Case Study: Cutting the cost of refinance for a doctors' surgeryPublished on 16th November 2020 2020-11-16T20:45:27+00:00 - Last update on 17th November 2020 2020-11-17T01:18:21+00:00
Cutting the cost of finance - with £4.5 million at just 1.4%
As a doctor, you operate a practice that helps patients and benefits the community - but don't forget that you are also operating a business, and getting the right financial solutions is essential for your financial future.
At Rangewell, we help practitioners just like you, throughout the medical profession find solutions to their funding needs - and we recently set up funding to refinance £4.5 million of loans.
It was a complicated funding package. Our clients were a partnership which operated as a group across three freehold surgeries in South-East England. They had taken out a series of interest-only loans to acquire the properties they worked from, and with the terms of all these loans coming up over the next 18 months, they were keen to find new financial arrangements.
But the position was complicated by some other factors:
- Two of the existing partners of the 7-partner strong group were retiring, with two new doctors ready to join.
- All three practices in the group required some refurbishment and the business was seeking an additional £400,000 of funding.
- The partners had an interest-only deal on their finance and were keen to continue to borrow on that basis.
Why interest-only deals are the funding choice for medical practices
Most businesses will purchase their premises with a repayment and interest loan which, after a term of 20 or 25 years, will allow them to own the property outright. For doctors buying their surgery, this is less attractive for two reasons. Firstly, it will be considerably more expensive, and the higher monthly expense will mean a reduced income for the partners. The second is that, when it becomes time for a partner to retire, the extra cost commitment of a repayment loan will make the partnership less attractive to an incoming partner - meaning that it may be less easy to attract an incoming doctor to buy out the retiring partner, or to only be able to do so on reduced terms.
The ability to reduce outgoings both for existing partners and for potential partners means that the lower costs of an interest-only loan are preferred.
The problem the partners faced
The current problem with interest-only loans is that, when starting to look at ways to replace existing funding arrangements, lenders have become reluctant to offer interest-only arrangements in the current, unsettled climate. Those that will are likely to reserve funding for existing clients only - making it more difficult to shop around for a better deal.
When the partners approached their bank, they were told that lower interest rates might be available - but that because of the size of the borrowing, the extra sum required and the changes in the partner line-up, interest-only funding was no longer being offered. The new loans would need to be on an interest and repayment basis which, despite the fall in rates since the loans were first taken out, their repayments would actually go up rather than down.
Rather than spend valuable time calling around, they realised that calling in specialist help was necessary, and contacted us at Rangewell.
How we found a solution
We knew that in the current climate, large interest-only loans can be more difficult to arrange - the low interest rates would make this kind of lending very attractive for borrowers - but less than cost-effective for lenders.
However, the status of our clients as medical professionals would make it easier to get the loan required - and the fact that the client had left us plenty of time to arrange the lending would help us negotiate the most favourable rates by talking to a number of banks.
We were able to do this because of three great strengths that we can offer.
- We are independent, working with lenders across the entire lending market to ensure that we can find the most cost-effective rates in the entire market
- We have built up close personal contacts with many lenders, allowing us to negotiate where other lending experts are forced to accept standard rates
- We have experts in funding for the medical profession - we can put our expertise to work to find solutions for you.
Like the clients had found themselves, it initially proved difficult to find a lender prepared to offer the total £4.5 million required on an interest-only basis. However, we persisted and were able to create interest in the loan from a number of lenders who recognised that the nature of the group practice offered real security - and that the introduction coming from the Rangewell team was further evidence of the viability of the deal.
With multiple offers on the table, we were able to negotiate and ensure that our client could have all the funding they needed from a lender that was most eager to help.
The funding the Rangewell experts arranged.
£4500000 over 20 years on an interest-only basis
1.4% above base rate
The partners' reaction
“We were delighted by the deal Rangewell arranged for us. We wanted to take advantage of the lower rates now available, we needed additional funding for our development plans, and things would have been difficult if we had stayed with our existing lender - even if they had been prepared to offer us the extra cash we needed. Despite rates being now generally much lower than when we took out funding years ago, having to include repayments in the monthly charge would have left us very much worse off.
This way, we’ve been able to keep on the interest-only basis we wanted, up our borrowing and still reduce our monthly outgoings.”
At Rangewell, we can frequently help find businesses - and especially practices in the medical and related sectors - find answers to funding challenges, when going direct to lenders will not.
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