduced capital. This could also affect your finances and future borrowing capabilities. 

If you have a variable rate mortgage on your commercial property, then any rise in interest rates will result in your monthly repayments becoming more expensive for you. 

Types of commercial real estate

Apartment buildings 

Apartment buildings are classified as commercial real estate if they have five or more living units. Any buildings that have four or fewer units inside are classed as a residential property.

Retail buildings

Retail buildings are any buildings that are selling goods. This includes stand alone shops as well as larger commercial properties such as malls and shopping centres that have multiple stores inside the property.

Office buildings

Office buildings are usually the most sought after when they are up for sale, they are also usually the most expensive. Most office buildings are located in urban business districts, which makes them prime locations, which is why they are so expensive. The further your property is from the commercial business district, the further down the prices go. 

Medical facilities 

Medical facilities include dental practices, GP doctor surgeries, hospitals (with large staffs and 24 hour, round the clock care), surgical centres, urgent care clinics (walk ins) and nursing homes (long term accommodations). 

Hotels and resorts

This category includes hotels and luxury resorts as well as casinos, big corporate chains and independent ins. 

Land developments

Land development refers to commercial real estate developers. This is turning raw, empty land into a space for future construction. If this is done correctly, there is a lot of potential for a significant financial return. 

How do commercial loans work?

If you choose to go for a commercial loan, you need to understand that you will need to pay back the loan over time as well as interest. Before your lender will invest in your business venture, whether it is a private lender or a bank, they will need to see proof that your business will be able to make its repayments. 

In order to increase your chance of getting a commercial loan, prepare documents of your income and revenue in order to support your application. Your financial statements, profit and loss margins, will help your lender be drawn to you as a successful low risk client. You may even need to value your assets to use as security to put as collateral to ensure you receive your loan.

How long does it take to secure a commercial loan?

Smaller loans are usually easier to obtain. If you have a good credit history and have all the necessary financial documents ready for your loan to get approved, it is able to get approved within a matter of days. 

For a larger commercial loan, your application may take a lot longer. It could range from a couple weeks to a couple months. It is highly dependent on the amount you want to borrow and the length of the term. For a very long term loan, the lender often would wish to perform extensive examination of your financial records to confirm the financial viability of your business over the term of the loan. Loans of very large amounts often require security as well as a deposit. 

What type of security do I need for commercial property loans?

The most common things that are offered as security for commercial loans are vehicles, property and shares. The property you put up for collateral could be your business premises or your personal property. Many traditional lenders accept only these options as types of security.

The asset you put up as security acts as protection for the lender against a potential loss if your business falls through or your are default in your payments. The assets you put up for security compensate for the unreturned borrowed money.

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How to avoid funding your business from personal assets

Commercial loans are one of the most efficient ways to fund a particular project, business venture or acquisition. You can get this loan on the simple basis of your business plan and how likely your business is to succeed. You do not need to put your personal assets in the mix to fund your estate. 

With a commercial loan it is also simply just borrowed money with interest added. Commercial loans allow you to fund your business with a loan without having to get an investor or partner to share your business with minimising your profits. The only personal assets that should be involved are the ones that you put up for security with your lender.

What is bridging finance?

Bridging finance is a type of commercial property finance which is used by companies and sole traders to quickly fund the purchase of a property. Traditional commercial mortgages can take months to arrange. Bridging finance companies can lend money much faster. The loan will usually be secured against a charge of the property you are purchasing.

How much can I borrow?

It is highly dependent on the type of property being purchased, you can borrow up to 85% of the purchase price or valuation for residential properties. You can borrow up to 80% if you are purchasing a commercial property. 

Should I compare business mortgages?

Comparing different mortgage deals will help educate you on the different types and terms there are out there. There are often people and websites who will be able to compare for you to ensure the best and cost effective solution for your business. 

Alternatively, use a commercial finance broker to do that hard work for you!

Click here to read our blog on How to finance a healthcare business

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.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Working Capital Finance

What is working capital

Working capital is the amount of available money a business has at its disposal for its day-to-day operations and expenses. Working capital is not the same as the overall value of your dental practice. It is not calculated by adding up everything the business owns.

Working capital is the cash or cash equivalents your dental practice has, or can raise in a year. Working capital is calculated by subtracting the value of the business’s liabilities from its assets. It is essentially the amount of money left over once a practice pays all its standing debts. 

If your dental practice is unable to meet its debts with your existing assets, you may need to apply for working capital finance.

Working capital reflects the short-term financial health of your dental practice, as well as its ability to conduct regular operations. Without adequate working capital, your practice will be unable to meet its everyday obligations. 

For instance, staffing costs, rent on the premises, marketing and taxes should all be covered by the business’s available cash – its working capital. Ant given business should not need to sell off long-term assets or borrow money to meet these responsibilities. Its ability to do so is dictated by the amount of working capital. 

Working capital represents the liquid cash which isn’t tied up in its long-term assets.

The most common definition is; the difference between the business’s current assets and its current liabilities.

Working capital vs cash flow 

Although they are similar, related concepts and are often confused, working capital and cash flow are not quite the same thing. 

Your dental practice’s cash flow is the amount of cash that moves through the business over any given period. It is the amount of money that your business can generate. Cash flow does not take into account your liabilities. Working capital, on the other hand, takes into account all your current liabilities, as well as current assets. 

A working capital ratio is a representation of the financial health of your dental practice as a business overall. It is a broad picture of your business’s ability to pay off debt in the short-term. Cash flow is more concerned with the cash that can be generated. This means you could have a weak working capital but a strong cash flow. Your business is generating a lot of money, you just owe nearly as much as you make.

Therefore, even with a strong cash flow, low working capital can make it difficult to pay your debts off on time. If this is the case, you may benefit from raising working capital finance.

How to Calculate Working Capital.

Working capital is the amount left over once your dental practice has met all of its financial obligations. Working capital can be calculated with one fairly simple equation. 

That equation is: current assets minus current liabilities equals working capital. 

The number left over is the amount of ready cash that a business could feasibly spend without having to sell off long-term assets or borrow money from a financial institution. It can often simply be the value of the entire inventory of your dental practice added to the current bank holdings. 

For example, lets say your business has £10,000 in a business bank account, a customer owes £1,000 and the business’s inventory totals £10,000. Your business has current assets totalling £21,000.

Let us also assume that the business owes £15,000 in total, spread across suppliers, debts and tax bills. 

Once the business has paid off its £15,000 current liabilities from its £21,000 in current assets, there is £6,000 left over as working capital. Although the business could raise more money by selling off more long-term assets, this £6,000 is the amount it can liquidise within a 12 month period. Therefore, the entire dental practice has a working capital worth £6,000.

Current Assets

Current Assets vs Fixed or Long-term Assets

Current assets are not to be confused with the long-term assets of a business. Long-term assets are the assets that your dental practice will expect to keep for longer than 12 months, which could include a lot of necessary dental equipment. They are essential parts of the business that cannot just be sold off to pay the tax bill. They also include assets that cannot be sold off for liquid cash in a year. 

They are sometimes known as fixed assets.

Although a piece of heavy machinery or a company car is an asset to the business, it is not included as a current asset in the working capital calculation as it cannot be quickly sold off for cash. It would also disrupt the day-to-day business operations to do so.  

Long term assets include items such as land & property, machinery & vehicles and intangible, soft assets such as copyrights and patents. Inventory will usually be included as a current asset, since it can often be expected to be sold in 12 months. However, heavier pieces of inventory may not be included and will have to be judged individually. 

Current assets, on the other hand, are the assets which can be, or will be expected to be, sold off or otherwise liquidised within a 12 month period. 

Examples of current assets include:  

Cash and bank balance 

Most businesses have some form of account with a bank or similar financial institution. Most also have some form of ready cash available. This could range from a small petty-cash stash in the office to a locked safe containing thousands of pounds. These are immediate, liquid cash which can be instantly used to fund business operations. 

Inventory 

Certain pieces of inventory are often considered current assets. Whether inventory items will be listed as a current asset or not depends on whether it can be sold off for liquid cash within a 12 month period (or before the end of the business cycle).

For instance, a warehouse full of food can be reasonably expected to be sold within a 12 month period. Therefore, it is a current asset, since within a year you know that your business will exchange those foodstuffs for liquid cash. 

However, the heavy machinery that the business used to process or harvest that food may not be expected to be sold off within that same 12 month period. Therefore, it would usually not be included as a current asset. Likewise, the property your business owns may be its most valuable long-term asset. However, you are not going to sell it off to pay a quick bill. Therefore, it is not considered a current asset. 

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Accounts Receivable 

Accounts receivable are the bills owed to your business (but not yet paid) for goods or services already rendered. For example, if you sell a customer a car and the deal includes them not having to pay any money for the first 6 months, you have an account receivable. This can often include long term dental services that can be billed at the end of a treatment.

Although you do not have the money in your business’s bank account at the moment, it is owed to your business. You may not be able to call it in earlier, but you know that it will be in your bank account in 6 months – unless the customer defaults! 

As long as accounts receivable are expected to be paid within a 12 month period, they are considered current assets. 

Marketable securities. 

Your dental business’s marketable securities are the debts and securities that you can expect to redeem or trade in with a 12 month period. If they are not redeemable within that 12 month period they are considered a fixed asset. They are financial instruments which can be easily liquidated into their market value in cash in one year.. 

Examples of marketable securities include things such as Government bonds and treasury bills, certificates of deposit and stock. 

Prepaid expenses 

Prepaid expenses are the expenses paid by the business before a good is received or a service is rendered. For example, leasing a piece of equipment or office space, or even insurance payments are considered prepaid expenses. 

Prepaid expenses are considered current assets if they are expected to be completed within 12 months. If your business leases a piece of equipment for less than 12 months, it is considered a current asset. If it is leased for longer than 12 months, it will be considered a fixed asset. 

Since the expense has already been paid, this means other working capital can be used for business operations. If you prepay £12,000 for 12 months rent at £1,000 a month, that £1,000 still shows up on the balance sheet. However, since you have already paid it, you essentially have £1,000 extra as working capital.

Current Liabilities 

Current liabilities are the financial obligations a business has that it is expected to pay back within a 12 month period. These are the debts that a business needs to pay back within a year, in other words, the business expenses. Debts that you are not expected to repay within that year are not considered current liabilities, they are known as long-term liabilities. 

Current liabilities are normally paid off using the current assets. Most businesses will have several current liabilities owed at the same time to suppliers and creditors. Most of the everyday costs of operating a business are paid monthly or as needed, and are therefore considered current liabilities. For instance, utility payments for the offices or warehouses, materials and supplies or business loan repayments. 

Examples of Current Liabilities 

Accounts payable

Accounts payable are the debts owed by your business for goods or services that have been already received or rendered. They are the outstanding invoices to your suppliers and vendors that are due to be repaid within 12 months. 

Any debt that is due within that period is considered a current liability. Debts that are not expected to be repaid in a year will not be listed on your balance sheet as current liabilities. 

Accounts payable will cover debts such as supplier invoices, utility bills and invoices from external companies such as legal and marketing services. 

Short term debt

Short-term debt, otherwise known as operating debt, are the short-term financial obligations your business has. Operating debt usually takes the form of short-term loans from a high street bank or another financial lender. They can also be issued as commercial paper. 

These debts are normally taken out to cover short-term operating costs of the business, such as supplies, bills and invoices. If the debt is expected to be paid within 12 months, it will be considered a current liability. 

If you have debt with a loan term of 10 years, that is considered a long-term debt. However, in that final year, it will appear on the balance sheet as a current liability since it is due within 12 months. 

Dividends payable

If your dental practice has shareholders who are paid dividends, they may be included are current liabilities on your balance sheet. Once it has been decided that a certain amount should be paid in dividends to the shareholders, they are considered current liabilities until they are paid. 

Accrued expenses

Accrued expenses are the expenses which the business knows will have to be paid within a year. They are listed as expenses on the balance sheet but have not yet been paid. Therefore, they are considered current liabilities. 

Accrued expenses can cover a range of different payments. For instance, accrued expenses could cover interest payments, including interest for long-term debts, payroll and tax.

Working capital ratio 

It is common for a dental business’s working capital to be expressed as a ratio, the working capital ratio. This is a numerical expression of the financial health of the business. A healthy working capital ratio would be between 1.2 and 2.0. 

Working capital ratios are calculated by dividing your business’s current assets by its current liabilities. For example, let’s say your business has current assets totalling £750,000 and your current liabilities come to £500,000. We divide the two and get a working capital ratio of  1.5. 

If the same business’s liabilities raise to £650,000, the working capital ratio changes to about 1.15. This business is approaching negative working capital, i.e. having more in liabilities than it does in assets.  This business may need to apply for working capital finance to pay its debts.

However, if the liabilities fall to £250,000, the working capital ratio is 3. Although it may appear at first sight that the higher the ratio the better, this is not necessarily the case. With £500,000 more in assets than it does in liabilities, this business has an excess of working capital that it should be using to grow the business. 

What can cause changes to working capital

A dental practice’s working capital is affected by a wide range of different factors. You can expect your working capital number or ratio to change almost daily. 

The most obvious are times when you makes large short-term purchases or sales for your practice. Purchasing new inventory or office supplies will cause your working capital to decrease by increasing the current liabilities. Likewise, selling off property or inventory will increase your working capital ratio by increasing current assets. 

The ratio will also change due to long-term assets and liabilities changing in status. For example, a 25 year mortgage is a long-term asset until the 24th year. In that final year the remainder is expected to be paid within a 12 month period, therefore making it a current liability.

There are also instances where customers default on their debts and you may not be able to bring in the accounts receivable that you had planned on. Changes to markets may also mean that your inventory is subsequently valued at less than you purchased it for. This reduces its value and creates a discrepancy with the balance sheet. 

If your practice is struggling to pay its debts, whether this be due to an increase in the liabilities or a decrease in the asserts, you may need working capital finance.

When you will need Working Capital Finance

Working capital finance loans are those loans taken out by any business including dental practices to cover short-term expenses. They are not taken out to cover purchases of long-term assets or investments such as property. Businesses apply for working capital finance loans when their current assets and cash flow cannot cover necessary short-term payments. 

For instance, a business may take out a short-term working capital loan to cover expenses such as payroll, tax payments, interest payments or inventory purchases. 

In a perfect world, all businesses and dental practices would use their own liquid cash or cash equivalents to cover these expenses. However, if a business has a weak cash flow or insufficient working capital in the form of current assets, they may choose to borrow the money to make payments in the form of working capital finance. 

Alternatively, businesses may not wish to relinquish any of their current assets to pay liabilities and may prefer to borrow money to do so. 

Businesses that experience a high degree of seasonality in their operations, for instance hospitality companies or businesses based in a tourist-centric region can often benefit from working capital finance. If they are unable to cover expenses in their off-season, a working capital loan can allow the business to make necessary purchases. 

Dental practices looking to grow quickly, or in the process of doing so, may also apply for working capital finance loans. 

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The term working capital loan is essentially an umbrella term for any short-term business support loan used to cover business expenses like payroll and tax.

As such, there are several different types of loans and methods of financing that can raise the working capital required to make important purchases and payments.

Options for raising working capital finance include: 

Commercial Loans 

Commercial loans are perhaps the most common form of working capital finance. These are simply commercial loans that have been received from a financial lender such as a high street bank.

Any loan that is intended to be used to make short-term purchases, as opposed to long-term investments, can be considered a working capital finance loan.

Equity Finance

Many dental practices choose to use equity financing to fund short-term payments. Equity finance is when a business sells part ownership of the business itself in the form of shares in exchange for capital. 

Although you can raise a lot of quick capital with equity financing, you will lose at least some control over the operations and strategy of the business. 

Equity finance can be raised in a number of ways. For instance, venture capital investors or business angels will purchase shares in exchange for capital. Similarly, you can float the business publically and offer shares out to the wider public. 

Mezzanine Finance

Mezzanine is a hybrid form of financing that acts as a middle ground between traditional commercial loans and equity finance. Mezzanine finance takes the form of a normal commercial loan that is guaranteed with business equity. 

In other words, you receive a loan in return for regular payments with interest. If you are unable to meet these payments, the lender has the right to receive payment in the form of equity. You will give up part ownership of your business to the lender if you are unable to repay in full. 

Overdrafts

It can be possible to obtain a business overdraft from certain banks and sources of alternative lending.

Overdrafts of your dental practice are, in effect, a form of unsecured loan. However, being unsecured does limit how much you can borrow. You will need to demonstrate a strong credit history and ability to repay loans on time to be able to secure meaningful funding in this way. 

However, should you be able to do so, overdrafts can be a good way to quickly raise short-term capital. 

Revolving credit facilities 

Revolving credit facilities can be another way to raise short-term working capital finance for business growth and necessary payments and are similar to overdrafts. A revolving credit is essentially a line of credit offered to businesses from banks and other financial lenders. 

A certain limit of credit will be agreed upon between the business and the lender. The business in question, i.e. your dental practice can proceed to then borrow anything up to this limit at any time. Interest is charged on the outstanding debt until it is paid. 

Revolving credit facilities are ongoing agreements between creditor and debtor, they are not a fixed loan amount like a traditional commercial loan. 

Revolving credit facilities can be a great way to regularly and reliably raise short-term capital.

Invoice finance

Invoice financing is a way for dental businesses to free up working capital that is currently tied up as a current asset in the form of outstanding invoices. 

When businesses sell to customers, this is often done so on credit. This is especially true for larger businesses who do not expect customers to pay immediately or for big dental treatments that are paid in instalments or after the treatment has been completed to its end. Instead, the customer is issued an invoice and they pay on or by an agreed upon date.

However, since the goods or services have already been purchased, their value is now tied up in that invoice. Until the invoice is paid, that value is absent from the business. 

Invoice financing is a way to free up that working capital by selling the invoice to an invoice factoring company. These companies buy the invoice for a charged percentage. The owed business can then be paid the value of the invoice quicker than if they had waited for the customer to pay on the due date. 

This frees up working capital that would otherwise be tied up as a current asset.

Asset Refinancing

Asset refinancing is a way for dental businesses to free up working capital that is currently tied up in their long-term assets which many dental practices usually have in spades. Through asset refinancing, your business can gain access to some of the cash value of the asset without having to sell it off. 

Refinancing allows you to borrow money against equity in the asset. This means that you can borrow money against assets you do not fully own. Your loan will be valued against the value of your equity. 

When you refinance an asset, you transfer ownership of it to the lender. However, you still maintain the use of it and the lender does not take it away. Once the loan has been fully repaid, full ownership of the asset is returned to you or at least your portion of equity is returned to you. 

If you are unable to repay the debt, the lender takes full control of the equity you laid against the loan. 

Asset refinancing can be a great way to gain access to value currently tied up in your fixed assets, whilst still keeping them in the business. 

Merchant cash advances

Merchant cash advances are a relatively new method of accessing working capital finance. Merchant cash advances allow businesses to borrow money valued against their average monthly profits. The loan is then repaid as a percentage of revenue each month. 

If a business makes lots of transactions using a credit card, merchant cash advances allow lenders to forward money based on the monthly credit card takings. This makes them a great option for retail businesses that have a good cash flow but not that much in the way of valuable assets. 

If your business made £10,000 last month, lenders will usually agree to lend you the same amount. You usually cannot borrow more than you make in an average month as you will be less able to pay the loan. 

Once the money has been advanced, the balance is paid back each month as a percentage of revenue.

Government support

In certain cases and in certain healthcare industries (including dentistry), you may be able to apply for government support to help cover working capital finance for your dental practice.

Many local councils offer financial support and advice to local businesses. It is worth contacting your local council to find out what support and signposting services they offer. You may qualify for a grant or loan directly from them. In other cases, they may direct you to external organisation who may be able to help.

The UK Government is also currently offering help with working capital finance to exporting businesses. The Export Working Capital Scheme aims to help businesses who are operating in the UK but exporting goods outside of the nation by assisting access to working capital finance.

The UK Government will guarantee up to 80% of risk to the lender to help fund pre and post shipment costs.

Click here to read our blog on How to finance a healthcare business.

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.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Start Up Finance

Your knowledge of the dental industry itself as well as the knowledge, skills, and the energy you put into your dental practice, are all vital components to enable your business to be successful. However, the success of your dental start up is also dependent on your funding.

Having the right start up finance is crucial if you plan for your start up business to succeed. 

Startup loans from Banks

For many dentists starting out on their own with their own practice, especially ones that have equity that can be borrowed against (e.g. a house), a bank loan might seem like the most logical option for you.

If a business opportunity presents itself to you as a dental associate, but the only thing you need is a substantial cash injection in order to take it up, then there are many banks offering various options of unsecured and secured start up loans. It is worth remembering that banks are strict about lending to start ups so be sure to be fully prepared when applying for one. 

Don’t be afraid to shop around (or use a commercial finance broker). You may have been with the same bank for years, but that does not mean that they will be available to provide the best deal for your business loan. Look at what every bank has to offer you, they all offer different perks and terms while taking out loans and some may be better than others, which is why it is best to shop around and find what is best for you. 

Banks such as Barclays are ready to explore different loan alternatives that are right for you if your business plans prove to be viable. If you are approved for a loan up to £100,000, you will usually have the money within 48 hours of signing the paperwork, giving you the means necessary to take your business to the next level.

These types of startup loans are helpful if you need a quick and straightforward way to finance your business. Most banks give you a fixed rate for the life of the loan so there is no need to worry about any sudden changes in interest rates. Repayments are spread over the course of 1 to 10 years. 

Click here to read our article on 5 Reasons to Use a Commercial Finance Broker

Government-backed startup loans

There are many government grants and loans available to small businesses and dental start ups, helping save money, lower start up costs and helping small enterprises grow. Government backed start up loans are not the same as grants. It is important to note that with government loans, you will have to pay all the money back, often including interest. 

These loans differ from small business bank loans as they are personal loans for business purposes. They are also unsecured loans which means you do not have to put up any assets or estate as security to receive the money. 

Borrowers can access between £500 and £25,00, payable over one to five years at a fixed 6% interest per annum. 

Government supported start up loans are available for entrepreneurs looking to start a business. The scheme itself is designed for individuals over the age of 18 who have a viable business plan, but no access to capital to fund their ideas.

A start up loan is a type of finance that is specially designed to help new businesses that have been trading for less than 24 months. A start up loan is in its basic form a type of personal loan except it is solely for business purposes and is also backed by the government. The loan is available to individuals looking to grow a business in the UK. The scheme can provide loans to businesses in every sector. 

When you apply you are usually paired with a dedicated and skilled business advisor who will support you throughout your application. If your application is successful, the loan comes with the option of 12 months free mentoring. 

How much does it cost to start up a business in the UK? 

Unfortunately, there is no whole figure that we can give you to determine how much money you will need to finance your start up business in the UK. Costs can vary greatly depending on the location and industry you want to get into, amongst many other factors; all of which you need to consider before you begin.

Once you have the answer to the location and industry and you have a viable business plan, it is important to figure out whether you have access to the start up finance that you will need to not only get your business started but also keep it running. 

The Office for National Statistics (ONS) disclosed that less than half of the UK businesses that started up in 2011 were still going five years later. The two main reasons for the high rate of business failure is due to unexpected costs and poor budgeting. So here are a few of the most important costs you will face and have to be prepared for when raising start up finance. 

More often than not these are costs that some people may class as ‘hidden costs’. These are some of the costs many dental practice owners forget to factor in when first starting up their practice henceforth giving them financial trouble further down the line. 

Many new business owners do not realise that they need to factor in professional business and legal advice to their start up finance before beginning their new venture, especially when the start up is in the healthcare industry.

It is worth researching what kind of fees you will need to pay for these services and also consider how much money you will need to set aside on legal advice and accounting services. All of which services are vital to many businesses, including any start ups. 

There are many solicitors and accountants that will give you a free consultation, this allows you to pre-plan and budget for the fees that you will need to pay them in the future. If you expect your finances to be particularly complex, it may be a good idea to pay an accountant a retainer fee so you can consult them whenever you need advice. 

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Business Premises

Unless you are planning to run your dental practice from your home, you will need to find yourself business premises. There are usually very few new businesses and start ups that will already own their own premises. It is more common to lease or rent from a commercial landlord. Therefore, you will often need to consider commercial property costs when applying for start up finance.

Commercial leases often operate on a quarterly rather than monthly basis, especially those for retail premises. This payment method means that instead of facing a smaller bill every month, you are faced with a hefty bill every three months. This can end up being quite a big expense for many new businesses and is one of the main reasons retail businesses run into financial difficulties therefore, it is imperative that you plan for these expenses beforehand. 

Read more about commercial property financing here.

Company incorporation 

You might want to set up a limited company, depending on your circumstances. Doing this directly through Companies House is relatively quite cheap. However, most people choose to use an intermediary firm to complete the paperwork. 

The process in itself can start at less than £10 for basic online services but usually can run up to hundreds of pounds, especially if you choose to use a registered office. 

It is also important to note that The Companies Act requires company directors to provide their ‘usual residential address’ to Companies House. It is important to note that if you do choose to provide your home address, this will be on public record. Another option would be that you could choose to use an address hosting service with a solicitor or formation agent however, this will often incur another fee. 

If your business is in need of an office space rather than retail premises a good option for you may be serviced office leases. These leases offer you shorter agreements, ability to pay monthly, as well as a lot more freedom and scalability. Serviced leases do include business rates, which can be an added financial burden over a regular lease. 

It may now seem that working from home will be the cheapest option for you but even while working from home, there will be setup costs. These will include computer equipment, office furniture and the addition to your monthly utility bills as you will be at home most of the day. 

Marketing

Marketing is one thing that many new businesses overlook as an expense when raising start up finance. To make sure that your new venture receives the attention and cash flow it needs to get off on the right foot and succeed. You need to make sure that people know about your business and what it offers.

Old fashion techniques such as word of mouth won’t help you drive sales in the way you need them to take your business off the ground in the first couple months of your business. You need to ensure whatever marketing option you decide, it gets the message out there and makes people know about your business and what it offers. 

There are various types of marketing available to you and the costs of each varies considerably. Online marketing such as PPC is one of the most effective types of marketing in this day and age and many online marketing techniques are fortunately quite cheap while many offline marketing methods such as billboards and direct mail involve big initial outlays.

However, there are also quite expensive online marketing techniques to also keep in mind such as social media ads and influencer sponsorships that are proven to be very effective marketing techniques.

An example of a cheap effective way to market is to optimize your website to make sure that you are well placed in search engine results. This is a very low cost but highly effective way to generate business. 

There are so many businesses that do not allocate enough budget towards marketing and that is usually the fund that gets cut when when start ups are strapped for cash. You may think that dentistry is an service that is always need needed and will therefore always provide revenue, unfortunately with so much dental competition out there, marketing your dental practice and dental services is mandatory for your dental practice to succeed, sometimes this means hiring marketing experts to help.

It is important to note that you may be right with thinking that your money will be better spent with tangible aspects of your business that seem more important such as buying stock, leasing an office or buying equipment. But, your business venture will struggle to attract customers and make money unless you make them aware of your business to begin with. This is why you should think very carefully before you cut your marketing spend.

Remember, you need to spend money to make money!

Equipment, stock & tools

If the business you are trying to start up is a retail business, stock is most likely to be one of your biggest expenses. However, if your business is a dental practice, you will need to set aside funds for equipment that you will need. Most suppliers will offer you 30 days credit, some will even offer more depending on the circumstances. You can take this credit period and use it to your advantage to help ease any cash flow problems during your first month of business. You may also want to put off buying stock until the last possible moment to ensure you make the most of your credit period. 

The amount you spend will depend on the nature of your business. Regardless of whether your business is in the retail sector, or the healthcare dental industry, it is important that you shop around first to ensure that you get the best deal from suppliers. 

Again, regardless of the sector that you are operating in, tools and equipment is necessary for all businesses, even if it is just a computer and some desks, and they can be a big upfront expense that you will need to consider and budget for in your start up finances.

Read more about Asset Finance here.

Business travel 

Often, travelling comes with starting your own business, dentistry doesn’t necessarily require many flights and long road tips but while you are travelling for meetings to seeing clients, it is important to factor travel costs into your business expenses, remember, you are able to claim back any deductible costs in your tax bill

Business travel includes the costs of public transport, or maybe even buying a commercial car or van. If you are buying a new vehicle for business purposes, remember that you need to include all these associated costs in your cash flow plan. Buying a new vehicle is a big financial spend that is accompanied with other expenses such as fuel, road tax, insurance, breakdown cover and loan repayments; to name only a few.  

Business Insurance  

For most businesses, you will need insurance from the first day you begin operating. Without it, you may risk hefty financial expenses if you are ever in the unfortunate position that something goes wrong. Business insurance isn’t always very expensive, but it is important to get the right type of insurance to cover your business just in case. 

The main types of insurance to consider are public liability insurance, emperors liability insurance, and professional indemnity insurance. There are also other insurance options available to you that can protect your assets such as tools and equipment as well as your premises. 

What is a business plan?

In the simplest form, a business plan is essentially a map of your business that outlines the journey of your business venture, your goals and specific details on how you plan to achieve all the goals you have set. Do not get caught up with the idea that a business plan has to be a long, formal document as if it is some type of essay that will get graded.

Maybe that was the way it was once upon a time but, that just isn’t the case anymore. You don’t need the business plan to be excessively long with big words that make you sound fancy and smart. Your plan needs to be succinct, to the point and you need to make sure that whoever is reading it understands that you have thought of every possible expense, and every single small subset that will potentially be part of your business. 

At its heart, a business plan is just a plan of working out how your business will actually work and become profitable. It will also include clear steps of how you’re going to make it succeed. 

To be clear, in your business plan, especially for start ups, you need to define your business goals. From the beginning, establish clear objectives with actual, realistic, measurable results. Link high-level goals and initiatives that are realistic and achievable to upcoming work, show how the work you will do will deliver value. The sole purpose of your business plan is to help break any uncertainty in the reader’s mind about your potential business. Including aspects such as sales projections, expense budgets and carefully thought through milestones.

It will help to include how you have articulated the foundational elements of your business strategy. Visualise where your company is headed and base it solely on real numbers and statistics. As mentioned earlier, you need to set budgets and add financial data to your plans. Estimate revenue, costs and projected business value. These figures will allow you to make better, more informed expense decisions and report investments in a meaningful and accurate way. 

It will become pretty obvious to certain people that you don’t know how much money you need and when you need it if you haven’t categorically laid our projected sales, costs, timing of payments and expenses on your business plan. Whether you need to convince friends and family to invest in your new venture or investors and banks, these numbers need to be included to ensure that you are someone who is worth investing in. 

For start up companies, the business plan should be focused on explaining what the new company is, what it is going to do and how it is going to accomplish the goals you have set out. The most important aspect that your business plan needs to include is why and how you are the right person to achieve your goals. 

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Starting a business with poor credit history 

Accessing capital is necessary for business ideas that are looking to grow and become profitable. Usually, start-up loans or line of credit is the most usual, traditional and obvious place to find the funding that you need but many new businesses find themselves knocked back from funding applications because of their poor credit history. The first step you need to take is to know whether you have a poor credit history or bad business credit. 

Firstly, it is important to understand that having bad credit is not the same as having no credit at all. If you have no credit history, lending becomes lightly simpler for you. You just need to demonstrate that you have a viable business plan for your dental practice that is worth investing in. A poor credit rating can affect your ability to get a start up loan from mainstream lenders, such as banks. Luckily, here are various alternative ways to secure a business loan as well as repair your bad credit history so finding funding in the future is easier for you to obtain. 

A start up loan usually means that you have no previous trading history. 

Can I qualify for a small business loan with bad credit?

YES!

While poor credit will hinder your chances of securing start up finance with many traditional lenders, it does not end your quest for funding. Having bad credit history means that you need to change who you go to get your financial capital from, it doesn’t put you out of the game for good. There are still plenty of start up finance options available to you now more than ever, even if you have a bad credit history. You need to be mindful that while some lenders will still lend you money, due to your credit history extra security may be needed to put in place as collateral as well as higher interest rates. 

Who lends to start up businesses?

There are many different kinds of lenders who will help fund start up dental practice; both traditional and more contemporary lenders are now available to suit your individual needs best. It’s a great time to be a start up right now because, thanks to online lending companies and a pledge from the UK government to support small businesses, there are so many options available to you beyond traditional high street banks for start up finance.

Where can I get start up funding?

There are a few different options available to you other than tradition banks to help fund your startup. Here are a few: 

Banks 

A bank loan is capital that you borrow from a bank over a fixed amount of time. Applying for start up finance through a bank is still the most traditional way to obtain a loan to help start up your business. These loans can be secured or unsecured, depending on your circumstances and business plan, both options may be available to you. 

Bank loans protect your cash flow from the impact of large purchases and help your business get off the ground with fixed monthly repayments. Banks are no longer like robots with cue cards reading off a script to decide whether you are worthy of a loan or not. Most banks look at your business plan, your previous relationship with them (E.g debit/credit accounts) as well as you as an individual and give you a personalised quote from that. In most cases you can find out whether you are likely to even get approved before you apply. 

Remember, an amazing business plan is not just pivotal for you to create a clear vision for your practice but is instrumental if you are to win funding from the bank. Ensure you provide as much information as possible about how the money will be used. 

A huge benefit from borrowing from banks is that you retain full equity in your company and the bank does not have a say in how it is run. Most banks also offer complete applications that can be carried out online and if you are approved, you can receive the funds immediately during working hours.

Government scheme

The government start-up loans scheme has already lent for £100 million in funding start ups. This scheme not only gives money to these businesses, it also understands that being an entrepreneur may mean that you lack some necessary business experience to help your company become profitable which is why the scheme pairs applicants with a Delivery Partner.

This individual who you are paired with is accompanied with the skills necessary to help the start up business become approved and as successful as possible. This individual will help in creating a business plan and will continue supporting the business even after the application process. Those of whom are granted the loan will be paired with another individual who will become their mentor to guide them as they start their business. As this is a loan, not a grant, the loans must be paid back within five years, often with interest.

Crowdfunding 

Crowdfunding is becoming an increasing popular way to raise capital for start up funds. If you are unfamiliar with crowdfunding, simply it is a way for businesses to get small amount of funding from a lot of people to raise the funds they need rather than traditionally borrowing a large sum from one or two lenders. 

By listing on crowdfunding websites such as kickstarter or indiego.com, your proposal can be seen by masses from hundreds to thousands each of whom can pledge as much or at little money to your business as they want. Essentially it’s similar to donating however, crowdfunding is not a catch-free capital. 

Equity based crowdfunding means that in return for someone’s investment you trade equity in your business and there is also reward based crowdfunding where you have to offer something to your investors in return for their investment, this could be anything from free tickets to your launch event or sending them your product for free to try. 

Loans from not-for-profit lenders

There are organisations that provide an alternate source of funding. Dental businesses can apply for up to £25,000 in funding and similar to the government start up loan scheme, individuals will be paired with an experienced mentor/ business advisor who can help them with their application as well as any further guidance needed. 

Peer to peer lending

Peer-to-peer lending is another fairly new way to obtain the funds you need for a startup. It is similar to crowdfunding where there are a number of investors on an online platform that you can reach. The majority of these peer-to-peer lenders have online loan applications and also have loan calculators so you can set the loan amount and term that suits you best and you can see beforehand what your monthly repayments will look like.

After you have applied to peer-to-peer lending for start-up funding you can find out if your application has been successful, with most lenders, within as little as 24 hours. If your application is successful, your loan will be posted on their website where investors will be able to pledge if they would like to invest. The funds will then be released to you and you’ll start monthly repayments. 

Click here to read our blog on how to finance a healthcare business.

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.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Acquisition Finance

What is Acquisition Finance?

Acquisition finance is the capital that is obtained for the purpose of buying another business. 

Obtaining acquisition finance is a vital part of the natural cycle of many businesses. It is often necessary to require acquisition finance when a dental practice has successfully started up and grown its client base to a point when it is then time to grow the business by purchasing another practice. It then needs to raise funds in order to complete the transaction. 

By acquiring another company, a smaller company can increase the size of its operations and benefit from the economies achieved through the purchase. An acquisition can help your dental practice in many ways. For example, it can help your dental practice: move into a new market segment, increase the client base, expand, gather knowledge, and improve their output. However, these opportunities often come with big expenses. Bank loans, lines of credit and loans from private lenders are all common choices for acquisition finance. Other types of acquisition finance also include start up loans (government funded), debt security and owner financing.

The business market is always changing and has gone through many significant changes over the last decade however, the biggest changes within the dental industry have occurred within the last year due to the pandemic. There are now various new lenders available for acquisition finance, new deal structures and new lending criteria. 

How to raise acquisition finance

There are many ways to finance dental practice purchases. Most purchase transactions are structured using some of these methods. It is perfectly viable to only use only one method if that is sufficient enough for you however, in many cases, some of these options are used in conjunction to finance a business acquisition. The methods you chose will be the ones that best suit your needs and business transaction.

  1. Using your own funds

    To use your own cash reserve is one of the simplest ways to finance a business acquisition. These funds can come from your savings, estate income or home equity.

    Although using your own funds is a very effective debt free way to complete the purchase, it is uncommon for an individual to acquire a business using their funds alone for the purchase. Instead most buyers use their personal funds in combination with business loans or with seller financing. The large personal funds of an individual or company can work as leverage to them allowing them to purchase larger, more established dental practices.
  2. Government loan

    Another option to source acquisition finance is to get a loan or grant that is certified from the UK government, available dental practices as well as many other businesses and industries. These loans are often referred to as start up loans with the intent to help your dental businesses grow. Unlike a business loan, this loan is an unsecured personal loan. They are government backed loans and charge a fixed rate of 6% per year. The term to repay the loan can range over a period of 1 to 5 years. The advantage of this type of loan is that there are no application fees and no early repayment fees either.
  3. Bank loan

    Getting a conventional loan such as a term loan from a commercial bank to raise acquisition finance can often seem like the easiest option to fund your practice purchase, but it can be very difficult. Usually, as a rule, banks lend funds against existing assets rather than against business plans. Therefore, to get a loan from a bank, you usually must have substantial assets and a good credit history at the least. For most conventional borrowers, the best option available to allow them to get the funds they need is to get a bank loan guaranteed by their existing assets.
  4. Leveraged buyout (LBO)

    A very common financing structure to buy a smaller dental practice is a leveraged buyout. Leverage buyouts are the acquisition of another company using a significant amount of borrowed money in order to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. In a leveraged buyout (LBO), there is usually a ratio of 90% debt to 10% equity.
  5. Seller financing

    Another common way to source acquisition finance is to ask the seller themselves to provide financing. In this case, the seller provides you with a loan that is amortised over a period of time. The proceeds that you retain from the business will be the funds that allow you to pay back the loan. Business buyers like seller financing because it is a lot easier to obtain than conventional financing, with the bonus benefit that it can also be cheaper.

    On average, sellers are usually willing to finance 30% to 60% of the agreed upon sale price. There are very few sellers that will finance more than that. However, it is highly dependent on what type of buyer you are. If you are a strong buyer with substantial assets as well as a large down payment, then there is a chance that there will be a seller that will be willing to finance a higher percentage.

    Like any other type of finance, the seller will only provide financing for you after they have done their due diligence on you. Your credentials such as your credit, assets, business plan and experience will all be assessed before you will be provided any funding. Experience within the dental industry itself is vital, having experience being a dental practice owner will work very well in your favour.
  6. Assumption of debt

    There are two common ways to acquire a business. You can either purchase the assets or the stock. Buying the assets ensures that you the only thing you are purchasing are the assets themselves without any of the ‘bad liabilities’ for example, future lawsuits. However, if you buy the stock, you get all the assets of the company, its liabilities as well as all the risks involved. 

    Most asset purchases involve the transfer of some assets and liabilities. This point is important because part of your payment to the seller may be the assumption of existing business debt. This process can sometimes get complicated, as you often need the approval of the debtors before assuming the debt. 

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What is a “No-Money-Down” Opportunity?

There are often entrepreneurs who look to acquire businesses for “no money down.” This means that these entrepreneurs are hoping to get 100% external lender or seller financing. To clarify, for all intents and purposes, these transactions do not exist.

From a seller or lender perspective, they would need a pretty big incentive to be giving someone 100% financing.

While some transactions could meet this criteria, the odds are as likely as winning the lottery. In other words, “possible, but not probable.” It’s best to prepare yourself to put a substantial amount of money down.

Acquisition Finance and Closing Costs 

It is important to remember that getting financing for your dental practice usually increases your closing costs. These closing costs will include your contribution to the purchase of the business and will directly come from you, the buyer. The size and type of business you are looking to acquire is heavily dependent on the amount you need to budget for closing costs. The costs vary but as a rule it is best to budget at least 10% of the purchase price for closing costs however, if you are able to allow for 20%, that would put you in a much better position. 

What is a management buy-in (MBI)?

A management buy-in (MBI) is the acquisition of a business by a management team or individuals external from the current company on sale.  

MBIs usually require external funding from banks, private lenders or private equity investors. After these investors contribute to the acquisition of the company, they will be entitled to a share of the profits if the company becomes profitable. 

A management buy-in team often competes with other purchasers to buy the company. The competitors often vary but it is usually in the best interest of the company to allow an internal acquisition (MBO) rather than external (MBI) to take place.

After the acquisition goes through, the buying managers may replace the current board of directors with their own representatives. An MBI can vary from 100% acquisition of a business to a majority controlling stake in the company. 

The process of MBI

The first step that will need to be taken is that an external team will need to gather all the necessary information about the company it intends to purchase. This includes an in depth market analysis of the company as well as its buyers, products, suppliers, sellers and its competitors.  

An important part of this step is to find out about any other competing buyers who are interested in purchasing the target company; many dental practices for sale often have a lot of competitive buyers. Once this step is completed, the external management will begin negotiating appropriate selling prices with the vendors. 

Advantages of Management Buy-Ins

In the case that the current owners and management team of the practice in question are not able to effectively manage the company, then an MBI can be a convenient win-win situation for both buying and selling parties. The new management will be able to offer new insights into growing your practice further and may also have better knowledge and experience which they can use to revitalise the company. 

Having experience and knowledge of the sector of the company you are looking to acquire will benefit you immensely, this is why many associate or principle dentists succeed exponentially when they move on to being practice owners. This knowledge will enable you stand out and make you appear to be a great candidate amongst competitors if you have that experience and knowledge behind you.

New management will bring new contacts and opportunities for a company, often bringing in new management and ideas to a dental practice will help revive it and bring new clientele. 

A new management regimen may also motivate current employees as well as bring in ‘new blood’ especially within heath care practices. The change of management could change the entire company morale and client/ patient experiences, particularly if the company is performing poorly.

Disadvantages of Management Buy-Ins 

The reason that an MBI is needed is usually because management lacks the financial power to buy a business outright, which is very common. This usually means that if management do decide to buy, then they might require additional financial help. This typically comes from a bank or private equity fund, which then introduces additional debt to the company and spreads equity thinner amongst investors. 

Debt repayments can reduce profits significantly, they also reduce the money available to pay dividends to shareholders. 

Many investors tend to want to exercise some level of control over the company. In turn, this results in management having to give up some control over the company for investors to be able to have their say. 

Man with credit card borrowing money online

Although having new management can help change things in a company for the better, it can sometimes also have the adverse effects. The new management may fail to bring the necessary growth of the company that was expected by their arrival.

As new management comes in, a management style change is inevitable. In some cases, existing employees do not appreciate the change. It could decrease morale and make them feel demotivated creating further problems down the line. 

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Business Acquisitions Often Use Multiple Sources of Funding

It is common to use more than one source of acquisition finance to purchase a business, a lot of the time it is necessary. In addition to the funding needed to acquire the company, partners may want to include a line of credit or a factoring line to handle cash flow after the sale closes. There are other ways that you can potentially structure the transaction depending on the nature of the business and its assets. 

Funding a Management Buy-In 

Most MBIs are financed through a combination of debt and equity. There are other sources such as deferred loans that could also be used. 

Equity will typically comprise ordinary shares and redeemable preference shares. The investors and management of a company will usually subscribe to shares in the holding company in a typical private equity transaction and its subsidiary will act as the bank debt.

The cost of a complete management buy-in is comparable to what it would cost to buy the entire company. It is very rare that a management team will have the funds without needing external funding to aid them in buying a company. 

Acquiring such businesses does produce high costs, however it may be assuring to know that lenders may be sympathetic to new owners. You should aim to invest in a dental practice that is already performing successfully as you can avoid the costs and risks of setting up a new venture in its entirety. By taking over a practice that is already operating successfully, you can avoid the liabilities and costs that may come when taking over a business.

There are a few ways to deal with these costs after a price has been agreed. Usually to fund the transaction, it requires a combination of debt and equity derived from either the buyers, seller or financiers and can be agreed in numerous ways. Many of these funding sources can also be used in conjunction with one another.

Buyer contribution

These are funds that come from the management team themselves. Usually they are required to put up their own personal funds initially to prove their commitment to the transaction. The buyer’s contribution can be raised by selling assets or gaining a second mortgage on an estate that they own.

Asset Refinance

Putting up the assets of the company such as premises and stock or dental equipment (x-ray machines) can generate a high level of funding. Using the leverage of these assets of the company to buy the company itself can prove to be particularly effective especially to businesses with large investments in property. A re-mortgage on a commercial property can raise considerable finance for a business and an additional benefit is that the costs can be spread over 20 years.

Vendor Loan

The vendor themselves can help provide acquisition finance to fund the transition if they choose to donate a sum of their equity as a loan to the company, this will eventually be repaid to them at a future time.

Private equity

Although private equity firms may be able to advance acquisition finance for an MBI transaction, they may also be at liberty to impose strict terms and conditions attached to their financing. These could involve them controlling how certain parts of the practice should be run.

Business Loans:

There are business lenders who may be able to offer acquisition finance as unsecured loans that are repayable over the course of three to five years. A larger amount of money would then be transformed into a secured loan which necessary security of assets from the business would be to be added. 

MBIs and private equity 

A vast majority of buyouts are financed by private equity. MBIs will almost certainly involve private equity. MBIs usually always involve a private equity backing because they represent a higher risk to an investor than a MBO. 

It is common for a private equity loan to involve a loan component as well. Private equity funds invest money in an MBI in return for a proportion of the shares in the company. 

It is important that management teams are aware that private equity funds may have different goals. Private equity backers have the sole intention to make a return on their investment, usually in three to five years. This contrasts to management, they tend to hold a longer term view as this could potentially be their entire career.

Private equity backers like many others, will also want to conduct extensive due diligence before making an investment. 

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What is BIMBO?

A BIMBO is a buy-in management buyout, It is a form of leveraged buyout (LBO) where both incoming and existing management are involved in acquiring a company. The existing management represents the buyout portion while the new management represents the buy-in portion. 

What are the disadvantages of BIMBO?

In order for BIMBO to work, new and existing managers must be able to get along. It is natural for new managers to have new ideas and plans that they wish to implement right away while existing managers will try to maintain their business like they always have. These differences between managers can often cause a lot of friction. This can often result in many complications. Pronounced conflicts between managements will distract from the core business and will result in inhibiting profits.

The disadvantage of BIMBOs is that they usually involve an increase of debt of a company. Management needs to ensure that after the acquisition of the company, the fundamentals of the business are adequate enough to service the debt acquired and not cause any further financial stress for the company. 

What is a Management Buy-Out (MBO)?

A management buy-out (MBO) occurs when the management team of a dental practice collectively uses their own assets to buy all or a significant amount of shares in the company they work for. The buy-out is usually achieved through each member’s own funds, however it is common for individuals to require external financial aid from banks or private investors. This could further entitle external parties to a share in the companies profits, should the company make any gain.

Why do MBOs happen?

Often MBOs occur when a shareholder is about to retire or give up/ sell their shares. This gives the management team the perfect opportunity to become shareholders within the same company. 

MBOs are usually a quicker and more efficient option for maintaining a business than to sell the business to a third party. It is also in the best interest of the business itself as the management team already knows the business well, this ensures that they will be able to take over the dental practice completely and continue its growth.

Having an existing management take over requires less time to conduct due diligence, and it presents a relatively low risk path to owning the said business. The current management understands what the company needs to be successful going forward. 

Advantages of MBOs 

The process of an MBO offers advantages to all parties involved. In particular, it allows for a smooth transition of ownership with little impact on the continuity of the business itself; the dental practice can resume its business continuously as normal. 

The management knows the company already, this reduces the risk of failure or unanticipated problems that an MBI acquisition would usually have. 

Current employees are less likely to have a problem with the acquisition change of the company as the status quo is likely to be maintained during the takeover. 

If the company was to be sold through a third party, management may not wish to continue with the business therefore an MBO might prove to be the only mutually acceptable sale route that would benefit the company. 

Disadvantages of MBOs

Management usually lacks the financial power to buy the company outright. This means that a third party seller may be harder to attract. If management decides to buy in then they usually require additional financial funding from banks or private equity funds. This extra funding is typically needed in MBO acquisitions. 

Although it is needed, the extra funding needed for MBOs introduces debt to the business and spreads equity a lot thinner amongst investors. 

Debt repayment affects the books significantly! The repayments may also hinder the company’s ability to pay dividends to shareholders. 

The more equity is spread, the more likely it is that investors want a more controlling say in the company, resulting in management depleting their control in the company in the future. 

MBOs need a lot of working capital to allow the company to be successful in the future. For an MBO to be sustained, the company will need strong fundamentals. This means that the practice itself will need to generate adequate profits on a day to day basis to sustain itself as it develops and provides adequate return for stakeholders, as well as being able to support ongoing capital expenditures. 

What are the differences between MBO and MBI 

The main difference between a buy-out and a buy-in is that the management is external to the company. Simply, this just means that during an MBI, there will be a lot more due diligence required than an MBO. 

Usually, it is thought that the management that is internal to the company will be advantageous as these employees are already experienced and well versed in the company’s affairs. While a management taking over that is external to the company, will usually not be as informed as an MBO offer would be.

Although there are character differences between MBOs and MBIs, the legal structure between the two types of acquisition are usually very similar. 

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Finance operations 

Unfortunately, obtaining acquisition finance to buy the business is just the beginning. You will still need to ensure that you have enough funds to effectively operate the business successfully once you acquire it. It is common that people will need additional operational funding however, it can be very difficult to try to get funding immediately after purchasing the business. To ensure you have the funding that you need, it is best to negotiate it while you are negotiating the purchase. 

This section discusses common ways to finance operations.

Line of Credit

An effective way to access acquisition finance is by using a business line of credit. This revolving facility allows you to borrow the money as and when you need it and it can be paid down as your cash flow improves. Although qualifying for line of credit can be very challenging, it is one of the most flexible ways to finance the operations of a business. 

Self-Funding

One of the easiest ways to finance operations is to use your own cash reserve. This reserve can initially fund your acquisition however, it should eventually be financed by the cash flow of the business. Rather than paying suppliers and shareholders immediately, you can also improve your cash reserve by paying your suppliers on net-30 or net-60 day terms.

Invoice Factoring

Lastly, one of the more common reasons businesses experience cash flow problems is due to their cash reserves running low. This problem is common for companies that sell to commercial clients. This setback can seriously impact operations.

The solution to improve your cash flow is by using invoice factoring. It is easier to get than other types of funding and can work well with corporate acquisitions. This solution finances your slow-paying invoices as well as improving the overall cash flow of your business.

What is a leveraged buy-out?

A leveraged buyout, commonly referred to as an LBO, is a type of transaction that companies use to acquire other businesses. Through LBO the business is purchased with a combination of equity and debt. The company’s cash flow is the collateral used to secure and repay the borrowed money. Essentially the buyout is funded with debt. 

The deal is structured so that the target company’s assets and cash flows are used to pay for most of the acquisition finance cost. The purpose of an LBO is to allow a company to make the acquisition they want without having to commit a lot of capital to it. 

Advantages of a Leveraged Buyout

The main advantage of a leveraged buyout is that the buyer gets to spend less of their own money.

An LBO can also lower a business’ taxable income, so the buyer will see tax benefits that they have never previously had. 

The buyer will see a bigger return on equity than any other financing buyout scenario as they are able to use the sellers assets to pay for the financing costs rather than their own. 

An LBO can improve a company’s market position and even save it from failure. 

For the seller, a key advantage of an LBO is the ability to the company even if it is not at its peak performance. As long as it still has a cash flow it can be sold. 

Disadvantages of a Leveraged Buyout

From a buyer’s perspective, LBOs have some risks. The main disadvantage is that there is a very slim margin for error, if the company is not able to pay the debt, they will get no return at all. 

If the returns of the acquired company do not exceed the debt financing costs or the cash flow is not sufficient enough to handle the high interest rates exacted by the LBO, there is a high bankruptcy risk. LBOs are especially risky for companies in highly competitive markets. 

LBOs have high fixed costs of debt. Often LBOs result in having to downsize a company.

LBOs are not appropriate for firms with high growth prospects or high business risk. 

Click here to read our article on How to finance a healthcare business.

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.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Asset Finance for Dentists

Asset Finance for Dentists – Webinars and Podcasts

What is Asset Finance?

Asset finance is the funding raised by a company to either purchase or hire assets. Dental practices all require some kind of asset in order to operate. Whether this be general office equipment, specialised machinery or even furniture.

In many cases, companies do not have the up front cash required to purchase these assets, especially since most of the necessary equipment can be quite expensive. This is especially true of start-up businesses that have not had time to build up reserves of capital.

It is also true of more established businesses that are experiencing cash flow issues, or maybe wish to purchase extremely expensive equipment. 

Fund the Purchase with Asset Finance

In these circumstances, many dental businesses will approach commercial finance providers to attempt to source asset finance to fund the purchase. Asset financing can work in a number of ways and the terms of the loan will vary depending on the provider. 

For instance, the asset finance provider may provide you the money to buy the asset outright. On the other hand, they may prefer to buy the asset themselves and then loan the asset to your company.

At the end of the loan term the asset could become property of the borrowing company. On the other hand, the asset finance company may wish to keep the assert themselves once the loan term is completed.

Asset Finance vs Asset-based Finance.

Asset finance is similar to, but not to be confused with, asset-based finance. Asset finance is the money raised by a business to purchase or hire equipment for the company. However, asset-based finance refers to the security put up against a loan as a guarantee. 

Asset-based lending is often used by companies which need short-term lending to alleviate problems in cash flow, such as payroll issues, and to keep the business running on a day-to-day basis. 

Secure a loan using an asset

Asset-based finance is a method commercial finance lenders use to guarantee their investments. Asset-based finance is, in essence, a process whereby a lender will secure their loan using one of the company’s assets. 

Lenders will usually use assets such as specialised equipment or machinery, company vehicles, any property the company may own and even accounts receivable.

These assets are used to guarantee the loan repayment. In other words, if the borrowing company is unable to pay back the loan in full or on time, the asset-based finance lender will seize the asset (or assets) and sell them in order to recuperate their loss.

Asset and Asset-based Finance Together

Asset finance and Asset-based finance can also be used in tandem. If you are a start-up dental practice with minimal working capital, or perhaps an established practice struggling with liquid capital or cash flow problems, you can use asset-based finance to purchase equipment. 

In these cases, businesses use the asset itself which they are borrowing to buy as the collateral. For instance, you may be a dentist opening your first dental practice and you need to purchase expensive x-ray machines.

What do you do if you don’t have tens of thousands of pounds lying around to buy it? 

You would use asset-based finance to raise the money you need to purchase the machine. However, the lender is also using that x-ray itself as the collateral asset. This means that if you are unable to pay back the loan, the lender will seize that x-ray and sell it on to recoup the loan. 

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What is an asset?

To understand asset finance it is important to understand what an asset is.  An asset is essentially any piece of property owned by a business, not including land or a building.

The assets a business owns will vary from company to company and industry to industry. 

Most businesses will need general office supplies such as desks, chairs, IT equipment and even smaller items like stationary. A dental surgery will have dentist chairs, special lighting and a lot of specialist equipment. These are considered business assets and can be purchased using asset finance or asset-based finance. 

Company vehicles can also be purchased using asset finance. These vehicles could be large lorries and trucks used to haul heavy goods or equipment around the country. They could also be small private cars intended solely for business related travel. 

Industry-specific companies will also need to purchase specialised machinery and equipment for their day-to-day operations and these are often incredibly expensive.

For instance, a dentist’s private practice will need surgical chairs, the medical equipment and general office supplies.

However, there will be incredibly expensive, specialised machinery such as x-ray machines, scanners and digital imagery equipment, machinery for manufacturing dentures, implants and retainers and much more! 

Durable, Identifiable, Moveable and Saleable

That is not to say that lenders will fund any product you tell them you wish to purchase. Generally speaking, to be eligible for asset finance, an asset must meet criteria known as the DIMS criteria. 

DIMS stands for – Durable, Identifiable, Moveable and Saleable. These criteria are used by asset finance lenders to determine whether the asset being purchased is suitable for asset financing and, thus, a safe investment for their money.

Assets eligible for financing are often split into 2 categories. Hard and soft assets. 

Hard Assets

Hard Assets are those assets which are durable and have a good resale value at the end of their term with your business. Hard assets are most often used as security against asset-based finance due to their high resale value.

In other words, if you fail to pay the debt, hard assets will be able to pay it off instead. Hard assets include items such as heavy machinery and vehicles. 

Soft Assets

Soft assets are those assets which have a greatly reduced resale value at the end of their lease term. Due to this fact, soft assets may require additional security on the part of the borrowing party to lower the risk of the borrower, and thus secure the loan.

Soft assets include things such as IT software and medical equipment which cannot be reused. 

Very few businesses, especially newer start-ups, will be able to raise the funds themselves necessary to purchase this much equipment. Established dental practices will a healthy client base will find it easier to fund new equipment with their cash reserves.

However, expensive equipment can eat up entire emergency cash reserves and it may be advisable to borrow the money instead to protect the day-to-day running of the business. 

Vehicle Finance

Vehicles are a very common asset purchased through asset financing. Vehicles are expensive but necessary aspects to many businesses. However, it can be difficult to raise enough money to buy one, let alone an entire fleet. 

Most vehicle dealerships will offer their own payment structures and schedules. However, it may be more economical to purchase the vehicle outright using an asset financing company and paying them instead.

This is because asset financing companies are usually more flexible on the kind of loan terms they can offer. 

Asset finance can make a lot of sense when purchasing vehicles for several reasons. Firstly, businesses have the option to purchase expensive assets without having to raise the full amount first.

Additionally, since many asset finance terms mean that the finance company retains ownership of the vehicle, companies are protected from maintenance fees and depreciation. 

Why use Asset Finance? 

Asset financing is used by all kinds of businesses but is especially helpful for dental practices as it helps aid the purchase of necessary equipment for their operations. Limited companies, social enterprises, charities and sole traders are all eligible to apply for and secure asset finance.

Historically, asset financing was mostly used by larger companies. However, in recent years the threshold for the amount that can be applied for has lowered.

Borrow money to buy an asset

There are a multitude of reasons why a company or sole trader may use asset finance to grow their business. The simplest reason for most businesses is that they cannot afford to buy the asset outright.

The more expensive assets such as specialised heavy machinery, cutting-edge technology and vehicles can be almost impossible to purchase in one lump sum for many businesses.

This is especially true of newer start-ups and small to medium enterprises (SMEs). Without the large reserves of capital that the more established businesses have, it can be extremely difficult to fund the early purchases of necessary equipment.

Spread payments over a number of months

In these situations, it might make more sense to apply for asset financing. This spreads the cost of the asset over a more manageable term. 

Instead of paying out a large lump sum, asset financing allows you to spread the payments out over several months. This allows you to better plan and budget your company’s cash flow.

Save capital for an emergency

Even if your company, or you as a sole trader, have the cash available to purchase an asset, you may still wish to apply for it via financing. One of the reasons for this is, simply, that you may need that money for other things.

The asset in question may be essential to your business however, purchasing it immediately with your only available cash reserve is not essential.

Why give up your rainy day fund or disrupt your company’s cash flow when you can apply for asset financing and spread the cost?

What happens if you purchase a new company car with your reserve of capital and the next day your first company car breaks down.

Now you’re back to only having one car. Only this time you don’t have that rainy day fund to get it repaired.

However, if you had purchased or hired the new car on asset financing, you’d still have the ready cash to take the broken car to the garage! 

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Advantages of Asset Financing. 

There are several advantages to using asset finance to purchase or loan equipment, as opposed to using your own capital. 

Reduce upfront costs

Using asset finance reduces the upfront costs incurred by your business by spreading the payments for the asset over a period of months.

This helps to keep your business’s cash flow stable by splitting the cost into smaller lumps, instead of incurring one large payment.

Plan your financial year

Since these payments are then fixed, it makes it easier for you to budget and plan your year financially. Spreading the cost also frees up your business’s capital to be used in other areas of growing the business. 

If you’re purchasing a high-value hard asset, you can also benefit from using the asset itself as security for the loan.

Secured loans

As we mentioned earlier, you do not need to put up additional security for the loan in many instances. This is especially true of expensive, hard assets.

Instead of putting up extra collateral for the asset, you simply hand the asset over to the lender in the eventuality that you cannot make the payments.  

You don’t pay for maintenance

Another great advantage of using asset financing is that any servicing, maintenance or repair costs that need to be undertaken during the life of the asset are incurred by the provider.

This protects your business from sudden, unforeseen costs when things break down or go wrong. 

Using asset-based finance can also allow your business to secure better loan terms than they otherwise would.

Secure better terms than traditional lending

Using your company’s assets to secure a loan with an asset finance provider can help you secure far better terms (for instance, in terms of interest rates or payment structure) for a loan that you would from a high street lender such as a bank.

Don’t pay for depreciation

Most assets suffer some level of depreciation during their lifetime – in other words, a reduction in their value. This is true for everything from machinery to vehicles.

Since most companies and individuals will not pay full price for an item that is second hand, you will not be able to recuperate the full value of an asset.

A common saying is that a car loses around 10%-20% of its value the second you drive it off the lot. In many cases, the asset purchased via asset financing is in fact owned by the commercial finance lender.

The lender purchases the asset and then leases it to the business. Therefore, the loss in value is in fact incurred by the lender, not your business. As the actual owner of the asset, they actually suffer the loss in value. 

Disadvantages of Asset Financing

Despite its advantages, there are some drawbacks to using asset finance that must be highlighted. 

If you cant pay, they’ll take it away

Firstly, the most obvious drawback is that you will lose the asset should you be unable to make your payments, which if happens, will be an obvious hinderance to your day to day dental practices.

Whether you have purchased the asset and have simply borrowed the money to do so, or your lender has purchased the asset and you are leasing it from them, you do stand to lose the asset in the eventuality that you cannot meet the loan terms. 

You may not own the asset

Similarly, since many asset finance structures mean you do not actually own the asset, you do not always have full control over its usage. This can mean that modifications may need to be approved by the lender.

This also means that if you need to raise some quick cash for your business, you will not be able to sell the asset on.

Therefore, the asset does not provide quite as much financial security than it otherwise would have if you had bought it yourself. 

It’s not a short-term fix

On top of this, asset financing is primarily used as a long-term solution for cash flow issues when it comes to purchasing assets. Short-term asset financing is incredibly rare.

Most agreements are termed for at least 1 year. If your business is looking for short-term financial assistance then asset finance would not be a workable option in most circumstances. 

You may need extra insurance

Lastly, although any servicing or maintenance work that is covered by the agreement will be funded by the lender, not all such repair work will be covered.

If your asset is damaged in a way that is not covered in your agreement, your business will incur the costs of any work that needs to be done.

You may need to buy additional insurance on top of your loan payments to protect against this. 

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Different types of Asset Finance

Generally speaking, asset finance is split into 3 categories; Hire Purchase, Finance Lease and Operating Lease. However, there are several other types of asset finance alongside these. 

Hire Purchase

Hire Purchasing in asset finance is an agreement whereby the borrowing company pays for the asset in instalments over time and retains the option to purchase the asset at the end of the term.

In other words, you hire the asset until the end of the loan term when you then purchase it. 

During the loan term period, the asset finance company will have ownership of the asset. Until the loan has been fully paid off, your company will only be hiring the asset.

Terms can usually last between 1 and 5 years and it is common for a 10% deposit and the full VAT to be paid upfront. Once the loan has been paid off, your company will have the option to purchase the asset outright.

Under some hire purchase agreements you can show the asset on your balance sheet at the beginning of the loan term.

There are several benefits to using Hire Purchasing for asset finance. Firstly, it allows your business to purchase necessary equipment and supplies without the need to pay huge amounts upfront.

Since you are spreading the cost of the asset over a 1 – 5 year loan term, you can avoid unnecessary disruptions to your company’s cash flow.

You can also often benefit from fairly low (10% is quite common) deposit payments. Additionally, the loan is secured against the asset itself. You will very rarely require any added form of collateral to guarantee the loan.

Finance Lease

A finance lease agreement is a type of asset financing whereby the asset finance provider purchases the asset outright and then leases it to the borrowing company.

This differs from hire purchasing in that the borrowing company never gains full ownership of the asset, they only ever rent it. Once the asset is returned to the asset finance company, it is either sold off or leased off again.

Finance lease agreements usually last from 1 to 5 years. During this time, the borrowing company will have full control and responsibility for the asset.

Unlike hire purchasing, where the asset provider is liable for maintenance and servicing, the borrowing company is liable under a finance lease agreement.

In other words, the borrowing company takes on all of the risks of owning the asset, alongside all of the rewards i.e. usage. 

Finance leases usually cover the usable life of the asset. At the end of the loan term, there are generally 3 options.

  1. Return the asset to the asset finance company. 
  2. The borrowing company enters into a second lease arrangement 
  3. The asset is sold off and proceeds split between both parties. 

Operating Lease

An operating lease is a business contract hire which allows companies to lease an asset for just part of its usable life.

Whereas finance leases last for the economic lifespan of the asset, operating leases only last for a fraction. This means that there is much greater resale value at the end of the lease period. 

Since they are shorter term leases, operating leases allow businesses to loan assets for shorter periods of time. This makes them good options for companies who need to regularly upgrade equipment or who only need quick usage from an asset.

The shorter loan term also means that the borrowing company takes on none of the ownership risks associated with the asset. All servicing and maintenance costs and responsibility rests with the asset finance provider.

Another advantage is that since the asset appears as a rental on the business balance sheet, it can be offset against company profits. 

At the end of the rental agreement, the asset provider will take back ownership of the asset. This can either then be re-hired in a second loan agreement or loaned out to a new company. 

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Asset-based Refinancing 

Refinancing is a process businesses can use to raise capital against their assets, using them as security. Businesses can sell their assets to a refinancing company for a lump sum.

The refinancing company then loans the asset back to the original owners. The business then pays back the lump sum (plus interest) by effectively renting the asset back from the refinancers. 

Refinancing is used by businesses who are rich in assets that need to raise quick liquid capital. By refinicaning against their assets, they can raise money without losing the use of their equipment.

Most assets with a high value can be used as security to refinance. Since the loan terms depend purely on the value of the asset, the company’s financial situation and credit history will rarely affect the loan terms. 

Balloon Finance

A Balloon Loan is one that allows the borrowing company to pay back a large lump sum as part of their payment schedule, usually towards the end of the loan term.

Smaller monthly payments are made, as per a regular loan agreement. However, Balloon Loans include a much larger amount at the close of the term. 

Balloon Loans allow companies to keep their initial deposit and monthly payments lower than they otherwise would be. By paying off the majority (or at least a large portion) of the loan towards the end, you can keep initial costs down.

This makes balloon financing a great option for businesses that have limited capital initially, but are confident of raising enough to pay a larger amount at a later date. 

Balloon Financing is a great way for start-ups and early-stage businesses to purchase the assets they need to grow their business. 

Click here to read our blog on how to finance a healthcare business

Annual Investment Allowance

The Annual Investment Allowance scheme allows businesses to claim back tax relief against assets they have purchased. If the assets qualify for the scheme, you can claim back 100% of the value of the asset in tax relief.

It is important to note that you may need to pay tax if you then sell the asset after claiming Annual Investment Allowance. 

You can claim Annual Investment Allowance on most assets purchased, such as heavy machinery.

However, some assets cannot be claimed. You cannot claim AIA on company cars and other vehicles, assets gifted to the business or items purchased before or for reasons other than usage in the business. 

The Annual Investment Allowance amount can change from year to year so it is advisable to contact your accountant or check the UK Government website here.

Annual Investment Allowance can only be claimed during the period in which you purchased the asset.

If the asset has been purchased in a hire purchase agreement, you can claim for as yet unmade payments before you actually start using the item. It is important to note that you cannot claim on interest payments.

Join the Samera Alliance Buying Group

The Samera Alliance is our growing network of dentists, practices and leading industry suppliers, designed to help you save money, grow your profits and build a better dental business.

Join today for free to be a part of our dental buying group, which gives you access to exclusive discounts and offers on the consumables, equipment and products you need to run a successful dental business.

You’ll also get better rates and terms for a wide range of services like HR, IT, utilities, insurance, legal services and much more!

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.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.