A Comprehensive Guide to Dental Practice Finance Solutions

Getting Started with Dental Practice Finance

If you want to be a successful dental practice owner, it's essential to understand the ins and outs of financing your business. There are a range of different types of specialist finance facilities available that can help you navigate the unique challenges of running your dental practice such as expansion, equipment purchases and day to day overheads.

As you will be aware, a dental practice has more specialised needs than many other types of businesses, which can lead to an increase in costs and difficulty sourcing funds. Finding the most suitable lender or broker that has the specialist knowledge of your industry is extremely important.

The right lender for your needs will know the industry and market conditions, which in turn will help maximise your chances of getting the funding you require.

Before selecting a finance solution for your dental practice, you'll need to understand and evaluate your financial requirements. Consider the amount of funding you need and the timeframe in which you'll need it. Additionally, determine what type of financial product best suits your current needs and long-term goals. You will also need to consider the financial stability of your business, the finance market and your credit worthiness. Probably the most important thing to consider is how what you are doing will benefit your dental practice.

Taking time to consider these will help you make informed decisions when it comes to securing funds and ensure you select the right type of financing for your dentistry business.

Research Different Types of Financing Options

It's important to research the types of financing options that are available to your dental practice, as each has its own terms, maximum borrowing amounts and eligibility criteria.

It is important that you explore the different financing options available and look for products that meet your short-term and long-term needs. You must consider not only the borrowing amounts and repayment terms, but also how it will benefit your business.

Whether you want to invest in new equipment, expand your business, or increase cash flow - understanding your goals can help you find the best finance facility for you and your business.

Although there are a wide range of funding types available for businesses, there are a selection that are extremely useful for dental practices.

Practice acquisition loans

Dental practice acquisition loans are the perfect financial solution to help you grow and expand. These loans are tailored to suit your acquisitions requirements, which includes buying in to a practice or acquiring a whole new practice.

It is important that you are fully aware of the costs involved such as purchase price, how much you need to borrow and most importantly how much you can borrow.

If you are just starting out, then you are classed as a new start business and your borrowing amounts are likely to be significantly lower than those have been trading for longer periods of time.

Acquiring an existing practice can be the quickest and easiest option to get started or to expand. Although the costs may be higher than starting from scratch, buying an established practice can also come with some great bonuses such as a patient roster, all the necessary equipment and fixtures - which makes it much easier to open a brand-new office without having to build up a fresh client base. Some practices will have existing NHS contracts, which usually is acquired with the practice.

Things to Consider

Lenders will not lend out more than what the practice is worth, so if the seller wants an inflated price and you need to borrow more than the company valuation you will be unlikely to be accepted, or you will need to put in more of your own funds in to the deal.

A purchase agreement or Heads of Terms (HOTs) is an essential for any successful dental practice acquisition finance. It outlines the details of the transaction and should include information such as the price of the acquisition, payment arrangements, and whether any ongoing professional services will be required from either parties.

For lenders to decide on their perceived value of the company they will ask to see a range financial information and documents to assess the practices current financial position. This enables them to make an informed decision within their underwriting process.

Financial documents include;

• Management accounts - P&L and balance sheet
• Formal year end accounts - a lender will usually ask for the last 3 years accounts
• Company bank accounts - provides a detailed look at the cash flow of the business

Cash Flow Finance

Dental practices require a healthy cash flow to ensure operations run smoothly. With this in mind, it is important to consider the best ways to manage your readily available funds.

All businesses will experience highs and lows when it comes to cash flow, but not all have the reserves in place to cover the low periods.

Cash flow finance can help provide a cushion from low reserves or unexpected expenses. Cash flow finance can also be used to assist with certain expenditure in order to protect day to day cash flow.

There are a number of lenders who will offer cash flow loans and have an increased appetite to lend to professions such as the dental industry.

Things to Consider

While technically there is no upper limit on how much you can borrow, the amount a lender will approve will depend on a range of factors, such as affordability criteria, credit ratings, financial stability and company profitability.

You need to aware that cash flow loans are a short-term solution to cash flow issues and shouldn't be used as a loan term solution to prop up a business.

If you have experienced cash flow shortages for prolonged periods of time, then you will need to look at your company finances to see if you can save money in places and increase income, or speak with your accountant.

Dental Equipment Loans

Investing in new equipment is essential for providing your patients with the best possible care. You'll need to factor in costs for items like digital impression systems, electrical equipment, and other necessary tools.

Equipment loans for dentists are classed as asset finance and enable you to buy equipment without having to pay large sums of money upfront.

Equipment loans or asset finance is available to use on new as well as second hand equipment and you are usually able to borrow from 3 month to 5 year terms. Although for some types of assets you can spread the cost over 7 years.

The main types of facilities available HP, Finance Lease and Operating Lease. Selecting which one is the best option for you depends on your budget, requirements and borrowing eligibility.

You are also able to release cash by refinancing existing assets, however you need to be aware that the amount you can refinance is based on the current market value of the asset and not the original purchase price.

Things to Consider

As you are using the asset as security, lenders will need to know the market value of the assets, which might not always align with the selling price. If you are buying assets with over inflated prices, it is unlikely you will be able to borrow this amount. It is worth doing your research to check out prices of equipment with more than 1 supplier.

Asset Refinance will be based on the depreciated value of the asset and in some cases, assets will not hold significant value due to age and wear and tear.

It's essential to understand the costs and current value of the assets and what sources of dental financing may be available for your practice.

Refurbishment Finance

From materials to labour costs, refurbishment projects can be expensive and require careful planning. Many dental practices will look to secure finance for refurbishment projects to enable them to increase spending and reduce the impact on their cash reserves.

Using refurbishment finance can increase the overall budget for refurbishments will allow higher end finishes and increase the appeal of the practice to customers.

Ensuring that your practice is modern and visually appealing can increase customer satisfaction and retention, and in turn increase profitability.

The amount you can borrow will vary from £2,000 up to £500,000, however the actual amount will be determined by the total refurbishment costs as well as the usual eligibility checks.

Things to Consider

When applying for refurbishment finance you will need to provide legitimate quotes or invoices for the works. If your contractor quotes or invoices are over inflated, then it would be difficult to borrow the total amount invoice. This is why it is important to shop round and get a number of quotes and research how much you are eligible to borrow before carrying out any works. It is also important not to focus just on price, but also on the quality of the work.

Types of Lenders

There are a wide variety of lenders out there including High Street Banks and alternative lenders offering tailored financing solutions.

Traditional banks are normally first port of call for borrowers, usually the one they currently bank with. While traditional banks can be a good source of finance, it can be more difficult to be approved for many applicants, as traditional banks tend to have stricter eligibility criteria than other alternative lenders.

Many dental practice owners will opt to use alternative lenders as these tend to offer more specialised facilities than traditional banks.

With alternative lenders who specialise in the dental industry, you can be more likely to be approved and get the funding you need quicker than if you apply with a lender with little or no knowledge of the dental market.

These lenders typically take a different approach by focusing less on credit score, and more on potential and overall health of the business when determining eligibility. As a result, more funding is available to newer dental practices.

From streamlined applications to quick deposit of funds - usually within 24 hours - the services of an alternative lender can offer fast access to the capital you need, whether it's to cover unexpected costs or take advantage of short-lived opportunities that could help you grow your business.

How To Apply for Dental Practice Funding

When it comes to financing, dental practices are attractive applicants as many lenders favour professions loans. This is due to their potential for high earnings, great net worth, and reliable income stream.

Before making any applications, it's important to take the time to understand all your financing options, which lenders favour your market and credit profile to maximise your chances of approval.

When you apply for finance to help run and expand your dental practice, be prepared to provide a range of documents such as;

• Company financial statements - Full year end accounts (to include detailed trading P&L)
• Company Bank statements (latest 3-6 months), although in some cases lenders can request opening banking
• Director(s) Information - ID, Personal Net Worth, Proof of Address
• VAT/tax bill information (if applicable)
• Debt Schedule (if applicable)

Lenders will request to see this information to assess your application. It is also important to portray to the lender or broker you are applying with the reason for the lender and detail how this will benefit your business.

If you are applying for a practice acquisition loan, then they will also request information on the practice you are looking to acquire, such as;

• Last 3 years formal accounts
• Latest management accounts
• Heads of Terms (if available)

The process usually involves filling out an application and submitting the required information. It is important that you provide all requested information in full at the time of application to help speed up the process. Underwriter's may also come back to ask questions or request further information prior to providing a credit decision.

How do you qualify for a dental practice loan?

It's important to understand the unique requirements of different lenders and types of funding they offer. It can be hard to find the right one that is likely to approve your application, so many companies opt to use finance brokers who have specialist knowledge of the dental industry.

If you do choose to do it alone, then carrying out research into different lenders, finding out their preferred applicant types, business types and eligibility criteria is very important.

When selecting the best lender of you need consider;

• Business Type - Do they specialise in your market sector?
• Loan Amounts - Do they offer loans for the amount you need?
• Creditworthiness - Do they offer loans for your credit type?
• Trading time - Do they have a minimum trading time for applicant?

Choosing a lender that specialises in your industry is a must, as they will have a clear understanding of the market conditions, business nature and profitability, which will help with the underwriting process.

With different lenders offering varying minimum and maximum loan amounts by default, you need to make sure that they will actually cater for the amount you need to borrow. You also need to be aware that different lenders are likely to offer different maximum loan amounts based on the same applicant's profile. Different lenders have different underwriting processes, with some more willing to take on risker applications with higher amounts than others.

Your business credit score will have an impact on the type and cost of finance you can secure.
You can look at your credit score with many online providers, it's important to remember that different lenders use different credit reporting services and your score can vary depend on who you use. The main ones are Experian and Equifax.

If you're a dental practice looking for financing and don't have good credit history or even no credit, alternative lenders could be your best option.

Most lenders will only consider applications from well established businesses or those that have been trading for more than 12 months. Trading time makes it easier for lenders to assess the strength of a business.

However, startup loans and some alternative lenders are particularly suitable for practices that haven't been operating for as long, or under 12 months.

Whilst RLA Capital cannot offer financial advice, we can provide various quick business loans to assist with cash flow. RLA Capital would recommend speaking with your accountant if you are experiencing cash flow problems.