Ed Brown, Commercial Finance Manager at Swoop
White coat professionals have serious advantages when they seek to acquire businesses.
Good news if you are a “white coat” professional and intend to start or acquire a business such as a dental practice, GP surgery, pharmacy or veterinary practice: there is strong appetite among lenders to support you in the purchase of your business premises.
This is partly due to the Government contracts that underpin their business models, or in the case of vets, the emotional factors surrounding pet care. Each of these business types has its own nuances that may affect loan to value, pricing and whether the deal meets lender criteria but there are also many similarities found across the medical sector.
Assuming an application for an Owner-Occupied Commercial Mortgage, lenders will offer a maximum loan of between 70 and 80 percent of the purchase price of a business, which means buyers will need a deposit of between 20 and 30 percent. There are some instances where a smaller deposit may be provided, but lenders will seek additional security, such as a residential or commercial property, and there is likely to be an increase in the cost of borrowing due to the higher risk being taken by the lender.
When discussing a potential acquisition with a bank or a broker, it’s important to understand the basis for their loan to value calculation. A business owner looking to maximise their borrowing to acquire a business outside of the South East would probably prefer a loan of 70 percent against the value of the business than 90 percent of the underlying property value. In central London that differential may not be quite as clear cut due to higher underlying property (bricks and mortar) values.
Where a business is leasehold, lenders will still potentially lend up to 70-80 percent of the purchase price without additional supporting security, providing they are comfortable with the terms of the lease. Normally this means a lease with a remaining term that exceeds the term of the loan being granted and without a break clause during that period that favours the landlord. Many clients start with a leasehold site and are presented with an option to acquire the freehold at a later date. More traditional lenders will expect the client to introduce an element of cash (even if this is just to cover associated costs), whereas newer challenger banks have shown they are more comfortable with an entirely debt funded transaction.
Asset Finance vs unsecured loans
It is possible to Asset Finance (AF) some of the standard fixtures and fittings found within medical practices. Whether this is dental chairs, high spec refrigeration units or more, Swoop’s AF partners have an appetite to either fund the purchase or refinance these ‘soft’ assets. AF can typically fund up to 100 percent of the purchase price with repayments terms from six months to seven years.
Additionally, funders may be able to fund a fit-out of premises. This will include the assets that are purchased and inputted into the facility when improving the premises. An unsecured business loan is also an option for such purchases and won’t be linked to specific items of equipment, which can provide a greater degree of flexibility, but typically this will come at a higher cost than an AF facility.
To discuss the purchase of your business premises or fund other vital business equipment or operations, get in touch with Swoop: we can give you options from across the whole lending market, finding you the best deal on products suited to your needs. Arrange a call here.