DTME0511

U nlike the chicken and egg conundrum, there is a clearer answer to this question. In the heady days of easy credit in the early to late 2000’s, raising finance for practice pur- chase was relatively straight- forward - as long as you had a GDC number and a pulse, the banks would probably lend to you – often the full 100 per cent of asking price and at rock bottom rates. As we all know, the banks then experienced a few fi- nancial difficulties (and that’s putting it mildly) and almost overnight sizably changed their lending stance to any new lend- ing proposal (be it for house or any type of business including dental practice purchase). The banks now take a much more critical approach to any financial request and will re- view in great depth all aspects of any proposal with particular focus on the purchaser’s expe- rience, client commitment and overall ability to repay. A prospective new purchas- er should actually take comfort from the fact such a detailed analysis is now being under- taken by the bank to ensure the proposal actually ‘works’ - and it is staggering that in the past these questions were not being asked. Thankfully, the dental pro- fession remains one of the so- called ‘Green Light’ sectors for most of the banks - dentists are considered relatively low risk; the banks have very few den- tal loan defaults on their books and a positive appetite to lend - but to the right applicants. One of the biggest changes in banks’ lending requirements is the need for the purchaser to commit ‘something’ towards the purchase - ideally a cash con- tribution. As a rule of thumb, a contribution of between 10 per cent and 20 per cent of goodwill purchase is often sought by the banks. The same goes for house purchase as well – the days of being able to raise 100 per cent mortgage on your house are a distant memory. Nowadays if you want a decent house mort- gage you need to put down a sizable cash contribution. Most associates do normally have a reasonable level of sav- ings (or possibly Bank of Mum and Dad) behind them, which could be used. However this is where we have the dilemma - Do you put your deposit to- wards your first house or do you buy your first practice?? Past evidence has shown that practice purchase FIRST is the most effective way forward. If you buy your house first you will have used you own/ family savings towards the siz- able deposit required by the mortgage lender leaving noth- ing left over to put down to- wards practice purchase. Grad- ually your savings will slowly build up again - however as an associate your earning poten- tial may be restricted by your current principal or practice patient base so it could be a while before your deposit has built up again. Also... it may well be that you buy your house first and later find the ideal practice many miles away - so you will end up having to go through the whole house sell/buy process again. By utilising your/family sav- ings of say 10 per cent toward the purchase of a dental prac- tice, you will of course be the proud owner of the practice which in turn should enable you to earn considerably more than you would have done as an associate – leading to your sav- ings accumulating at a much faster rate thus putting a depos- it down for a much larger house closer to where the practice is. Simples... The same analogy can be applied to purchase of invest- ment properties (normally residential buy to lets). If your wish is for practice ownership, in the vast majority of cases you would earn more £ for £ purchasing a dental practice compared with investing in property. Equity in your house or own/family investment prop- erty can be considered by the bank as quasi contribution - however at present with prop- erty prices static at best, any deposit/equity within the prop- erty may not be as high as you think. The banks tend to place a ‘security’ value of between 70 per cent to 80 per cent of the value of the property LESS any existing mortgage. Eg House value £500K with £300K mort- gage. The banks value at say 70 per cent would be £50K (ie 70 per cent of £500K less £300K) much less than the ‘true’ equity of £200K. I would stress again that the banks ARE still lending for practice purchase and the den- tal sector is viewed by them as relatively low risk - the fact banks will still lend up to lend 90 per cent of Goodwill is great testament to the dental pro- fession. Indeed there are very few other sectors in which this would happen. If you are seeking to raise funding for practice purchase it remains essential your appli- cation is presented in the right manner. ALWAYS engage the services of an independent specialist to work on your behalf. They should present your proposal in a manner which will satisfy the bank’s lending criteria (which will vary from bank to bank) and ensure you are personally introduced to a number of the specialist dental divisions ofthe banks. By speaking with more than one bank, a degree of com- petition can also be generated to ensure more competitive terms are secured. DT Which comes first - house or practice purchase? David Brewer discusses savings, deposits and mortgages About the author David Brewer has worked with the dental profession for over 15 years helping over 1000 clients secure fund- ing for practice purchase and start up. With his banking background and friendly pro-active approach, he is ide- ally placed to provide advice and guid- ance to clients who are looking to pur- chase a practice or simply review their existing arrangements. David works with Frank Taylor and Associates and can be contacted on 08456 123434 or david.brewer@ft-associates.com What came first - the chicken or the egg? News & Opinions DENTALTRIBUNE Middle East & Africa Edition8 AD