Becki Barnett looks at the difficulties in securing finance for a second practice.
If you own a dental practice there’s quite a high possibility that you’ve considered purchasing another. After all, there’s nothing quite as professionally satisfying as running a successful business, even if you did have to jump through hoops to get there. If you have got the buying bug and want to know what the score is with securing funding here’s what you’ll need to know.
Trying to get funding against your second practice can be a minefield if you don’t necessarily understand what the banks are looking for. Firstly, you would need to ensure that the accounts on your existing business are strong and that you can provide evidence that the business can comfortably afford to repay the debt that you have against it. This demonstrates to the bank that you are capable of running the business well, making you a strong candidate for further investment.
When considering a second practice it is always a good idea to look for a strong profitable business that can work on a standalone basis. However, as it doesn’t always work out this way, banks will consider a consolidated financial model across both practices whereby a group EBITDA figure might help you secure funding if your first business is strong enough.
Once you have found your second practice, it would be a really good idea to speak to a specialist finance broker or your bank manager to get advice. They will be able to look at the practices together and give you an indication of how the funding could work for you with the proposed new debt. If you want to use your existing business against the new practice without putting any cash in, this could be possible. Alternatively, if you wanted to keep the businesses separate and keep your current practice with the same lender and look for alternative funding this is also a potentially viable option. However, any new lender will require details of your existing business, as they will need to know how much debt you are exposed to as an individual, so regardless of how you approach the situation your existing practice will be taken into account, one way or another.
It is worth bearing in mind that tapping into your existing bank manager’s knowledge can work in two ways. One potential outcome is that they might be happy to support you as a valued customer, but there’s also the possibility that they might be nervous about the amount of debt you are looking to take on. They can also be restrained by their specific bank policy on time frames – for instance, there’s often a minimum waiting time of two years before you can buy your second practice – as well as the need for collateral. Some banks require a lot of security and if they already have everything you own there’s not much they can offer you. By not investigating the whole market you could actually hamper your opportunity for growth. Speaking to a specialist outside of this window can quite often present a more favourable and advantageous outcome.
When selecting a lender remember to examine the terms and conditions of each loan as carefully as you did before; the market can change and what your bank did previously might not be what their credit policy says today. Also, as it’s not your first practice there are sure to be additional clauses that might be hard to understand, and you need to make sure that your chosen loan won’t restrict any additional lending for further acquisitions. By using a broker all the information will be provided to you on a detailed spreadsheet so that you can see the comparison between rates, the implication of security and commitment required.
Always remember that if you have sufficient funds available to release from your existing practice, you don’t have to borrow the entirety of the money needed – you have the option of taking out a smaller loan. This is something to bear in mind if you want to keep repayments to a minimum. Other than that, it may be worth considering refinancing if you’re looking to get a better rate to reduce your original repayments, or move all your funding to one place.