Dental Practice Finance

In simple terms Dental Practices are valued by applying a market multiplier to the net profit of the dental practice. There are two known multiplier methods, Fair Maintainable Trade which looks at what an individual or ‘efficient provider’ can earn from the business if working clinically. The second multiplier is to multiply the profit after all expenses and clinical treatments are paid out as if the business is Associate Led.

The multiplier is based on a number of points such as location, income risk, appetite (demand), property and so on. The demand for dental practices fluctuates throughout the year and therefore multiples are changing all the time.

This is based on the serviceability of the business. The general rule of thumb is, that if you purchased a practice under £500k we would expect the deposit to be approximately 10%, over £500k – 20% and it can be up to 30% for a Private practice. However, this is not a hard and fast rule, and for the right practice and the right situation, a lender may offer 100% lending if there is enough security to support in the background. It is also worth bearing in mind that if the business is strong enough to sustain the debt of the freehold, we can normally secure this element of the loan at 100%. Here’s a guideline that in our experience, we’ve found to be consistent.

NHS/Mixed:

• £500K – 10% – 20% Contribution

Fully Private:

Any Value – 10-25% Contribution, your deposit could potentially be a blend of cash and security, providing you have property with enough lending value available for a second charge. In theory, with enough security, you could reduce your cash input to 0%, allowing you to borrow with 100% lending.

Not necessarily. In most cases, there will be an unsecured option available to you as a buyer when seeking bank funding. However, using a property as security can be an effective way to reduce your cash input on a contribution. Theoretically, an NHS practice worth £750K would require a 20% contribution of £150,000. Hypothetically, if the buyer has £75,000 in cash available (10%) but also has a property with lending value of £75,000 (10%), the two can be combined to form a 20% contribution overall and fit the banks’ lending criteria. Having a reduced cash contribution can be a great way to allow for future improvements in the practice, improve cash flow, or to even help preserve your funds for your next acquisition.

Though there are a few options, typically, lending for the goodwill of a dental practice is done over 10-15 years. In terms of funds for the dental practice freehold, this is usually lent over 25 years

No! Dental Elite operates DE Finance independently to the core practice sales division. DE Finance’s core focus is on negotiating dental practice finance for buyers seeking to acquire a dental surgery not only through Dental Elite but also through other agents or without any agent at all.

On any bank funded transaction, a buyer would be required to instruct an independent bank valuation on the practice. The cost for this can range from £750 to £3,000, ex VAT. Typically, your lender will present you with a few options from independent RICS valuers asked to quote for the business. If using any property as security, you will likely incur additional legal costs to have a second charge taken over the property; the cost of this depends on your solicitor but would likely be between £1,000 and £3,000. Further, some banks will insist on a third-party solicitor to represent their interest which will also come at a price! All of these fees need to be factored into deciding the best overall lending proposal – deciding purely based on interest rate could lead to a poor decision.

We’ve found that most lenders tend to divide their pricing into levels of borrowing: £0-£250k, £250k-£500k, £500K-£1M and then £1M+. Although pricing varies from lender to lender, typically, the more you borrow, the lower the margin tends to be with the £1M+ bracket offering the lowest margin. As you might imagine these fluctuate all the time across all the banks.

95% of the time NO! – This is as our fee is typically taken from the bank’s arrangement fee which you would have paid anyway if you had approached them without a broker. Our other add-on services; the affordability assessment, the stress testing, bank proposal and transaction management is at no extra cost to you.

The lenders on our panel are made up of the specialist healthcare divisions of the usual high street lenders, with some challenger banks involved as well. Our contacts have been working on healthcare lending, financing dental cases for many years, developing strong relationships with their underwriters. Making sure you have the right bank manager championing your application for funding is a crucial part of buying a dental practice. As the old adage goes: ‘it’s not what you know, it’s who you know’.