What Can Dental Practice Finance Be Used For?

 Running a successful dental practice involves considerably more than delivering excellent patient care. Whether you are purchasing your first practice, investing in new clinical technology, refurbishing existing premises or planning to expand, access to suitable funding can play an important role in achieving your business objectives.

This is where Dental Practice Finance can help.

Dental practice finance refers to funding designed around the financial requirements of dentists and dental businesses. Depending on the lender and the circumstances, it can be used for a wide variety of purposes, from acquiring an established practice to improving cash flow or purchasing specialist equipment.

In this guide, we look at some of the main ways dental practice finance can be used in the UK and the factors practice owners should consider before borrowing.

What Is Dental Practice Finance?

Dental Practice Finance is a broad term covering funding solutions available to dental professionals and practice owners for purchasing, refinancing, operating or developing a dental business.

Dental practices have characteristics that can make their financing requirements different from those of many conventional businesses.

A practice may have substantial value tied up in:

• Freehold property

• Practice goodwill

• An established patient base

• NHS or private income

• Specialist dental equipment

• Clinical technology

• Business reputation

• Recurring revenue

Because of this, lenders with experience in the healthcare and dental sectors may take a more detailed approach to assessing a funding application.

The most suitable type of finance will depend on why the money is required, how much is needed, the financial position of the practice and the lender's individual criteria.

1. Buying a Dental Practice

One of the most common uses of Dental Practice Finance is funding the acquisition of an existing dental practice.

Buying an established practice can allow a dentist to acquire an existing business rather than building a new operation entirely from the ground up.

Depending on the transaction, the purchase price may include:

• Practice goodwill

• Freehold or leasehold premises

• Dental equipment

• Fixtures and fittings

• Business assets

• Stock

The lender will generally review the financial performance of the practice as part of the application.

This can include assessing turnover, profitability, cash flow, existing financial commitments and the ability of the business to support the proposed repayments.

For first-time practice buyers, lenders may also consider the applicant's professional experience and their ability to manage the commercial side of the business.

2. Financing Dental Practice Goodwill

Goodwill can represent a significant proportion of the value of an established dental practice.

Unlike a building or piece of equipment, goodwill is an intangible asset. It can reflect the commercial value created by factors such as:

• An established patient base

• The reputation of the practice

• Location

• Historic trading performance

• Private patient income

• NHS activity

• Recurring patient plans

• Local market presence

When purchasing a dental practice, the buyer may therefore require finance specifically to help fund the goodwill element of the acquisition.

Specialist healthcare lenders may be more familiar with assessing dental goodwill than lenders taking a purely property-based approach.

However, the amount available will depend on the financial performance of the practice, valuation, affordability, borrower experience and individual lending criteria.

3. Purchasing the Dental Practice Freehold

Dental practice finance can also be used to purchase the property from which the practice operates.

Some dentists initially operate from rented premises and later decide to purchase the freehold.

Others may acquire the property at the same time as purchasing the trading business.

Owning the freehold can potentially provide greater control over the premises and reduce reliance on a commercial landlord.

It may also give the practice owner greater flexibility when considering future improvements or long-term property planning.

A lender considering a freehold purchase will normally assess factors such as:

• Property valuation

• Practice financial performance

• Loan affordability

• Location

• Property condition

• Existing borrowing

• The proposed lending structure

A commercial mortgage or other suitable business finance arrangement may be used depending on the circumstances.

4. Starting a New Dental Practice

Not every dentist wants to acquire an established business.

Some choose to establish a completely new practice.

Launching a new dental practice can involve substantial upfront expenditure before the business begins generating stable revenue.

Costs may include:

• Deposits or property purchase costs

• Leasehold improvements

• Building works

• Dental chairs and treatment units

• X-ray and imaging technology

• IT systems

• Practice management software

• Sterilisation equipment

• Furniture

• Marketing

• Recruitment

• Initial working capital

Funding a start-up can be different from financing an established practice because there may be no historic trading figures for the lender to assess.

As a result, lenders may place greater emphasis on the dentist's experience, business plan, financial projections, proposed location and available capital.

5. Dental Equipment Finance

Modern dentistry relies heavily on specialist clinical equipment and technology.

Purchasing everything outright can require a significant amount of capital, particularly when several pieces of equipment need upgrading at the same time.

Dental Practice Finance can therefore be used to purchase or finance equipment such as:

• Dental chairs

• Treatment units

• Digital X-ray systems

• Intraoral scanners

• CAD/CAM systems

• CBCT scanners

• Sterilisation and decontamination equipment

• Diagnostic technology

• Laboratory equipment

• Practice IT systems

Asset finance may allow the cost of eligible equipment to be spread over an agreed period instead of requiring the entire purchase price upfront.

This can help a dental practice preserve available cash for other business requirements.

However, practice owners should consider the overall cost of finance, repayment period and ownership structure before committing to an asset-finance agreement.

6. Investing in New Dental Technology

Dental technology continues to develop, and practices may need to invest regularly to remain efficient and competitive.

Funding could potentially be used for digital technologies such as:

• Digital impression systems

• Intraoral scanners

• Digital radiography

• CAD/CAM technology

• Practice management systems

• Patient communication systems

• Diagnostic equipment

Technology can potentially improve clinical workflows, increase efficiency and broaden the range of treatments a practice is able to provide.

However, investment decisions should be based on the commercial needs of the practice rather than purchasing technology simply because it is new.

Practice owners should consider how the investment is expected to improve efficiency, patient experience or revenue before taking on additional borrowing.

7. Dental Practice Refurbishment

A dental practice may require refurbishment for many reasons.

The premises may have become dated, the business may need additional treatment capacity, or the owner may want to improve the patient environment.

Dental practice finance can potentially be used for improvements including:

• Reception area refurbishment

• New treatment rooms

• Surgery upgrades

• Flooring and decoration

• Lighting

• Plumbing and electrical work

• Accessibility improvements

• Staff facilities

• Decontamination rooms

• Exterior improvements

A significant refurbishment can place pressure on cash reserves if funded entirely from existing working capital.

Suitable finance may allow the practice to spread the investment over time while retaining cash for normal business operations.

8. Adding Additional Treatment Rooms

Successful dental practices can eventually reach the limit of their existing clinical capacity.

If patient demand continues to increase, adding another treatment room may allow the practice to accommodate more dentists, hygienists or therapists.

This can require investment in:

• Building works

• Dental chairs

• Clinical equipment

• Plumbing

• Electrical installations

• Computer systems

• Furniture

Dental practice finance may help fund the additional capacity required to support expansion.

Before borrowing, however, the owner should consider whether patient demand and projected revenue are sufficient to justify the investment.

9. Expanding an Existing Dental Practice

Established dental practices may use finance to support broader business growth.

This could involve expanding the existing site or acquiring another practice.

Finance may potentially support:

• Additional surgeries

• New premises

• A second location

• Acquisition of another practice

• New equipment

• Recruitment

• Technology upgrades

• Working capital

Expansion should ideally be supported by realistic financial projections.

Lenders are likely to want to understand not simply how the borrowed money will be spent, but how the planned expansion is expected to generate sufficient income to support repayments.

10. Buying a Second Dental Practice

Dental practice finance is not limited to first-time buyers.

Experienced principals and dental groups may use funding to acquire additional practices and build a multi-site operation.

A lender considering a second or subsequent acquisition may review:

• Performance of the existing practice

• Financial history

• Existing debt

• Management experience

• Performance of the target practice

• Combined cash flow

• Proposed management structure

• Affordability after acquisition

An established track record can strengthen a proposition, but every acquisition still needs to be commercially sustainable.

Buying multiple practices also introduces additional operational complexity, so the finance structure needs to work alongside the wider business plan.

11. Working Capital for a Dental Practice

Even profitable dental practices can experience periods of cash-flow pressure.

There can be a difference between the timing of income and when operating expenses need to be paid.

Regular costs can include:

• Staff salaries

• Laboratory bills

• Dental materials

• Rent

• Business rates

• Utilities

• Equipment maintenance

• Insurance

• Marketing

• Professional fees

Working-capital finance may provide additional financial flexibility during periods when expenditure temporarily exceeds available cash.

It can also be useful when a growing practice needs to invest in staff or resources before the additional revenue generated by that investment is received.

However, working-capital borrowing should generally support a clear business requirement rather than continually covering an underlying profitability problem.

12. Recruiting Additional Dental Staff

Growing practices may need to recruit additional clinicians and support staff.

This could include:

• Associate dentists

• Dental hygienists

• Dental therapists

• Dental nurses

• Reception staff

• Practice managers

• Administrative staff

Recruitment creates costs before the new employee necessarily begins contributing fully to practice revenue.

Working-capital facilities can potentially provide additional flexibility during this period.

However, recruitment plans should be supported by a realistic understanding of patient demand, revenue potential and ongoing staffing costs.

13. Marketing and Growing the Patient Base

Depending on the finance product and lender, business funding may also potentially support marketing and growth initiatives.

A dental practice might invest in:

• Website development

• Search engine optimisation

• Digital advertising

• Local marketing

• Patient communication systems

• Branding

• New service promotion

Marketing investment can be particularly relevant when opening a new practice, adding specialist services or expanding private dentistry.

As with any financed investment, the expected commercial return should be considered carefully.

14. Refinancing Existing Dental Practice Borrowing

Dental practice finance can also be used to refinance existing business borrowing.

A practice owner may review existing finance because:

• A facility is approaching maturity

• The business has grown

• Existing borrowing has become expensive

• Several facilities need consolidating

• Cash flow needs restructuring

• The owner wants to release capital

• Further investment is planned

Refinancing could potentially create a borrowing structure that is more appropriate for the practice's current circumstances.

It should not, however, be assumed that refinancing automatically saves money.

The owner should consider:

• New interest costs

• Arrangement fees

• Early repayment charges

• Professional costs

• Loan term

• Total amount repayable

Extending borrowing over a longer period, for example, may reduce monthly repayments but increase the total interest paid.

15. Releasing Capital from an Established Practice

Owners of successful dental practices may sometimes want to release capital from the business for further commercial investment.

The ability to do this will depend on the strength of the practice, available security, existing debt, affordability and the intended purpose of the funds.

A lender will want to understand why capital is being raised and whether the remaining business cash flow can comfortably support the resulting debt.

This type of transaction may require more specialist structuring than a straightforward equipment purchase or conventional property loan.

16. Supporting Cash Flow During Practice Acquisition

Purchasing a dental practice involves more than paying the agreed purchase price.

A new owner may also need cash for:

• Solicitors' fees

• Valuation costs

• Professional advice

• Initial stock

• Recruitment

• Marketing

• Repairs

• Equipment replacement

• General operating expenses

It is therefore important not to commit every available pound of personal capital solely towards the purchase price.

Maintaining adequate working capital after completion can be important for the ongoing operation of the practice.

A properly structured funding package should therefore consider both the acquisition itself and the financial requirements of the business after completion.

Which Type of Dental Practice Finance Do You Need?

The appropriate finance will depend on what you are trying to achieve.

For example:

Buying a practice:
Practice acquisition finance may be appropriate.

Purchasing premises:
A commercial mortgage could potentially be considered.

Financing goodwill:
Specialist goodwill lending may be required.

Buying equipment:
Asset finance could potentially provide a suitable structure.

Funding refurbishment:
A business loan, cash-flow facility or other commercial finance solution may be considered.

Managing short-term cash flow:
Working-capital finance may be appropriate.

Replacing existing borrowing:
Commercial refinancing could potentially be explored.

Some transactions require more than one finance product.

A practice acquisition involving property, goodwill, equipment and working capital, for example, may require a funding structure combining several elements.

What Will Lenders Consider?

Regardless of how the finance will be used, lenders generally need to establish that the proposed borrowing is affordable.

Depending on the application, they may consider:

• Practice turnover

• Profitability

• Cash flow

• Historical accounts

• Existing debt

• Applicant experience

• Personal financial commitments

• Practice valuation

• Goodwill value

• Property value

• NHS and private income

• Financial forecasts

• Available security

• Purpose of borrowing

Lending decisions will vary between providers.

A proposal declined by one lender may not necessarily receive the same response from another lender because lending criteria and sector appetite can differ.

Why Use a Specialist Dental Finance Broker?

The dental finance market includes mainstream banks and specialist healthcare lenders, each with different lending criteria and areas of appetite.

A specialist broker can help assess the funding requirement before approaching lenders.

This may include determining:

• What type of finance may be appropriate

• Which lenders are potentially suitable

• How the transaction should be structured

• What documentation will be required

• How the proposition should be presented

This can be particularly useful for complex transactions involving goodwill, freehold property and multiple funding requirements.

The objective should not simply be to secure finance, but to establish a structure that is commercially appropriate and manageable for the dental practice.

How AWS Private Finance Can Help

At AWS Private Finance, our healthcare finance specialists work with dental professionals seeking funding for a wide range of business requirements.

These can include:

• Dental practice acquisitions

• Goodwill finance

• Freehold purchases

• Practice refinancing

• Equipment and asset finance

• Practice refurbishment

• Working capital

• Technology investment

• Expansion and growth

We work with a broad range of mainstream and specialist lenders and can help structure funding around the circumstances of the dentist and the underlying business.

Whether you are purchasing your first practice, expanding an established dental business or reviewing existing borrowing, understanding the options available can help you make a more informed financial decision.

Final Thoughts

So, what can Dental Practice Finance be used for?

Potentially, considerably more than simply buying a dental practice.

It may be used to support almost every important stage of a dental business, including:

• Purchasing a practice

• Financing goodwill

• Buying freehold premises

• Establishing a new practice

• Purchasing equipment

• Investing in technology

• Refurbishing premises

• Adding treatment rooms

• Funding expansion

• Acquiring additional practices

• Supporting working capital

• Recruiting staff

• Refinancing existing debt

The right funding structure will depend on the purpose of the borrowing, the financial strength of the practice and the lender's criteria.

Before taking on finance, dentists should consider not only whether borrowing is available but also whether the proposed repayments and overall cost are sustainable for the business.

Looking for Dental Practice Finance in the UK?

If you are considering purchasing, refinancing, refurbishing or expanding a dental practice, speak with the healthcare finance specialists at AWS Private Finance.

We can review your requirements and explore potentially suitable funding solutions from our lender network.