Arranging finance for a private dental practice purchase and securing bank finance doesn’t need to be a difficult process. In this article, David Brewer of FTA Finance dispels a few myths.
Potential purchasers, both first time buyers and existing practice owners, often ask if there’s any truth in the rumours about the difficulties in obtaining funding for a private practice purchase.
Without doubt, it’s not as easy nowadays as it used to be to secure funding, but contrary to popular belief, the banks are actively lending to the dental profession and are just as happy lending on private practice purchases as they would be on NHS and Mixed Practices.
And the figures speak for themselves…..In the past 12 months alone, FTA Finance submitted over 240 individual dental lending proposals to the banks with an overall combined borrowing of £115M (over half of which related to private practice income). Of these cases, over 94% of them were approved by at least one of the major banks.
The UK banks have an active edict from the Government to lend and actually view the dental industry as one of very few ‘Green Light’ sectors. What’s more, there are now some 12 high street banks that understand and will lend against Dental Goodwill for a new practice purchase.
A common myth by many is that they also believe they need the practice to incorporate a Freehold if the bank is to lend – this is not so. The banks are just as happy lending on a Leasehold premises as they would be with Freehold as long as the lease in question is of reasonable length (ideally minimum 10 years unexpired or ideally 15 to 20 years unexpired). Lease length is key as often the loan term would be linked to length of remaining lease, so if the term is too short the monthly loan repayments would simply be too high.
It is also worth bearing in mind that lending criteria does vary from bank to bank, and added to the fact that each bank has its own preference as to the type of client/practice they wish to fund, it’s really important that any funding proposal is presented in the right manner to maximise a positive response.
Getting the right bank manager also plays a part as it’s often not just a case of finding the right bank, but also the right specialist bank manager to consider your application as not all managers will understand the dental profession. We have several examples of identical proposals being submitted to different managers at the same bank – but receiving totally different responses. The attitude of the bank manager is key and as in all walks of life some are more proactive than others.
You also might not get the funding approval from the first bank you approach, and even if you own a dental practice already and wish to purchase another, your current lender may still say ‘no’ (or worse still look to ‘re-price’ your whole borrowing). This doesn’t necessarily mean there is anything wrong with your proposal – it may simply mean your proposal does not fit the banks specific lending guidelines. Remember there are still at least 11 other banks who could still say ‘yes’.
You’re probably wondering by now though how you can ensure a successful decision from the banks. My advice would be to ‘not panic’ but make sure you get things right from the very start.
A good starting point would be to work with an independent adviser. Your adviser must have access to the whole of market and know the lending criteria of each individual bank and of course the best individual bank managers to approach. They will also be able to tailor and shape your application including preparation of a business plan and P&L projections to ensure the best chance of a positive lending decision.
Therefore, before you speak with your bank make sure you contact a specialist Dental Adviser who will undertake an assessment of your proposal, provide guidance as to how to best shape your application and give you an idea of the pricing involved.
It is proven also that by presenting a clear detailed funding ‘package’ and in effect making it easier to assess the proposal, you may secure much better terms compared to you approaching the bank direct. The banks will also always look to maximise their returns but with the support of an independent adviser who is working on your behalf, the banks should offer the most attractive terms if they are to secure your business.
It may seem a daunting process but remember the banks want to lend to you – indeed the Government are telling them they must lend more so you are in a very strong position, especially with the banks now competing for your business.