How lenders want you to manage and develop a start up

In order for a lender to approve an application for finance for the purchase of premises for a squat, build work or equipment, they require a mandatory background check on you as well as the plans for your business, but they have certain internal guidelines that they want you to adhere to when formulating your plans.

The Current Lending Market

During the rise of the pandemic, many lenders have withdrawn from this market as they see the startup proposition as too risky. There is no doubt that they will return to the market in the next few months however, in the meantime other avenues of finance have to be utilised.

With the bad also comes some good as sourcing a site has become a little easier recently with the changes to the planning designations as, in many cases, has now removed the need to obtain a change of use for the property in turn, saving you a lot of time.

What lenders are looking for

They will be looking for you to only set up one surgery in its entirety at the outset as generally for most squat practices the number of clients will be minimal initially and this will grow over time. The logic of this is clear in that there is little point in setting up 2-3 surgeries with all the necessary equipment as the expenses of this are then wasted when they are not used.

They will be happy however to allow you to divide the property during the refurbishment and install the correct fire doors, flooring, water, and electricity supply to the additional surgeries. This means that as the practice grows it is possible to expand by fitting an additional surgery quickly.

They will want you to obtain 2-3 build quotes and would prefer that you use an experienced dental builder who has a good history of work in the dental sector and may be known to the lender. They will also want the build to be sensible keeping costs as low as you can without compromising the quality and finish that is required. 

You need to look carefully to ensure that all fire requirements and ventilation levels meet new requirements to deal with Covid-19. These should be reviewed carefully with regard to air filtering to reduce down times and ensure that all the various standards set by CQC are achieved. It is also important to look carefully at the cost aspects of your dental practice such as waiting room interior, reception desks and any other decoration and ensure it is of a good standard within your budget.

The same applies to equipment costs, you should shop around first to compare different prices to ensure you opt for the best price for the equipment you need. If it can be deferred to a later date do so to ensure that you keep your fixed costs at the outset as low as possible.

Financial Projections

The financial projections that lenders require must be in a well laid out format showing both profit and loss and cash flow for a three-year period which will identify the way the business will move forward for both parties involved. With limited income and plenty of fixed costs on the day of opening, losses will probably be incurred in the first few months until income grows to a level sufficient enough to break even and then make profit. This turnround to profit usually happens around 6-8 months of the practice opening. 

Tips to reassure a lender

So, how can you reassure the lender this will be a success:

• Try and negotiate a rent-free period of leasing to enable you to complete the work and open.
• Seek an interest only period from the lender if possible.
• Keep staff costs down at the outset and employ a nurse and receptionist only.
• Maintain an associate role elsewhere – you may only be at the new practice 1-2 days in the first few months – working elsewhere for the rest of the week will bring in income to cover household expenses if necessary and provide funds to inject into the business to cover initial losses.
• Have spare funds available to cover any losses, these can be put into the business at the outset.
• Robust plans for marketing and branding your business. Start marketing once the build begins.
• Plan to use professionals – Dental builders / solicitors / accountants / brokers.
• If bringing clients or extra income into the business at the outset – set out who they are and why they are coming – check your associates contract to ensure no conflicts of interest.
• If more than one dentist is involved, then this assists income / work share. 

Utilise the skills and knowledge of others to assist you in this venture, they have seen the challenges before, and they have dealt with them and know what the lenders want from you and the plans.

Work with people or firms who have experience of start-ups. Attending courses will help prepare you for the challenges you may face. 

If you ensure that you control costs and carry out the proper investigation of competition, location and use professionals with experience of the sector and you obtain accurate and realistic projections, you will provide yourself with the best chance of obtaining finance and of starting a successful dental practice.