With almost 5,000 associates registered with Frank Taylor & Associates looking to buy a practice here is a brief overview of what banks look for in terms of lending criteria.
Most people do not realise that their CV is the most important document.
Banks will require comfort you have suitable managerial experience to be able to run/manage the practice in question. You are probably underplaying this — there will be elements of managerial experience in your normal day to day activities that you may not even realise.
They will also want to see a summary of your asset/liability profile, a breakdown of your past earnings and most importantly details of exactly what you are considering purchasing, the strength of the business and whether any loan be repaid based on how you are proposing to run it.
Do all banks look for the same thing?
Credit criteria varies markedly some are happy to consider a much lower cash contribution going in, others prefer predominantly NHS Practice and attitudes to Freehold/Leasehold also vary sizably from lender to lender. This is where an individual trying to arrange funding direct may become unstuck.
Are there regional differences?
In theory, no. A bank’s lending criteria to acquire a practice in Cornwall for example would be the similar to one in the South East.
That said with much higher goodwill and property prices in the South East it actually makes it slightly more straightforward to purchase outside of the more popular areas — with the prices generally lower and as a result the cash contribution you have to make is correspondingly lower and potentially more affordable.
Do lenders prefer NHS to private?
In general, the answer here is Yes. The majority of banks prefer the guarantee of NHS income and as such their lending criteria is positively weighted towards such practices.
How do rates and terms vary?
There is huge variation between lenders which is time consuming for an individual dentist to navigate. This is where a specialist independent broker such as FTA Finance is worth talking to as they deal with 14 High Street banks and will know which ones to approach on your behalf.
What are five things an associate needs to get funding?
- Polish up your CV. Most people are fine on clinical experience but need to build in managerial aspects.
- Ensure your credit profile is clean. It is not a problem to have background debt (study loans, mortgages for example) as long as repayments are up to date and you operate within agreed limits.
- You will be expected to contribute something towards the purchase. The bank of mum and dad often comes into play here.
- It helps if you own a property. Not essential though.
- Your accounts, ensure you have them, ensure you engage a specialist to prepare them, and ensure the level of turnover in those accounts is as high as possible. So, if you’re thinking of buying, don’t take it easy for a year.
Are banks the only funders?
For smaller practices and start up situations it is sometimes possible to obtain short term borrowing elsewhere, but it could be expensive.
The most common alternative we see is the bank of mum and dad.
Increasingly for larger purchases we’re seeing venture capital (VC) money. Do remember though the VCs are not a charity and investing for fun – they will be expecting tangible returns from the business. Most associates thankfully would not need to go down the VC route and should be able to secure their own funding via the conventional bank options.
