After more than two years of pandemic lockdowns and restrictions, large numbers of the UK population are seeking medical treatments to get them back to health.
As a result, dental practices have been inundated and are struggling to meet demand. However, busy surgeries mean good business and dental practices are booming, with profits and salaries climbing year on year. This means buying a dental practice can make good economic sense, although for many buyers, the upfront costs may put a purchase out of reach. But not to worry. Dental practice finance can take the pain out of the transaction. Read on to find out how commercial mortgages, business loans and working capital finance can bridge the gap to help you buy the dental practice you need.
Dental practices are dynamic businesses, selling products and services that are in high demand. Well established practices can provide solid profit margins and good income for their owners – principal dentists at UK practices had an average personal income of £122,000 in 2020/21. Buying a practice would be a logical step for an Associate Dentist wishing to take the next big step in their career, or seasoned dentists wishing to expand their current dental business. However, buying a practice that may rely heavily on NHS fees, strong patient retention rates, high maintenance and staffing costs, and a requirement to constantly modernise and stay ahead of new procedures, is not a simple task. Before making an offer for a practice that’s for sale, buyers must consider these important points:
All UK dental practices must be registered with the Care Quality Commission. Getting the timing and execution of your CQC application right is necessary to ensure your practice can begin trading immediately after ownership is transferred. Delayed application could see your new practice sitting idle while the paperwork is processed.
Are the dental practice’s premises owned or leased? You will probably be using a commercial mortgage to buy the business. Lenders will need to see the legal ownership and terms and conditions of the property before making a loan offer. Buying owned property may make it easier to secure financing, as leased premises are tied to agreements that have a finite term. Lenders may refuse to lend against leasehold property where there are too few years remaining on the lease. In both cases, independent valuation of the premises is essential, as this will affect your purchase offer, not just the loan you seek to buy the business. Some dental practices may have no ownership or long-term lease claim and are simply renting storefront space on short-term contract, as may be found with businesses located inside shopping malls. These kind of practices will require a different kind of funding for purchase – usually a small business loan.
No two dental practices are alike, so it is important to ensure the seller’s valuation is valid and that the business is worth what they are asking. Evaluation of the past 3 years accounts is a starting point, but other factors, such as goodwill, patient retention rates, profit per procedure, and whether a time limited (PDS) NHS contract or an open ended (GDS) NHS contract is in place, must all be considered when attempting to achieve a fair price for the business.
As well as the points covered above as part of the valuation process, would-be buyers must put other aspects of the target dental practice to the test. Things to check include:
There are more than 11,000 dental practices in the UK, but only a handful come up for sale each year. Potential buyers can find practices for sale on specialist websites, or they may wish to buy a practice that has been put up for auction. In either case, buyers should seek preliminary financing approval before making an offer. Having a pre-approved funding deal places the buyer in a stronger negotiating position.
Purchasing a dental practice will usually require some borrowing. This can pay to buy the business and its fixtures and fittings, as well as equipment purchases to upgrade the surgery and provide short-term working capital.
Commercial mortgages function like a regular residential mortgage. The lender provides part of the cost to buy the practice, and they take a legal charge over the property as security. You pay back the loan over 20 – 30 years. Typically, a deposit of 10% – 25% will be required. This type of loan may also cover any initial build-out costs, or they could be financed with a separate construction loan. Alternatively, if you are joining a dental franchise, franchise finance – often a bundle of funding options – could be used to buy a practice, cover any build-out costs and even provide some funds towards your startup expenses.
If it is not possible to purchase your dental practice with a commercial mortgage, a small business loan may cover the cost. These work like any other loan, with the lender providing a percentage of the purchase price (usually 75% to 90%) and you providing the rest as a cash deposit. Small business loans may be paid back over 3 to 10 years or even longer. The lender will usually require security in the shape of property or other hard assets as collateral. Depending on the value of the security, it may be possible to secure this type of loan even if you have poor credit.
As well as buying the practice, you may also need a working capital loan to pay for stock, equipment, hiring staff, marketing, and other startup expenses. Finance in the shape of asset finance, merchant-cash advances, and the leasing of equipment can ease this burden. Some of these loans need no or little security to obtain and poor credit may not be an obstacle to funding.
Different kinds of loan will require different kinds of documentation. A typical application will require the following:
For Associate Dentists wishing to branch out on their own, or for Principal Dentists seeking options to grow their current business, buying an existing dental practice can be a good way to go. The kind of funding you need to make the purchase will vary depending on the circumstances of each deal, which can make securing the best finance for your needs more than challenging. However, don’t let funding problems slow you down. Swoop has the widest range of commercial mortgages, franchise finance, and working capital loans to help you buy your dental practice.
Swoop was amazing! I was looking for refinancing and they were straight onto finding me the best possible option. I would highly recommend them.
Owner, F45 Cambridge
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