Are you thinking of buying a dental practice this year? Or acquiring another practice to expand your empire? Specialist commercial finance broker, Kevin Saunders, looks at 3 tips to improve your chance of loan application success.
This does not constitute advice and advice should be sought in all instances before acting on it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Planning ahead improves your application
As with most things financial, planning ahead can be the difference between success and failure.
Whilst commercial finance is certainly within reach for dentists to acquire a practice, tighter regulations does mean that it is sensible to do your homework so you can tick the right boxes with regards to the expectations of banks and lenders.
This will help you to present the strongest application from the offset and avoid getting tripped up by compliance.
3 tips for a strong finance application
(1) Organise your existing finances
One of the key parts of a finance application is demonstrating that you are responsible with credit.
Even though buying a dental practice is a commercial transaction, the bank will also want to see that you are personally responsible with your money so that their risk is minimised.
Therefore, in the months prior to applying for a commercial loan, it is vital to keep your finances in order.
This involves:
- Not missing any payments for credit cards, utility bills or other finance plans, such as personal loans
- Not incurring any fees for unpaid items, or referral charges
- Reducing creditors and debts as low as possible, so your finances look tidy, organised and that you are in control
Aim to keep an impeccable track of your finances for a period of six months before you apply for a commercial loan.
(2) Ensure the practice you are buying is profitable
The level of fee income within a practice is clearly a good indicator of the capacity a business has to be successful.
However, banks are more interested in the profitability of a dental practice, as this shows the amount of money available to service a loan.
Banks nowadays assess the affordability of a loan, not only on today’s rates, but also taking into account any increases in interest rates that could come to fruition during the term of the loan.
It is therefore essential to build a case for the lender that shows a profitable, low-risk business that could also sustain a rate rise.
This can include aspects like whether the principal or associates will remain at the practice, new NHS contracts and any refurbishment costs needed for future years.
A professional finance broker can help you to analyse the true profitability and potential when buying a dental practice to make sure you haven’t left any stone unturned.
(3) Consider timing for buying the practice Freehold
It is a common mis-conception that buying the freehold is necessary to offer the bank or lender a tangible asset as part of the arrangement. This isn’t always the case.
Goodwill, as an intangible asset is harder to value than bricks and mortar, however sometimes banks will refuse the application for freehold plus goodwill simply on the basis that the loan becomes much higher.
There is always a careful decision making process that needs to be worked through here, which is eased with the help of a professional.
It could be that there is a choice to purchase the Freehold at a later date, and for your business to rent the premises from the vendor in the interim.
This way growth of practice profits can be demonstrated to the lender by way of annual accounts or quarterly management accounts and it maybe won’t hinder your application for the goodwill.
When buying a dental practice there is much to consider and no two cases are exactly the same.
Get help from a professional finance broker
If you are considering buying a dental practice this year, speak with specialist, independent finance broker, Kevin, to help improve your chances of loan application success.
Tel: 01403 780 770
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