How to Refinance a Dental Practice
Considering refinancing your dental practice? Here’s everything you need to know about changing your dental loan provider and how to get the best deal with Rangewell.
Learn more about refinancing, debt consolidation, releasing cashflow and investing business growth
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There are several reasons why you may choose to refinance your dental practice. Whether you require a release of cash flow, acquire funding to open another practice or consolidate debt, refinancing might be an option for you. However, refinancing should only be done if there’s a clear benefit to you - so you have to weigh your decision carefully.
The coronavirus pandemic has impacted the dental industry significantly, as many practices transitioned from full capacity to emergency-only in spring 2020 - which brought with it a downturn in profits that could have potentially led to debt. Even now, the dental industry, like many others, is yet to fully recover from the economic downturn brought about by the pandemic.
Despite the economic difficulties of recent years, the industry still presents ample opportunity for entrepreneurial dentists. The UK ‘high street’ dental market is worth over £7bn in the UK, with the private sector making up half of that. With over 41,000 practising dentists in the UK, competition is rife but the potential for growth is significant, especially in growing communities where demand is high.
So, if you already own a dental practice or a group and you are considering refinancing for any reason, keep reading to learn all about dental refinance.
Remember: as a specialist dentist finance broker, Rangewell can discuss your options and help you understand every element of a refinancing decision - as well as get your application to the market’s most favourable lenders. If you don’t want to read on, just click the link below to get in touch.
Reasons to refinance
Before you choose to refinance your dental practice or group, you need to consider all of your options. A good way to start this is to determine why you are considering refinancing, and speak to an expert broker like Rangewell to see whether this is a suitable route for you.
Refinancing is often associated with a struggling business and this may be the case for you, but there are many other reasons why you might choose to refinance. Refinancing simply means reassessing your situation and taking out a new finance product to better match your current circumstances, this may be with your existing lender or you might find a better deal with another lender. Often, people will refinance in order to consolidate their debt, particularly if you have business loans across multiple lenders or if you are struggling to meet current payment terms on one or more finance product.
Remember that in some instances, refinancing deals may actually be worse in terms of their premiums than your existing arrangements. Even if the initial rate or offer looks attractive, make sure you calculate it across the full lifecycle of your practice and see how it compares to your existing rate.
Improve cash flow and working capital
Periods of economic uncertainty often lead to businesses lacking the cash flow they need to keep up with necessary commitments like wage payments and utilities. For example, an orthodontist typically earns between £60,000-£80,000 a year, and even if you are the only practitioner then you will need to keep in mind £18,000-£25,000 for dental nurses and at least £7.90 per hour for administrative staff. Therefore, even the smallest practices (like squat practices, which typically have just one surgery) require a consistent income to just break even.
For dentists, often equity is tied up in property and equipment, meaning periods of time like the pandemic whereby income is low can hit them hard. In some cases, a short term solution like a bridging loan can help you get out of a difficult situation, but if you already have several monthly payments or require a longer-term solution then opting for debt consolidation and refinancing solution may prove more effective than taking out another new loan.
Growing from a squat dental practice
If you’ve started a squat dental practice and you’re now seeing profits, refinancing can be a good way to reduce the interest rates you were offered in your initial funding application. Squat dental practices typically see higher costs than traditional options and therefore refinancing may provide some welcome savings by reducing interest.
Our full guide to starting a squat dental practice helps dentists understand the ins and outs of squat practices and helps you get started on your own venture.
Stock and equipment
Alongside property, one of the most expensive purchases that you will make as a dental practice owner is that of equipment and stock. As an owner of an established dental practice, you’ll know the importance of good quality dental equipment. As with any piece of expensive equipment, you have to consider any maintenance and/or repair fees, even the top-of-the-range facilities may fail at times.
In some cases, dentists will need to refinance to purchase a new piece of equipment to replace an outdated system or even to provide a new service offering. If you already have loans elsewhere in the business, you might want to consider a consolidation process and refinancing to release funds. To find out what's best for you, get in touch with Rangewell and we’ll assess your circumstances and help you to find the right finance solution for your practice.
As you will know, dental equipment is expensive but critical to your business success. You may find you need to purchase x-rays, imaging units, dental chairs or even new computers for your premises, and refinancing might be the way to free up some cash to invest in these necessities.
Looking to extend your practice or even buy a new premises? Refinancing may be a better option than taking out a new loan for this project as it will help to consolidate your existing debts and potentially get better terms for previous loans.
This is particularly relevant if you took out a short term loan, or a bridging loan, during the pandemic and you are now in a much stronger financial position. Remember, it’s not just the lender and the finance product that matters but also the terms and conditions of your loan, so it’s best to work with an expert broker that can help with your application to ensure you get the best deal.
A key reason for refinancing is to utilise any spare land on-site to construct new parts of your practice. This is a potentially lucrative avenue to explore and one lender may be keen on - as long as you have a clear strategy and rationale behind the works. For example, if you can show that the construction of a new cosmetic dental unit will increase your profits, your refinancing application will have a better chance of success.
In our full guide to buying a dental practice, we cover some of the more detailed elements you’ll have to navigate when you plan to buy new premises and surgery. As someone considering refinancing, however, you likely already own your first practice and want to leverage that equity to fund a second one...
Buying a second dental practice
As we mentioned above, refinancing your existing dental practice or group may free up the funds you need to invest in another space. Depending on your current situation this may mean expanding from a single surgery squat practice to a group or buying another practice under an existing group umbrella.
Refinancing is a common approach for those who already own property and want to expand their portfolio. For dentists who have exceeded profit targets and know they can comfortably repay debts, a refinancing package might help unlock more access to capital or lender interest than you could offer from personal savings or loans.
Remember, if you do choose to open a new practice as part of your existing group then it is critical that you think carefully about locale and community. For example, consider a residential area that does not already have several surgeries, or a town centre with good public transport and parking.
Furthermore, you may have to choose between purchasing an existing dental practice, which may bring with it staff, equipment and even clients, or starting your own and refurbishing a bare commercial lot. Whichever you choose, this will impact the amount of finance you need and the payment terms. If you are acquiring an existing dental practice then a short term bridging loan may be better suited to your circumstances. So, it's best to get in touch with Rangewell now so we can help you find the best finance solution for your practice.
When opening a new practice, don’t forget to check out our definitive guide to buying a dental practice
What to consider when refinancing your dental practice
When it comes to refinancing, there are a lot of factors you must take into consideration before submitting your application. While the above may be relevant to you, that doesn’t necessarily mean that refinancing is your best option. Equally, you may be torn between two different finance options, and you aren’t sure whether refinancing will work in your circumstances.
As always in these situations, it’s vital you seek expert advice from trained professionals at Rangewell, so you can ensure you are choosing the right option for your practice, and secure the best possible finance to help you move forward in your business.
So, what do you need to know when refinancing your dental practice?
Given the turbulent two years we’ve all had, it’s time to revisit your long term business plan and determine whether your priorities are still the same. For example, you may have planned to purchase another practice by now or hire new employees. However, the pandemic has put a spanner in the works for many businesses and, as a result, you may be considering selling off assets, selling a dental practice or downsizing to accommodate for changing circumstances.
So, make sure your accounts are updated and take stock of how your business has performed over the last 18 months. Given that the economic outlook is changing on an almost weekly basis, nothing is set in stone, but you can make a fair assessment based on past performance. This will help you to work out if refinancing is really for you and, if it is, then how much you will need to lend. In addition, you’ll need to show business lenders that you have a vision for the future of your business.
Just like when buying a practice, your funding application needs business performance stats in it as they will come under scrutiny from the investor. Ultimately, they want to know that their investment is a safe one and a decision to refinance will support business growth so they can see a return.
As it is a formal loan application, refinancing can impact your credit score. If you fail to secure the lender’s approval, you may see your credit score fall - which is why it’s so important to use a broker who can help you discuss options with a lender and gauge the favorability in advance of the application process. Without taking this step, you may progress with the application only to find that your lender has reservations and tries to steer you away from refinancing.
Depending on your reason for refinancing, there are many questions you need to ask yourself and other key stakeholders. From understanding past performance, cataloguing your existing lines of credit and determining your next year’s focus and where you hope to be in the long term. All of these questions and considerations hopefully serve to illustrate just how vital having a refinancing broker on your side can be.
At Rangewell, we work with the whole of the finance market, including a number of dental finance specialists, to help practices like yours find the right funding for them. From helping to assemble a comprehensive application to determining which option best suits your circumstances, let our expert consultants work with you on this journey.