Can today’s graduating dentists still purchase dental practices?
With the value of dental practices jumping over recent years, David Ward explores what graduating dentists need to do to purchase a dental practice.
Buying and running a practice is an ambition for many young and newly-qualified dentists. There are several benefits to becoming your own boss; having the autonomy to decide what work you will do and when, and, of course, reaping the financial rewards.
However, your dentistry qualifications are only part of what lenders require to support you in purchasing a practice.
They invest in you as an individual and will want to ensure their funds are safe and secure. As a dental finance specialist, Christie Finance often gets asked what banks are looking for when deciding whether to lend to a first-time buyer. Here are some of the key factors that need considering:
- How long have you been qualified for?
- How much experience do you have? Does this include any management experience?
- Do you understand enough about the practice you are looking to purchase?
- Will you be working in the practice five days a week? Or continue some associate work until there is sufficient work to justify working full time?
- If you have only carried out NHS work and there is a suitable level of private work at the new practice, is there an associate in place to cover this area or will the existing principal stay on as an associate for a period of time?
- Does the practice produce a sufficient level of profit to repay the loan?
- Do you have enough savings and/or supporting security available? Lenders generally seek anywhere between 10%-25% deposit, depending on the size of the loan and their confidence in the purchase.
What dental practices to purchase
Buyers generally derive deposits from three main sources – savings, equity tied up in property, or support from family members. Most deposits often comprise a combination of all three.
Purchasers often ask: ‘What is an ideal practice for a first-time buyer to purchase?’ Generally, the target for most new purchasers is a three-chair, predominantly NHS practice. One with scope to increase private services and room for expansion. However, this is all hugely dependent on appetite and experience.
Lenders assess the viability of a deal in a highly pragmatic manner. All will have their individual policies ie loan-to-value. But their overall focus is placed on the strength of a business and how confident they are that it will generate the required profits in order to repay the debt.
As time proceeds and the market continues to reopen following COVID-19, lenders will have greater confidence to fund the dental sector and support new entrants to the market.
We recently worked with colleagues at Christie & Co on the sale and purchase of Pure Dental Solutions in Staffordshire. The business was sold to a first-time buyer, Teddy Ruscheva. He says: ‘Going forward in your career and taking the “big step” is not an easy task. But when you have reassurance from professional and dental specialists, you feel comfortable that the deal will go through. No matter what.’
Approximately 80% of Christie & Co’s practice sales since January 2019 have been to independent purchasers. This trend is predicted to continue.