Raising finance for practice purchase
David Brewer, Business Development Manager at FT&A Finance, outlines some top tips on what to do if you are looking to raise finance to purchase a dental practice.
If you are considering your future options and planning to buy your first dental practice, here are some key points you should consider.....
•It is certainly more challenging today than a few years ago to gain finance however the banks ARE still lending but only to whom they perceive are the strongest applicants – and you also need to appreciate that all banks are different with varying credit criteria and requirements. Do not though go direct to your High Street Bank – instead find out about working with an independent adviser who will be able to provide you with an overview of the whole market (rather than just the thoughts of one bank).
•The good news is there are currently twelve high street banks who are lending to dentists – and they REALLY do want to lend to you! And remember, the cost of borrowing is currently at an historic low.
•Choose the right lender. Several of the major banks have specialist dental lending teams. This means that the decision whether to agree to your loan will be taken by people with experience of the dental sector and how a dental practice functions.
•Alternatively there are a number of companies that offer independent advice and search lenders on your behalf – effectively doing the 'leg work' for you enabling you to concentrate on your dentistry. This can be seen as the ideal option as you will have had access to the full range of lending deals on offer. Do ensure that your Advisor is FCA regulated and ideally registered with the NACFB.
•Preparation is key. You need a sound business plan with Profit & Loss forecasts to demonstrate to the bank that both you and the practice you intend to purchase are a viable proposal. Affordability is essential both in terms of purchase price but also to ensure there will be sufficient profit to cover your loan costs, tax and personal drawings requirement. Again, for best results do ensure you work with an independent business adviser as they know exactly what the banks like to see and the format in which to present it.
•An independent adviser will then work with you to help shape your business plan and funding application and tender out your proposal to all of the lending institutions to ensure you have the best chance of achieving a positive response and what's more, they'll be able to negotiate the best terms for you! There are often HUGE differences in the cost of borrowing (especially the monthly repayments) even if on paper the difference is only 0.25%.
•It is important to also review the whole lending package - how much will the bank lend? The term over which they will structure the loan? The commitment period and interest rate margin? Will it be linked to Base rate/ LIBOR or at a fixed rate? What are the upfront costs (arrangement fees/valuations/security costs/additional accountancy costs), early repayment costs? It can be daunting making a comparison between banks, but again your adviser should be able provide a clear spread sheet outlining the pros and cons of each offering.
•Are you buying on your own, as a partnership (and if so is this a conventional Partnership or on an expense share basis) or as a Limited Company or LLP? It makes a difference as there are merits and drawbacks to each option but it is important you seek specialist advice to ensure the most flexible and tax efficient structure to fit your own circumstances. Making sure you use a specialist Dental Accountant is a real MUST when it comes to confirming purchase structure.
• An independent practice evaluation is vital. You need to ensure that the figure being quoted by the seller is not inflated and is realistic and a true reflection of what the practice is worth in the current market. This is quite often required by the bank as a condition of their loan facility.
•Always seek specialist legal advice from experienced dental solicitors. It is false economy to use a lawyer without this specialist knowledge, particularly if there is any NHS element in the purchase. You will most certainly run into problems later once the purchase is underway. It is also important to work with a Solicitor who comes recommended by your peers and advisers – you need them to be approachable and willing to talk and work with all parties to ensure the transaction proceeds smoothly.
•Your insurance is the most essential element which is quite often left to the last minute but should really be sorted much earlier in the process. Most lenders will insist upon life cover, income protection and Practice/Property insurance as a requirement of the loan. To avoid any last minute 'issues' you really should commence your insurance applications as soon as possible and ALWAYS seek independent 'whole of market' advice and from a specialist dental IFA.
Finally, enjoy it when it comes to fruition! Owning and running a practice isn't for everyone but for many it does bring enormous rewards and fulfilment.
David Brewer 07817758548 firstname.lastname@example.org
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