Secondary Sources of Finances

Dental Business Guide Podcast Episode | 8th February
Arun Mehra and Nigel Crossman

Arun Mehra: Hello, welcome back to the Samera Dental business guide podcast and luckily today I’ve got Nigel on the call and we’re going to be talking about something kind of quite specific and unique, which is secondary sources of Finance. Now, what does that mean Nige?

What is a Secondary Source of Finance?

Nigel Crossman: Well, what it means is in banking terms and in lending terms, that normally, lenders are tiered and so in your first round of lending, your first tier would be a major bank. There’ll be your major big five or six banks and the new banks coming into one corporation now. So they’re the main financiers of most things in this country. So they’re the main first tier.

Read our article on why you should use a commercial finance broker.

Arun Mehra: So those are the Barclays, the NatWest, the Lloyds, that type of people. Yeah,

Nigel Crossman: Yeah, the new banks like Unity, Recognise and all these sorts of people as they come on board. Yeah, and they start to expand their portfolio, and what they probably can offer. At first they didn’t offer a huge amount, but they expanded it. And slowly but surely they become first tier banks.

Arun Mehra: Okay. All right. So then, so those are the first two, what’s what’s secondary then? 

Nigel Crossman: Well, the secondary market is where you look elsewhere and funnily enough, some of those services are provided by the main banks. So you get things like asset finance, and invoice financing and that sort of thing. 

Asset Finance

They’re not main overdraft and loan facilities, but asset financing is readily available through some of the main banks. Obviously, there are hundreds of other people out there supplying asset finance. It’s not expensive, it’s priced slightly higher than ‘buying a practice’ finances, where we can get 2.5 to 3%. 

So asset finance is around the 4% mark and it’s over a shorter period, it’s over five or seven years and used to be for your lifetime of the asset. So it’s more expensive in the sense of slightly more expensive, on rate and obviously on term.

Read our guide on asset finance for dentists.

Arun Mehra: Okay, okay. So when do people need to go to a secondary financier? Is it when the initial primary finance people of tier one won’t lend? Is that when it happens?

Nigel Crossman: Yeah, we tend to use these people when we need a top up or we need something that the main tier isn’t lending in that market at the moment, like squat finance at the moment. They’re not necessarily all falling over it like they were previously. 

So you go to secondary lenders, and you can borrow off the assets for the equipment which is fairly straightforward. You can actually borrow for the refurbishment of the practice as well. And that is much more expensive because there is nothing substantial there for a lender to touch and feel. 

If I buy an X-ray machine, the lender knows exactly what it is. If you’re partitioning, putting doors up and floors, then there’s not really anything material for them to get hold of, so it’s more expensive and there are plenty of people out there. There are professional finance loans, but they all vary in price and the price goes up with the higher the risk.

Arun Mehra: Sure, Okay. Useful, no, very useful to know. So if anyone’s in the market for tier one or tier two, secondary lending, Nigel, Dan and the team can certainly help in raising that for you. Okay, brilliant. Thanks, Nigel.

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