As you start your dental practice and as a dental practice grows, there is likely to come a time when significant additional funding is required in order to scale further. This funding may be needed to purchase new equipment, to extend a current practice, or to buy more dental practices and build a group.
While routine services like cleanings and fillings are always in demand, cosmetic dentistry is also widely getting more popular. As demand grows, so does the annual salary for a dentist. The industry itself is expected to grow by 16% from 2020-2022.
Now is the time to build a dental business.
Buying or starting a dental practice is one of the biggest decisions that a dentist is likely to make and can be a stressful time for all parties involved. The various aspects involved, from creating a great business plan to determining the prime location, as well as many other legal and personal factors, must be carefully taken into consideration before taking the plunge.
There are several rewards and stresses that are associated with building a dental practice, depending on whether you want to go down the private route, the NHS route or a mixture of both. This is why we are here to lessen any burdens on you when it comes to financing your own dental practice.
One of the most important skills in your personal and business life is learning how to manage your finances. If you can manage this skill well, you will then be on the path to obtaining the finance and business loans you need to build a dental business.
When you are seeking a loan to buy, start or grow a dental practice, banks and lenders will look at your personal finance history to help them ascertain whether you will be a secure and reliable client that can repay the loan.
If you do not currently own a dental practice, your personal circumstances are one of the information sources that lenders will have to assess your ability to manage a dental practice when you acquire one. They will also look at your CV and whether you have undertaken any roles in your current dental practice to gain skills such as management of staff, accounting or involvement with premises issues and the CQC.
Up to this point in your life, managing finances has been just for you and your family, with little scrutiny from others.
To get the finance and business loans required to buy, start or grow a dental practice will require some effort to convince a lender you are worthy of the finance.
How do you get a business loan to buy a dental practice?
There are a number of banks and lenders out there looking to help you buy, start or grow your dental practice. They all have their own policies and limitations as to whom and how much they will lend.
Most lend on an unsecured basis up to a certain level and, therefore, will want to be sure that you have the skills and the financial ability to repay them when you take out a loan for your business.
When you approach lenders for finance they will want to see a breakdown of your current personal assets and liabilities and how you currently spend your income.
They will review how much you have been able to save, and if you have not saved, they will ask where the money has gone. They will also be looking to see if you have invested in property or other assets.
This is a detailed examination of your income and expenditure and will need to be supported by the provision of bank statements verifying what you have put down as your income and expenditure.
Your bank statements also show how you have conducted your bank account. Many lenders ask for six month’s bank statements to see your income as a Dental Associate.
They also look at how you control your funds, and whether you overdraw your account on a regular basis. In addition, they will also want to see three years of associate accounts again to verify your historical income.
Most of the lending for the first purchase of a practice is unsecured, so understandably lenders want to be sure you have a sound financial background and can control your own finances. They want to see a good degree of financial sense and control which will be needed to manage your own dental practice.
Applying for Finance for a Dental Practice
Remember that if you’re buying a practice, it’s not necessary to have a particular practice in mind when applying for funding. As long as there is a plan in place.
Every dental professional has a different story when it comes to setting up a dental surgery. Take a look at my unconventional story, for instance. Whatever the story is, it’s important to go about securing finance in the right manner.
Options for funding a dental practice
From experience, there are three main options, when it comes acquiring funds to buy a dental surgery; one of which is the most common.
- Loans from banks and other financial institutions. This is the most common option.
- Bank of mum and dad. In certain families this may be an option, and repayment arrangements are likely to be more flexible.
- Self-funding. Some dental professionals have the resources to do this. However, it’s not always a good idea to invest the majority of savings as any business comes with some inherent risk attached. Having substantial personal financing in place helps with maintaining a comfortable lifestyle during any lean periods for the practice.
From working with clients over the years, I realise that most often a lending institution will need to be approached. If this is the case, there are certain factors to consider when deciding on the best time to apply for a loan.
When to apply for a business loan for a dental practice.
Competition for lending is high, so it’s important to have the best opportunity of being in the successful percentile. With this is mind, here is what I would advise.
- Prepare for lending more than 12 months in advance as banks will scrutinise documentation for the previous 6-12 months, and take note of any issues.
- Make sure that everything is in order and that good financial acumen is apparent.
- Have a history of making payments on time and a strong credit score.
- Know what the business aspirations are and whether practice purchase or start-up is the aim.
- Have a team of professionals in place. At the very least, this should include a dental accountant, dental solicitor, and a financial planner for life insurance and disability insurance.
- Hire a commercial finance broker, such as Samera Finance that can help you secure funding on the best terms available.
- Understand the difference between lending. Some banks will offer a conventional loan while others will offer a loan which is specifically aimed at start-ups and small businesses
Make sure that all of this is in place before applying for funding from a lender.
Approaching a lender for the first time
Remember that although lenders are there for the same overall purpose, they all have slightly different policies and processes in place. Some have a specialist team in place to deal with business loan applications, others do not.
It helps to do research when raising finance for a dental practice, and find out as much about the lender as possible. That’s where a commercial finance broker who knows dentistry is worth their weight in gold, as they know which lenders are most suitable for which clients.
Whichever lender is chosen, they will want to know that they are providing finance to a reputable borrower and that they can rely on the money being repaid as agreed. With this in mind, any professional who is looking to invest in a dental surgery should be prepared to prove their financial reliability when they visit a lender. This is likely to include:
- Proving comprehensive bank statements for at least six months (professional and personal).
- Providing associate accounts for at least three years, to verify income.
- Providing evidence of regular saving.
- If there is no regular saving pattern, there should be proof of what earnings were spent on. This could include professional expenses, or home improvements. It’s important to be able to show wise spending choices.
It makes sense that banks, and other lenders, want to verify that borrowers are a good risk. These loans are usually unsecured; so they want to be as sure as they can that they will get the money back.
When speaking to clients about their lending situation, I always stress how important it is to be able to show that they are proficient at managing money, and ideally have significant savings or investments.
What will financial lenders assess?
Getting qualified for a loan can be a daunting experience. The process itself is non-binding because the information you provide has not been verified.
Any dental professional who is looking to finance the purchase of a dental practice usually needs to have a deposit of at least 10%. When approaching a lender for the rest of the money, there are certain factors they will consider when making their decision.
- The history of any earnings as an associate dentist.
- Management of personal finances.
- Living situation of the applicant. Is the accommodation rented or owned?
- Career in dentistry and level of management experience.
- Ability to repay any loan that is provided.
- Any personal savings that are in place. Showing a propensity to save rather than make rash purchases is an indication of being low risk for lending.
- Evidence that tax payments are up to date.
- The personality and character of the applicant.
Lenders look for a few key aspects of your application in order to confirm whether you are a worthy lender. These aspects include:
Credit history and activity have a major impact on loan approvals and will heavily influence whether you get approved or not. It is also important to know that the lowest rates available are usually only obtainable by borrowers with high credit scores.
Lenders use your credit scores to assess the reliability of you as a borrower. It will help them assess the risk being taken when providing you with financing.
In addition to looking at your credit score as an indicator, they often review your payment history which they consider to be a strong indicator of the likelihood that you will make timely repayments in the future.
Lenders often use a debt-to-income ratio that compares the amount you earn to the amount to owe. This is to ensure that you will not be over extended with your new loan repayment. Debt-to-loan limits vary depending on what type of financing you need and the type of lender you go to.
In order to apply for a loan your lender will need to review your income, the same can also be said for your employment history for most types of financing that you will apply for. Not having steady work or a steady source of income for the last two years could impact your eligibility for getting approved for financing for your dental practice.
Lenders will often call your current employers and verify your salary. If you are self-employed, lenders will look at the adjusted gross income on your tax return to assess if your business is making any profit.
Depending on what type of financing you need for your dental practice, you may need to secure your loan with assets to put up as collateral in case you default on any repayment on your loan.
Preparing to apply for a business loan
It stands to reason that any bank, or other financial institution, wants to reduce the risk of non-payment. For this reason, they look to lend to businesses that can prove they have reliable revenue and are in a position to make repayments on time.
It’s worth bearing this in mind when making decisions to grow a dental practice. Planning ahead is essential. Ideally, plan 10-12 months ahead of time, and make sure that revenue is optimised and accounts are up to date and accurate, before applying for funding. When funding is applied for, be prepared to provide a significant amount of documentation including:
- An up-to-date business plan.
- Up-to-date and accurate accounts (personal and business).
- Up-to-date tax records.
- Details of expenditure.
- Detailed analysis of proposed finance spending and growth of the practice.
Having everything in one place before applying for growth or acquisition funding makes a successful outcome more likely.
Show a good sense of financial control
Banks and lenders will want to see that you have demonstrated a good sense of financial control before they offer you a loan. Having some savings for a deposit, or an investment property and investment in your professional skills provides a level of comfort to banks.
This along with a well-run and controlled bank account all start to build a picture for lenders to enable them to consider your request for a loan and leads to a good credit score.
Don’t buy a new Jaguar annually!
So, buying a new Jaguar every year, running up large credit card debts and showing a large surplus of income over expenditure with no visible savings is not the way to go. If you constantly overdraw your account with no overdraft limit in place this indicates no control of your spending.
Having a bank overdraft limit in place is not a bad thing, it demonstrates the ability to plan and foresee pinch points in your finances and the financial skill to deal with this in advance.
This is not to say you cannot buy a nice car and have good holidays and send your children to private school. It just all must be managed in the correct way.
Avoid Credit Card Funding
Professional courses and school fees should not be funded on a credit card, banks like to see that you have used appropriate loan facilities to fund such activity indicating to them your financial acumen.
If surplus income has been spent on something considered good such as further professional qualifications/property investment, make sure you highlight this to the lenders as this is not always clear from bank statements where it may merely show a loan payment.
Planning for Tax Liabilities
It is important you keep up to date on all your tax payments too. When applying for financing for your dental practice purchase, they will always ask for confirmation that your tax payments are up to date, or you have made sufficient provision for them.
Bearing all of these points in mind, I would say that the most important thing is living within your means. This does not mean that going on great holidays, buying a luxury car and paying for private tuition for children are all no-go areas.
It means that there should be a balance between spending and saving. Banks need to see sensible financial behaviour, sensible use of credit and wise investment of money.
How to plan for applying for finance in 5 Steps
It may be a cliché, but it’s true that you need to live within your means. A quote from Charles Dickens – Mr Micawber
Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.Mr Micawber
Step 1: Review your personal income and expenditure
The first step is to review your personal income and expenditure – look at it from an outside perspective, and consider what would others think when looking at your expenditure.
Would an outsider consider the £2000 per month you put aside for holidays excessive or just right?
The loan repayment figure you are showing at £1200 per month what does it relate to?
Make sure that you have a breakdown of your debt repayment schedule, showing all your payments, what they are for and who they are going to. Is it all a car loan or made up of some car loan and some professional qualification costs?
Step 2: Obtain your Bank statements and look at your account conduct
The second step is to obtain your bank statements and look at your bank account conduct. Do you stay in credit or within the overdraft limit? Are there any times when your finances get really stretched and if so, can you do anything about this?
Step 3: Obtain your Credit Score
Thirdly, obtain your credit score for free and make sure that it is correct. Check there is nothing on there you were not aware of, as credit scoring companies do often make mistakes. If you use multiple credit cards consider reducing the number of cards as having many credit cards can lower your credit score.
Step 4: Consider your partner’s financial background
Make sure your partner’s financial health is strong too. If borrowing in joint names you will both have an examination of your financial status.
Step 5: Use an experienced Commercial Finance Broker
Utilise the skills of an experienced commercial finance broker such as Samera to help you raise the finance. Our team are experts in helping dentists get finance and business loans for their practice acquisition.
Our specialist finance brokers will be able to guide you through the process to ensure you put in the strongest application to the banks and lenders to obtain the best available deals on the market.
Our finance brokerage team can advise you at every stage of your application to ensure you understand the process and don’t fall into the many potential pitfalls when raising finance for your dental practice purchase.
The importance of a business plan
Opening up your own dental clinic is an exciting aspiration and starting up a successful dental practice from scratch is a very possible business endeavour. However, it requires an important set of skills that unfortunately not everyone has. We will guide you through all the stages that you need to go through to enable you to open a successful dental practice.
There is a substantial difference between buying an existing practice and starting your own practice from scratch. Call us for a free consultation and we will guide you through the pros and cons that come with starting or buying your own dental practice.
When starting your own practice there are many different aspects that you need to consider that will substantially affect your business. These include the location of your business, the type of services you offer and how to attract patients who may already have their own local dentist, amongst a whole range of other considerations you will have to think about.
The most crucial aspect of your entire endeavour of starting your own dental practice is the planning stage, which entails writing a thorough business plan.
Every owner envisions opening a successful dental practice, but you need an actionable plan to get you there, which often includes needing to apply for additional funding. This is where your business plan comes into play. You need to create your vision on paper by describing your business, goals and by addressing all your finances.
Click here to listen to our podcast episode on the importance of a business plan.
As you create a business plan it is imperative to start to put all your figures together. You need to understand your own finances before you are even able to convince an external body of your finances and future projections. In particular, also knowing what your overheads will be.
More often than not, once you open your practice, your payroll will most likely be your biggest expense. So it would be a good idea to not bring on too many people at the beginning. In addition, you should start with a few basic services and treatments to keep costs low until you gain a bigger customer base.
Financial planning especially for the first year is needed in your business plan to show that you can account for projections of the coming years as well as the profits and losses that may occur.
Applying for a business loan to buy a dental practice
When raising finance to buy a dental practice, you’ll be taking out an acquisition loan. The value of the dental practice you’re buying and, therefore, the price, will depend on several factors. The most notable of them is EBITDA.
Your financial standing is measured at a particular moment in time, the moment you are applying for a loan. Banks will look at your position now and scrutinise your situation over the previous 6-12 months.
You cannot change your lifestyle in a week and you cannot change what is showing on your credit history or bank statements, so you need to prepare and plan ahead.
Before you apply for the loan, it is imperative you have your house in order and show good management and financial acumen. This will improve the likelihood of you obtaining a competitive loan for your dental practice acquisition.
So, make sure you follow the steps outlined above!
3 important points when raising finance to buy a dental practice
- Review your finances early on, not when you want to purchase a practice. Ensure that you look at these critically and obtain an outside view, if possible, our team perform this at no charge.
- Make sure you are in financial control, provide explanations for existing debts and any large expenditure items. Make sure your CV is up to date and it includes all your professional skills, as this will be read by bankers, not dentists, so make sure you explain any technical phrases.
- Make sure all forms are completed fully as lenders check bank statements, accounts and business loans with credit reference agencies. So make sure everything is disclosed as this will ease the process and remove the need for further questions and explanations.
If you follow the points detailed above, you will find it much easier to raise finance and business loans to buy a dental practice.
Applying for a business loan to start a dental practice
Starting a dental practice from scratch means financing a whole range of things you wouldn’t necessarily need to when you purchase an existing practice. Since you’re not buying a ready-made business, you’ll need to build it yourself from scratch. This means funding:
Picking the best location for you may take some time. Location is key for many businesses, but especially for dentists, you want a location that is generally quite visible for your potential patients, centrally located and in an area that your target market would be in.
There will always be a prime location for your business that may just be out of your price range. It is okay to understand that price matters and will play a vital role in the location you choose.
In the larger sense, it is better to wait for the right location as it heavily impacts how much business your practice will get. It will be much better for you, in the long run, to wait for the best location suited to you to come around rather than to open your business sooner in a more remote location.
After finding a location
Here are the specific steps you need to take before physically setting up shop.
- Find a location that you want to work in
- Find a property within said location that can be converted or one that already has D1 use
- Obtain a change in planning to D1
- Ensure the lease you have is for 15 years within the Landlord and Tenant Act or if freehold, a valuation will be required in due course
- Draw a plan of the premises and obtain a quote for the refurbishment
- Prepare at least 3 years of projections. This should preferably be done by an accountant and should include cashflow and profit and loss
- Prepare a thorough business plan
- Lastly, you need to obtain the finance you need to make your business plan a reality
How much does it cost to start a dental practice?
We can’t give you a specific quote on how much it will cost because in truth, it depends on various factors. These include:
- The location of your site
- The building you’re going to need to acquire for the practice
- What type of equipment you’re going to be putting into the practice
- How many surgeries you are going to be putting into the practice as well as waiting rooms
- How much the building work is going to cost
So, the cost will vary and differ greatly between any two circumstances. You can easily spend anything from £100,000 to £500,000 and quite easily maybe even more in some cases.
But you need to make sure that you have a budget and a business plan that will forecast future trajectories. These forecasts will help you to make an efficient plan to repay all the money you’re going to need to start up your own dental clinic.
The most important thing you need to do before you even start preparing for building work is planning and budgeting for how much it is going to cost.
Applying for a finance to run a dental practice
Without a doubt, the costs of running a dental practice, or any type of medical practice, has been on the rise in the last several years. Usually, with many businesses, if the cost of the product or service rises, that will then translate onto the customer to make up that extra cost.
Unfortunately this does not always apply in medical healthcare practices. Dental practices experience many extra costs that other businesses do not necessarily have to invest in, such as capital equipment that can often be very expensive.
This may come as a surprise to some but there are many dentists that are happy to go through their entire career as an associate dentist without the aspiration to buy or start-up their own dental practice. However, with the rise of the pandemic and the consequences that many dental associates have experienced as a result, there are now many dental associates realising that there are so many benefits to opening their own private practice ,without the NHS contracts weighing them down.
Being your own boss and working for yourself can be incredibly hard and it comes with a lot of challenges that you may have never even anticipated. After being in the game for over 20 years, Samera has got you covered. We have a few costs you need to anticipate that are often forgotten about or overlooked when people decide to start their own dental practice.
Staff Costs in a Dental Practice
One of the main costs many do not consider are the staffing costs. Most dental practices will feature different types of specialist dentists, often including an orthodontist who can typically earn between £60,000 – ££80,000 per year. In order to grow clientele you may also want to employ a separate hygienist, who will also retain a high-earning salary.
Although you may be aware of the costs of each of the dentists you may be employing, it is also very important to factor in any other staff members you will need. Each dentist will usually require at least one assistant – this will be highly dependent on how many dentists you have working in your practice. A receptionist will also be necessary and depending on the size of your practice, you may have to hire two receptionists.
Staffing costs themselves are a huge cost for any practice, however, what you need to take into account is that when your practice becomes more successful, your staffing costs will rise as a result. It is especially important that these costs are accounted for and managed properly when you are starting out.
Finance costs need to be controlled and reviewed to ensure that you are getting the best deal on the market. Some lenders charge 3.75% above base rate, while others may charge 2.5% above base rate. It is important to shop around the market to see these differences, as the difference between these percentages over the course of even one year can be substantial.
If you have started a squat practice, costs may be even higher. However, once established, these costs can be reduced by a well thought out refinancing package.
Managing cash flow
Buying equipment is a huge strain on many dental practices and sometimes buying the necessary equipment out of cash flow (or working capital) may seem to be saving on any long-term loans or interest. However, buying these things straight from your cash flow can create a big strain on the cash available to the business.
Should anything unfortunate happen (e.g. Covid-19) you need to ensure that your business has the necessary reserves to save itself. Always consider whether to buy with cash or finance over the longer term. There are many financing options available to you should you need any information of what type of finance would be best for your situation.
Rent and business rates
If you are paying rent for your dental practice that can often be a big cost for you. In some areas of the country it would be cheaper to buy the freehold if possible, so it is always worth asking. It is also important to note that lease payments rise on a very regular basis, thereby increasing your costs further.
This one is a fairly obvious cost, but it can take its toll on your dental practice. You will need necessary office equipment such as a computer, desk and chairs for your reception area. You may even want to furnish your waiting room, which can be an expense you need to factor in.
However, your largest expense will come from purchasing the necessary dental equipment for your surgeries. A dental chair, lighting, dental tools, X-ray equipment, anaesthetics, sterilising equipment and even consumables such as mouthwash and toothpaste are all part of equipment costs that you need to consider.
These do not all have to be bought outright all at once. There are many financing options that are lenient and can help your dental practice in the long run. Although you may factor in the costs of financing all the equipment you will need, you also need to factor in the costs that are included in keeping all your equipment up-to-date and maintained. You will also need to factor in the costs of lighting, heating and cleaning services of your dental practice.
Although these costs will be a considerable amount, they are essential when it comes to setting up and running a functional and successful dental practice.
Overall, the costs of running a dental practice are high, like many other medical healthcare practices. Often with dental businesses it can take some time and hard work before you start to see increasing profits. However, these profits are more than worth the costs of running your own dental practice and being in charge of your own business.
Dental practice financing in the UK
Buying, starting or growing your own dental practice is not a cheap process. Whether it is for property, assets or acquisition, the chances are that you will need to raise finance to build your dream practice.
You will be able to get funding from many different mainstream lenders to finance a dental surgery, but it is imperative that you show good management of income, evidence of savings and prove your credibility with those lenders.
Acquiring a dental practice involves a large financial investment, so a comprehensive due diligence process is absolutely essential. It is also important to work with specialists along the way such as a dental solicitor, a commercial financial broker, and professional dental accountants, in order to minimise any risks.
Whether your dental practice is NHS or private, we can help secure the tailored finance your business needs to grow and succeed.
Mortgages for dentists
We can help you find the right mortgage product to suit your needs. Whether you are remortgaging or buying a new site.
Acquisition financing will allow you to gain capital specifically for the purpose of buying your new dental practice. We can guide you through the best cost effective ways to do this and mentor you through how it will affect you and your business.
Dental equipment is expensive, you need to think about all aspects that you will need to finance such as chairs, X-ray machines, you name it, it all comes with quite a hefty price tag. Asset finance assists you with spreading the cost of repayment of equipment over time.
This eases the financial stress and allows you to avoid the need to buy the equipment that you desperately need outright. Asset finance means that your practice can continue to deliver the highest quality of dental services without compromising on price.
There are many reasons as to why a business loan would be a great financing option for you. These types of loans are one of the best ways to secure working capital. You will need this type of capital to keep day to day operations consistent in your practice. There are two types of business loans available to you, secured and unsecured. Secured is a longer term lending based on the security of your business assets or unsecured which is a flexible, alternative finance solution, usually for smaller amounts.
Work with a commercial finance broker
In the same way as it’s important to work with expert dental accountants and dental solicitors when financing and buying an initial dental practice, it’s vital to do so when growth and further purchasing is required.
Never forget that a dental surgery owner’s talents lie with running the practice itself and not with accounting or legal implications. It’s better to work with experts to deal with these factors. I’ve worked on these aspects of scaling a dental practice with clients on many occasions and it’s made the process a lot simpler for them.
Know your commercial finance broker
Lenders tend to want a dentist to have a minimum of 3 years of experience before they are willing to lend to them for a practice purchase. Why? Because they want you to have the experience of working in a practice and know how a dental practice functions.
So, when you contact a commercial finance broker and you seek their advice, do you make sure that the adviser has the knowledge and experience needed for your transaction?
Does the broker have the experience and the contacts (particularly in the dental market) to help you arrange the finance?
How do you check them out in any way to see if they really do have the knowledge and experience that you seek?
If you were looking for a builder, a carpenter or equipment supplier, you would research them and perhaps ask around for a recommendation. You really should do the same with a finance broker!
Have a look at LinkedIn, how long have they been a broker?
Are they a specialist in the area you want?
Do they have enough experience?
If you are seeking to use their knowledge of the market, you need them to be experienced, not only in brokering, but also in banking and finance – have they worked for a financial institution of note? Ask them for a CV to see what their experience is!
You want someone working for you to have the experience and knowledge gained from working in the finance industry and specialising in your field of work over a number of years.
Before someone tells you that you don’t need this or you don’t need that, make sure they have the knowledge and experience to provide that information and advice. It’s better to know the truth at the outset than discover it later in the day when it may have cost you money!
Further Information on Raising Finance
You can find out more about working with Samera and the financial services we offer by booking a free virtual consultation with one of the Samera team or by reading more about our financial services at the link below.
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