£25,000 to cover a tax bill for a dentist - despite serious credit problemsPublished on 9th August 2019
A new dentist recently took over an established dental practice in Fulham. The business had been declining as the owner suffered from health issues, and the new owner realised that this meant that the costs of acquiring the practice could be within his reach.
He used his own savings, borrowed from family and friends, and took out a bank loan to raise the necessary funds.
The practice would require some refurbishment, and some of the equipment was past its best, but the dentist was certain that he could turn the business around. The area served by the surgery was affluent, and there was plenty of scope for private practice as well as a list of NHS patients.
He arranged to acquire some key equipment, including a new £12,000 chair, with Asset Finance as the first step to turning the business around.
However, once the practice became his and he had been working for a few months, he realised that the problems that had looked manageable on paper were much more severe in reality. Patient numbers were much lower than they had appeared, and matters came to a head when he was hit with an £80,000 clawback from the NHS.
His financial forecasts had not included this kind of problem - and his business practice faced severe cashflow problems as a result.
His Asset Finance commitments were considerable, and there were suppliers to pay and staff salaries to find. He soon became aware that he had a shortfall in working capital and was forced to miss some payments. He could not run the risk of having his chair repossessed, and he had to delay payments to several suppliers until he had received payments himself.
Juggling the bills can never provide a solution for a business with a cash flow problem and defaulting on payments meant that the credit rating of the practice plunged. He cut costs to the bone to keep afloat, selling his car and, at one point, going back to family connections for an additional cash injection.
He knew that his credit rating would suffer, but believed that he had no alternative but to pay late. Some creditors were sympathetic, but any late payment will be recorded by credit reference agencies - which means problems when raising finance in the future. Lenders will check both your business and personal credit rating when you apply for a business loan and if you’ve struggled to pay back a loan in the past, the lender will feel you’re more likely to do so again and refuse to lend.
The dentist managed to keep afloat for several months and believed that the business was turning a corner with patient numbers slowly increasing.
However, his problems were not over - and became a crisis when he was faced with a £25,000 tax bill in January. He didn’t have any spare funds in his business or his personal accounts and knew that he could not delay payment to HMRC without facing penalties. As a dentist with an active business, he should not have had any difficulty raising this kind of funding. However, his inability to pay suppliers had given him a bad credit rating - which meant that most lenders could not help him.
He believed that his bank might be able to offer him a lifeline - but when he approached them, they saw his credit rating and took it as a red flag against further borrowing. He heard a similar story from various other lenders that he approached directly - while brokers were also unable to help arrange the funding he needed.
In under a year since buying his practice, it looked as though he was in danger of losing it.
He came to Rangewell. We know lenders who can help when credit is bad.
We can often arrange specialist loans for businesses which, for reasons such as an unexpected downturn in trade, find they face tax bills which are a problem. This type of lending usually takes the form of a short-term loan which is repaid over the course of a year.
Some businesses actually use this type of funding as part of their financial planning - by allowing large tax bills to be spread, it can reduce the problems that come when cash flow is not sufficient.
However, in the case of our dentist client, the problem was the bad credit rating - which meant that most lenders who provide this type of loan were unable to help.
Fortunately, at Rangewell, we work across the entire lending market - and we know lenders who are able to work with businesses that face problems with their credit ratings.
By approaching one of these specialist lenders and presenting the full picture of our client's problems, we were able to find the loan required. We arranged the loan, which allowed the dentist to pay his tax bill for the short term. We were also able to tailor the monthly repayments to fit his available cashflow.
To find out more about short-term loans - and about specialist solutions for dentists and others with credit rating problems, even CCJ and IVFs - call our specialist Dental Practice Finance Team.
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