What Comes First, the Finance or the Practice?
In my experience as a financial adviser, I have found that the most frequently asked question is what comes first, the finance or the practice? In some ways, it’s a bit like asking whether the chicken or the egg comes first, as you need one to have the other; if you want to secure a loan, you need to have made an offer on a practice. To give you a better idea of how the process works, let’s take a look at the different stages of practice finance.
Stage one: offer accepted
Before making an offer on a practice you need to calculate your affordability. To make sure you can financially afford the loan repayments, it is wise to get in touch with a dental specialist broker who can work with you to assess your financial situation. That way, when you bid on a practice you can have the full support of your financial representation and you can rest assured that you’ll be able to make the repayment – when your offer is accepted.
Stage two: applying for finance
When approaching the banks, choosing to go at it alone poses potential risks and problems. If you approach the bank yourself, how do you know that you are getting the right deal for you? How do you know you wouldn’t get a better deal from the bank next door or even a manager sat on the opposite desk? The simple answer is you don’t.
As such, it is advisable to use a dental specialist financial adviser to help you apply for finance. They can work with you to ensure your application is positioned correctly to ensure you achieve the best possible lending available. They will even know whom to approach, using their knowledge of which lenders like private practices, NHS practices and so on to make sure your application ends up in the right lap.
Looking for lending in the wrong place can potentially jeopardise your chances of securing funding or getting the best interest rates. It also means that you are asking the banks what they can do, and not necessarily what the best structure of lending is for you and your practice. Using a specialist practice loan arranger can ensure that you eliminate the majority of these problems, easing you through the process and securing you the best lending option available.
Stage three: selecting a lender
In the event that offers come back from several different lenders, it is important that you understand the terms and conditions of each individual loan. Banks often send terms back in different formats, some may be a one-page email, others could be a 20-page document. A good broker can provide this information on a detailed spreadsheet so that it is clear to see the comparison between rates, the implication of security and commitment required. When choosing your lender, be sure to select a bank that fully understands your vision for the future as any loan that you take out could affect additional lending for further acquisitions.
Stage four: taking your application to credit
Once you have selected an offer, the specialist lender can then put together a proposal to the bank’s credit team requesting approval of your application. The credit team will review the file, which normally takes between another one to two weeks, and either approve, decline or offer an alternative deal. It is important to note that not every application is accepted, but hopefully if you have the right support around you such as dental specialist brokers/bankers it is far more likely to be agreed. Also, just because a deal has been declined by one bank it doesn’t mean that it won’t fit another banks lending criteria. It is important to note that it is only at this stage we would expect to see a credit check undertaken on you to minimise your financial footprint.
Stage five: the facility letter
If everything goes according to plan the credit team will issue a facility letter, which covers points that need to be actioned prior to completion. These include valuation, life cover, personal guarantees, independent legal advice, sales purchase agreement, up to date accounts, CQC application, mortgage statements and so on. You can manage this process yourself, but a good dental specialist broker is able to ensure the smooth running of the process, acting as a linch pin between all parties, which can prove invaluable in reaching completion with as little delay as possible.
Stage six: valuations
The banks are able to offer a selection of quotes from chartered surveyors that are on their panel to undertake the work on your behalf. An experienced dental specialist will be able to advise you which valuers they have experience with, and once you have selected a quote you will be required to pay the fee directly to the bank. Typically this is between £800 and £3,500.
Stage seven: legal paperwork
As soon as the valuation has been agreed and the lender is happy to progress, all that’s left to be done is the legal paperwork. At this stage the bulk of the due diligence in carried out and normally takes another three to six months to get to the point of completion. If you have engaged the right support around you, the process should be fairly seamless and any problems should be rectified quickly and efficiently. Thereafter, it’s exchange and completion – transaction complete!
As you can see it is not as simple as asking what comes first the practice or the finance, as securing a loan is a long, convoluted process that involves a number of parties. With our support, however, we can help you to understand the ins and outs of practice acquisition and finance – get in touch with DE Finance today for more information.