It is still a surprise to me that many borrowers are not aware of how much they can raise when seeking finance for a project.
In most cases, potential borrowers underestimate what they can raise and, therefore, what they can purchase.
When looking at buying a dental practice, the amount you can borrow is often linked to several things and lenders (Banks) all have different policies, limits and requirements.
Who am I dealing with when I borrow finance?
It is very important to ensure that you are dealing with a lender who has experience and knowledge of the dental market. Many bankers are “generalists” and deal with many types of businesses.
Several lenders have set up specialist healthcare teams, staffed with knowledgeable staff who can assess your application in the correct way.
These specialist teams are rarely located in local branches and their experience (as you would expect) varies with how long they have been with the team.
What determines what I can borrow?
Bank Policy determines this, and this can vary as to:
- Lending an amount per dentist for each transaction
- Lending a percentage of the goodwill valuation
- Lending a percentage of the goodwill valuation plus lending against security
- Sometimes lenders vary the amount they will lend according to where you are in the UK
- Your professional experience – lenders require between 3 and 5 years minimum in a practice
- Some borrowers restrict the term of the loan to 10 years, others to 15 years
- If you are setting up a squat (start-up) then 70% finance may be available
What does this mean in terms of how much I can raise?
If you take a figure of 70% -80% as a guide for purchasing an NHS or private practice, this will give you a good idea of what can be achieved.
However, loans can be available for up to 95% with security.
Before everyone goes off to look at that £1,000,000 practice, there are some basics to remember.
Loans must be affordable. The EBITDA of a business (Earnings before interest, tax, depreciation and amortisation) will demonstrate whether a business can afford to support a borrowing. You will need to have cash available for a deposit, solicitor’s costs and fees that lenders charge.
You may need to look at how the business will perform in the future with you as the owner. Will you keep on the seller and the existing associates? What new services will you introduce? What will you change?
Lenders may require projections as evidence of how you intend to grow the value of the business.
You could contact your own bank and see if they can assist. However, considering all the differences would that be the right structure and cost for you?
Could you get a better deal elsewhere? Remember this is going to be for 15 years!
With all the differences in pricing, fees, loan terms, commitment periods and early repayment penalties it is best to shop around.
So why use a broker?
As brokers, we are independent. We are not tied to any lender and will look at the market for you, we act solely for you.
We will assess your own situation as an individual case, we will approach several lenders who we believe can help you, using our own experience and knowledge of the industry.
We will obtain offers of finance for you from several sources so that you can compare the offers and decide which is best for you and your business.
We will negotiate on your behalf to get the best price for you and liaise with the lender through the process of due diligence, valuation, taking of security and any other requirements they may have.
You will have us by your side throughout the process, utilising 200 years of banking experience across the team and the knowledge of us having completed so many deals in that time.
We will make sure that you see what is available across the market.
Further Information on Raising Finance
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