Remember that 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 purchase
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 loan from a bank or financial institution
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.
What a lender will consider
Any dental professional who is looking to buy 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.
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.
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 buying 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.