Ever wanted to run your very own dental practice but aren’t sure if the bank will help finance your dream?
The great news is that banks see dentistry as a strong industry and they’re willing to offer amazing finance deals whether you need a commercial property loan or a business loan.
So what’s on offer and how can you get a piece of the action?
How much can I borrow
- Dental practice premises: Borrow up to 100% of the property value (freehold).
- Dental practice business loan: Borrow up to 100% of the business value (leasehold) including fit-out and equipment costs.
- Maximum loan term for (freehold): 25 years.
- Maximum loan term for (leasehold): 15 years or as per the lease agreement.
- Interest only: Up to 5 years.
- Overdraft facility: $100,000 or more depending on applicant strength.
- Low doc commercial loans are available.
- Significant interest rate discounts on offer based on your application strength.
- Buying a start-up: Need to provide a business plan with cash flow forecasting.
- Buying an existing practice: Most recent business financials.
- You need around 3 to 5 years experience as a qualified dentist.
These folks can give you an indicative funding approval:
Call Home Loan Experts on 1300 889 743 or fill in their free assessment form to find out if you qualify for dental practice loan.
How do I qualify?
- Commercial loans are very flexible when it comes to policy and lenders are willing to work dentists to give them the finance they need for their finance.
- However, there are a few tips to keep in mind when applying.
- Are you buying an existing practice?
- If you’re buying an existing dental clinic and taking over the current operator, the bank will want to see that the practice has been running successfully.
- The best way to show evidence of this is with the business financials for the past financial year, specifically a business tax return and a profit and loss statement.
- This way, the bank can verify total revenue, gross margin and staff wages.
Whether you’re buying an existing practice or starting your own, you’ll generally need to provide an account-certified business plan and cashflow forecasts.
This is particularly the case if you’re buying an existing practice that was mismanaged and you’re now looking to turn the business around.
Sometimes banks like to see that you have a relationship with a mentor or a solid transition plan in place with the current operator so they’re confident you’re diving in head first with no safety net.
There is no general rule around how much experience you need to have but, as a minimum, most lenders require you to be part of the Australian Health Practitioner Regulation Agency (AHPRA).
It generally takes 5-7 years to become a dentist after which you may decide to work for a clinic for a couple of years before you decide to branch out on your own.
As long as you have a good business plan in place that shows how you plan to stay profitable, you should be ok.
For example, as part of the business plan, you’ll want to explain how you’re bringing your own referral base into the practice or how the transition process will help you retain existing patients in an existing clinic.
As a general rule, you’ll to provide three types of security:
- A residential or commercial property that you own as security.
- There’ll be a registered fixed and floating charge over the practice.
- You’ll need to provide a director’s guarantee.
How can we help?
Firstly, we know which lenders can allow you to borrow up to 100% of the commercial property value as well as equipment and fit-out costs for the practice.
That means you don’t need a deposit!
Secondly, because of the relationships that Home Loan Experts with almost 40 lenders, we can put together a strong business loan application and negotiate a great interest rate on your behalf.
Overall, we can be your relationship manager through the entire process, properly assessing your situation today and 5 years from now.
Because of this, we can ensure you continue to get a competitive interest rate and that you get the business finance you need when you need it.
Should I buy a freehold going concern?
From a financial perspective, it may make sense to buy a freehold going concern rather than simply taking over the leasehold.
Of course, the business itself usually always generates a higher return on investment than simply in investing freehold commercial property, so why would you buy the freehold as well?
Well, in many ways owning the freehold provides a safety just in case the dental practice fails. The land itself retains value even if the practice falls into financial strife.
Better yet, if you’re operating from a mixed use property like a residential shop front where you work on the ground floor and there is an attached residence, you can have another income revenue stream by renting out the residential space.
What should I look for in the practice premises?
Even if you don’t intend to buy the freehold, you should still go through some basic due diligence on the property and don’t just leave it up to a commercial buyers agent to decide for you.
Think about your lifestyle desires, that is, whether the location is viable for where you currently live. More importantly, think like a patient:
- Consider dental clinics located near shopping centres and retail centres. You’ll get plenty of foot traffic and it’s great for local advertising.
- Is there parking available on the premises or located nearby?
- Who are your competitors? Are they direct or are you offering specialty work like orthodontics or pediatric dentistry?
- Is renovation work required to make the practice look good? First impressions are important to patients.
- Consider the number of consulting rooms and whether there is the capacity to expand in the next 5 years. As your practice grows, it’s often cheaper to renovate than to sell and buy another clinic somewhere else.
- If you’re leasing, how much renovation work does the lease agreement allow?
- What is the demographics of the area and will you generate enough business?
- Is the property near a base hospital? This is important for building referrals.
- Get a commercial property inspection done to ensure the premises are structurally-sound. Unlike renting a residential property, capital and renovation work comes at the cost of the lessee, not the landlord. Build and pest inspections can cost a few hundred dollars upfront but they can help you avoid buying a lemon.
- If you’re operating from a converted house, consider covenants, easements or other restrictions that may prevent from undertaking certain construction and fit-out work.
What if I’m buying an existing practice?
When buying an existing practice, you should consider more than just the hard costs of the practice premises.
Much of the value comes from goodwill as well, and coming up with a fair goodwill value can be difficult.
Vendors will obviously always try to highball you while you will come in much lower and risk missing out on the practice.
This is where a commercial buyers agent can help you negotiate a fair goodwill value. However, there are some general rules you can follow.
There should be a guarantee of lease tenure in the lease agreement and, if it can’t be guaranteed, the goodwill should be reduced.
Are patients loyal to the current practitioner? When it comes to medical professionals, patients usually are! You need to have a good strategy in order to retain these patients such as:
- Having as much as a 3-month handover process.
- Having a non-compete clause to prevent the practitioner simply setting up again nearby and drawing away your patients.
- Asking the vendor to send a letter to their patients highlighting your skills and experience. This should be sent to patients one month from the change of ownership.
This can have a massive impact on your ability to stay profitable in those crucial 3-6 months when you first start operating.
Realistic revenue expectations
You shouldn’t buy a practice in the knowledge in the expectation that you’re going to generate the same level of revenue as the previous owner. Generating good revenue comes down to your strength and skills as a dentist, not the practice itself.
Does the practice match your specialty?
Whether you specialise in orthodontics, endodontics, orthodontics, periodontics or prosthodontics, it’s important you choose a practice that matches your skill set. Seems obvious but it happens often!
Speak to a mortgage broker
Whether you’re looking to buy an existing dental practice or start your own, give Home Loan Experts a call on 1300 889 743 or check out their webpage about dental loans: https://www.homeloanexperts.com.au/business-loans/dental-practice-loan/ They’re specialists in dental practice loans and know how to build a strong case so you can get a great deal.