Can flexibility help your dental business?

08 Oct Can flexibility help your dental business?

When arranging business funding, we all know that there will be monthly repayments to make. Naturally, you want to secure the best rate available to keep those repayments as low as possible.

But what if there was another option?

What could you do with the money that would otherwise be used for monthly loan repayments?

There are now lenders in the market offering interest-only periods on business loans, for up to five years.

For a dental practice, having this additional flexibility could make a real difference to your cashflow, particularly during a period of growth or following an acquisition.

You could use the additional working capital to:

• Take on a new member of staff
• Invest in marketing to attract new patients
• Fund improvements or refurbishment within the practice
• Purchase new equipment
• Support the practice during the early stages of an acquisition
• Retain more cash within the business as a working capital buffer

The possibilities will depend on your individual circumstances and your plans for the practice.

Let’s look at an example

Imagine you arrange a £600,000 loan over 15 years, at a rate of 2.5% above Bank Rate.

Using the current Bank Rate of 3.75%, this would give an overall interest rate of 6.25%.

On a standard capital-and-interest repayment basis, the monthly repayment would be approximately £5,144, giving annual repayments of around £61,734.

Now consider an alternative.

If you were able to secure an interest-only period for the first 12 months, you would only pay the interest during that initial period.

Based on the same figures, the interest for the first 12 months would be approximately £37,500.

If the interest is collected quarterly, this would mean payments of £9,375 per quarter.

That gives you a difference of approximately £24,234 in cashflow during the first year compared with the standard repayment structure.

But what happens after the interest-only period?

This is an important point to consider.

The loan still needs to be repaid within the agreed overall term.

During the first 12 months, you have not reduced the capital balance, you have simply covered the interest. This means that at the end of the interest-only period, you would still owe £600,000.

The remaining capital would then need to be repaid over the remaining 14 years of the facility, meaning the monthly repayment would increase.

In our example, the monthly repayment would increase to approximately £5,367, with annual repayments of around £64,411.

So, while the interest-only period does not reduce the overall amount you borrow, it does give you something that can be extremely valuable to a dental practice owner:

Why could this be useful for a dental practice?

Cashflow can be particularly important when purchasing a dental practice.

You may have the purchase price and finance in place, but once you take ownership there can be a number of additional costs and opportunities, from staffing and marketing to equipment, refurbishment and general working capital.

Having the option to reduce your loan repayments during the initial period could give you more flexibility to invest in the practice and support its growth.

It could also be useful when refinancing existing borrowing, particularly if your objective is to release some cashflow back into the business.

Is an interest-only period right for you?

An interest-only facility isn’t necessarily suitable for every practice or every situation. The longer-term repayment position needs to be considered carefully, as the capital still needs to be repaid and repayments will increase once the interest-only period ends.

However, for the right practice owner, having the flexibility to preserve cash within the business could be just as important as securing a competitive interest rate.

Interest-only periods may be available for clients purchasing their first dental practice or for clients looking to refinance existing borrowing, subject to lender criteria and individual circumstances.

If you’d like to explore whether this type of funding could work for your dental practice, please get in touch and we can discuss your requirements.