Dr James, 0s:

Hey everyone, welcome back to another episode of the Dentists Who Invest podcast, and I am so interested to learn what the subject matter at hand in this particular podcast, because we've never, ever, ever covered this. In 285, 286 episodes, I think that we're on now on the Dentists Who Invest podcast, which is truly crazy. We've definitely covered practice finance. What we haven't covered is practice mortgages, which are actually a different beast and an entity in and of themselves although largely, they're intended for the same outcome, but there are a few key differences and a few situations in which it can be more beneficial to think about a mortgage versus finance. And on that very topic, I've got sat in front of me somebody who comes very highly rated from a very close friend and his name is Mr David Parker here today to talk about everything access, practice, mortgages and answer the key questions. David, how are you today, my friend, I'm good, thank you. Thanks so much for having me, James. Hey, dude, a pleasure. Is this your first podcast ever? It is, yes, it's my first one with you. Yeah, oh, I see you've been report first one with me, but maybe. But you've done another similar one, actually first one all together. Oh, full stop. Oh, wow, okay, cool, we're gonna have fun. Well, I think you're a natural on camera, my friend, so I think it's gonna be smooth sailing. But anyway, David, it would be lovely for the audience of a little bit of a highlevel bio or an intro about yourself just before we proceed. I think that's a good place to begin.

David, 1m 26s:

Yeah, no problem, my name is David Parker. I'm a consultant in the dental healthcare space. I've been working in the sector now for 18 years, spent most of my career in banking, working across two of the major high street banks. The last five years I've been consulting on my own, working in-house with some dental clients on growth and acquisition, and also arranging practice finance for dentists who are looking to acquire or grow their groups.

Dr James, 1m 56s:

Wunderbar. Well, listen, I know that you and I caught up the other week and I was very interested to learn about the key distinctions between practice mortgages and practice finance. So I think that's a really good place to begin, because I didn't even know that practice mortgages were a thing. So there we are, and I think. I'm not 100% sure but I think it's likely. I'm probably speaking for a good majority of the audience as well, so I'm keen to learn and delve down, drill down, into what the distinction is.

David, 2m 28s:

Yes, I mean I would say you know practice finance and practice mortgages are very much into sort of separate camps. You've got the acquisition finance. Normally you take out a business loan or a commercial loan to acquire that goodwill, and then you have the property mortgage, which again is a business loan or a commercial loan to acquire that goodwill, and then you have the property mortgage, which again is a business loan, and that sits separately normally, to acquire the building of the acquisition that you're looking to buy. A lot of people think that they're taking out a mortgage when they're buying a practice, but it's not really. It's really a business loan you're taking out to acquire that goodwill and the property.

Dr James, 3m 5s:

And you told me something interesting the other week and I think you just hinted at this just then. One is secured and one is unsecured right.

David, 3m 12s:

That's right? Yeah, absolutely so. When lenders are lending to a dentist, they're pretty much lending against the goodwill of that business. So from a security perspective to to a lender, that is pretty much deemed as an unsecured lend. So that would be a business loan to you based on your profession, against the good will of that business. If you're buying a property, that's more secured, shall we say, and that would be deemed as, again, a commercial loan or mortgage secured on a property.

Dr James, 3m 45s:

I see OK. So when we talk about property that's secured against, is that personal property or is that the dental practice that would?

David, 3m 54s:

be the dental practice. Yeah, yeah, I mean, we always try and exclude. You know, the last thing you want to try and do is tie up any investment properties or your own residential property in a dental practice acquisition. But from a security perspective, if you're buying a freehold of your dental practice, the lender would very much want to take charge over that and would lend you potentially 100% finance on that acquisition.

Dr James, 4m 20s:

I see, and when it comes to the secured, unsecured thing, let's say worst case scenario things do go south and we're not able to keep up the repayments. So with a secured loan, that would mean that the practice, the premises, is the collateral. But with an unsecured, what's the collateral there on the unsecured? I know that's a very basic question, but I just want to spell it out.

David, 4m 41s:

No, no, it's very important question. But I just want to say again no, no, it's very important. I mean, hopefully you know nobody would get into that situation and the lender would want to work with anybody before sort of calling in the debt. But one thing I would say is you know, if the lender's lending to you personally, you are personally liable for that debt. If they're lending to a third-party entity, maybe a limited company, they might take a personal guarantee from the director for an amount of a loan. That's very much how it is structured when it is unsecured.

Dr James, 5m 12s:

Oh, I see, Okay. So when it comes to the secure side of things, the collateral is more clean cut.

David, 5m 19s:

It is yes, that's right, and I would say you know, the reason why the lenders are lending to you on an unsecured basis is because they recognize you as a professional. They recognize your ability to earn income and say, for example, your dental practice failed and you had to. You had an outstanding debt on your goodwill. The lender couldn't take comfort from the fact that you could go and work as an associate and pay them back over a longer period of time that debt, if, if needed got you.

Dr James, 5m 51s:

Okay, and potentially another basic question, but I just wanted to clear this up because I was curious. So obviously, when you've got the finance, if you get finance in a traditional sense, that's unsecured versus mortgage, which?

David, 6m 5s:

is secured.

Dr James, 6m 6s:

So am I right in saying do you know the way you see these situations where somebody purchases a dental practice and then the original owner will have the premises in their pension or a SIP or something along those lines, right? So my right is saying that that precludes a mortgage on that practice. When it comes to finance, Again, it's very separate.

David, 6m 26s:

I mean, are you talking about if they're acquiring the property as well, or their property is completely? Separate, so the property is in a SIP, so we can't get it out.

Dr James, 6m 33s:

Are you with me? Yeah, yeah, no, that's completely separate. So the property's in a SIP, so we can't get an.

David, 6m 35s:

IPE, are you with me? Yeah, yeah, no, that's completely separate. So say, for example, you're an associate dentist, you're buying that practice, you're buying the goodwill of that entity and you acquire that on a leasehold basis. The outgoing principal may own the property in their SIP and you could then pay rent to them. That's fine, that's, that's complete.

Dr James, 6m 58s:

you don't have to acquire the freehold the lender would potentially lend to you on an unsecured basis, on a leasehold as well so so this, that in that situation, right then, just so I get this straight that would mean that we couldn't go down the mortgage rate.

David, 7m 12s:

It would have to be the finance rate you would have to do, sort of a good world business loan, yeah, gotcha, okay, no, no, I was just curious, I was just curious.

Dr James, 7m 20s:

Okay, so we know which situations in which, uh, this can apply. Okay, brilliant. So we've kind of tacked in, we've kind of dialed in how that might look in the situations where it might be appropriate and may not be appropriate, at least from a high level. I bet there's a million trillion layers of nuance to it whenever you get into it. Have I got that right?

David, 7m 38s:

absolutely. Yeah, every organization is different, you know, and that's something to bear in mind when you're looking at the practice purchase and that's perhaps why it's very useful to get a broker involved.

Dr James, 7m 48s:

I'm going to say as well. But anyway, okay cool, or at least one of the reasons why, okay cool. So we've covered high level and maintenance when it's not appropriate. What are the key differences, aside from the unsecured and secured thing that we mentioned just a second ago, like, let's say, rates of repayment, interest rates, let's say period of time which is spread over, or anything else in there that dentists might want to know yeah, I mean I would say the interest rates within the dental sector are probably the most competitive out of many sectors within the UK.

David, 8m 21s:

The margins that dentists pay on their loans are much lower than a general trading business. So you are getting the benefit of the lower rates because the lenders see you as a lower risk. You're lower risk than, say, somebody who's setting up a retail shop because of your professional skills. Rates tend to be linked to the Bank of England base rate. They range anywhere between one and a half to two and a half percent over base. That's pretty good man. It is pretty good. It is pretty good, yeah, and for property as well. They're around those margins and rates as well. So they are on the lower end of the sector when you compare yourself to other industries In terms of terms. I would say Goodwill. They'd lend up to sort of 15 years if there's no property. If there's a property, you can maybe push that to 20, 25 years.

Dr James, 9m 17s:

I see OK, so you can spread your repayments a lot more, and I'm going to say that that means that the monthly repayment is lower right Lower.

David, 9m 24s:

Yeah, that's right. Yeah, it's important to know as well. A lot of lenders don't have any early repayment charges on a business loan. So it might be that you say, okay, well, actually we'll take the payments out over a longer period now because we're taking over the practice. We're not quite sure what it's going to be like when we get in there. We want to keep our outgoings low, but you get in there. You find it's better than what you thought, or you start growing your private growth. You can start and, if you wanted to, you can overpay your loan or your mortgage without any penalties.

Dr James, 10m 0s:

Oh, I see, Wonderful, good to know. So that's where they differ slightly to how can we say, a traditional mortgage for houses Indeed, yeah, yeah.

David, 10m 3s:

I mean there will be circumstances. I mean, if you potentially fix your mortgage with the lender, there might be some early repayment charges. But as a whole, if it's a base loan, you can overpay at any time.

Dr James, 10m 17s:

Gotcha. So, if I've got this right, one of the biggest advantages is the period of time over which we make our repayments with a mortgage, meaning that it's cheaper on per-calendar month basis.

David, 10m 29s:

It is Obviously, the longer you have your mortgage, as you know, the more interest you pay your mortgage, as you know, the more interest you pay. But it might be that at the outset you go for a longer profile and then you can scale that back with the early repayments if you wanted to.

Dr James, 10m 45s:

Any other big advantages to going down the mortgage route?

David, 10m 48s:

No, I mean, I think that's pretty much how the lenders would structure the loans. Yes, yeah, gotcha.

Dr James, 10m 55s:

Okay, so it is very much a mortgage in the sense that it's over 25 years, which is typically how long mortgages are from my understanding of that world, even when it comes to property and our personal name, etc okay, cool so listen, you're having these conversations. I love this question and I'm gonna and I ask this almost as a recurring theme to the guests to come yeah, that's the best podcast because, given that they have a massive amount of expertise in their particular area, they're sat on the phone all day long talking about these things to Dentist, and you know what. What we can do in this podcast is for me to, off the cuff, try to anticipate what those questions are, or we could do that but you can often get a more succinct answer and ultimately a better representation of what those key questions are just by asking the professional. So, if you're happy, David, what do dentists typically want to know the professional? So, if you're happy, David, what the dentists typically want to know whenever they come to you about a mortgage, what are the big headers, the big important things?

David, 11m 55s:

that they want. I think, yeah. So I think I think that one of the most important things they want to understand is is can they? afford the practice that they're looking at. I think that's the number one thing. I think it's important, before you maybe even get to that stage, to have a conversation with somebody in the sector who can give you an indication as to the level of deposit you might need, and then you can almost work back from that. Then Sometimes it might be that you've got your eye on a particular practice and this is the makeup of that practice, but the level of deposit you have might not fit the lender's criteria. So it's always good to have a conversation with somebody to find out sort of okay, we've got X amount of money, is this practice possible for me? That's the number one thing that people want to know is am I able to buy the practice?

Dr James, 12m 48s:

And just on that exact thing. Sorry to interject, but this might be relevant. So people talk about loan to value, right? Is there any difference between mortgages and finance on that front?

David, 12m 57s:

yeah, I mean loan to value again. Um, just coming back to sort of the goodwill and the property side, properties, the banks like that. They'll lend you 100 so you don't have to put any cash in there. So that's great. That ticks that box. Goodwill, again, subject to the underwriting, but you can get up to 90 loan to value, I would say dependent on sort of the makeup of the practice. You know practice up to say, half a million, 10 deposit, maybe half a plus. You might want a little bit more. Again, it all comes down to looking at the financials, the accounts, serviceability, the costs within the accounts as well. But yeah, I mean as a rough rule, if you've got a 10% to 15% deposit, you know you should be in quite a good position.

Dr James, 13m 44s:

Great, and sorry to barge in just then. It just popped into my head. That's okay, no problem, and perhaps you were going to cover that and apologies if so. It just popped in my head and I thought the audience would love to know that.

David, 13m 55s:

Anyway, back to what you were saying earlier about those common questions. Yes, the common questions are people want to know how much deposit they need to put in. They want to understand the interest rate and margins. That's a very, very important you know, because there is quite a wide spectrum of margins out there. It's very important that when you get your indicative terms of your initial offers to discuss them with your broker, go through them, the pros and cons to each, each, each offer. People want to know how long it's going to take. Again, dental practice acquisitions can take anywhere between six to 12 months, dependent on if there's an NHS contract, cqc that's something to bear in mind. Again, the associated costs that come with it. So there's valuation costs, legal costs, all of those things that need to be taken into consideration. So people really just want to get an idea as to you know how is this going to look and how much do I need to have to make it possible?

Dr James, 15m 12s:

Got you Okay and, as I was saying earlier, I would be willing to wager a lot of money that in each one of those. There's a lot of depth, and that is particularly suitable for a dental practice. Mortgage versus traditional finance. What's the split? How does that look?

David, 15m 27s:

Well, they're pretty much both the same, really. So you know again, if you're looking at a dentist, somebody who's got a bill of track record, maybe two years post their BT, maybe two years post their BT Again, a good CV, some experience around management and running of a practice the lenders like to know about that as well. As you know, being an associate is very different to being a principal. Being a principal comes with its own additional pressures, as we know.

Dr James, 16m 6s:

So the lenders like to get a feel for sort of what involvement have you had in sort of managing staff and CQC and all of the regulations there? Is it more? Do you get more favourable lending terms if this is not?

David, 16m 12s:

your first practice. I don't think you necessarily get more favourable lending terms. I think it just maybe makes it a bit easier to get the lending agreed. To get the lending agreed, I think it's always good to spend some time with your broker talking about your experiences so they can package it up for you. They should be writing an application on your behalf to the lenders, almost kind of selling yourself to them and why this practice is good for you.

Dr James, 16m 36s:

Wonderful. Okay, well, listen. Thank you so much for that. Obviously, you're experienced in this field and on this subject matter, so I'm just wondering is there ever been a situation, or is there any? How can we say case studies or situations that you can give us as examples in displaying? You know? How can we say a situation where Dentist was seeking finance? They couldn't quite get finance but in the end the mortgage rate was the way forward that was viable for them. Have you got any situations in which you've seen that happen firsthand?

David, 17m 8s:

I think sometimes you need to sort of look at everything that they've got. For example, there might be a situation, James, where they haven't got sufficient deposit, but maybe they have some assets in the background residential property or vital investment properties that you can maybe release some equity from to make the acquisition work. So those are areas to consider. So don't always think if you haven't got the cash physically in the bank. Have a look at what other assets you've got as well. What can you call upon to maybe make the acquisition work? And the other thing you know and I kind of touched on it there was you know these transactions can take time, and so you've got from sort of offer accepted to completion as well, to build up your cash to make the acquisition work and to cover the associated costs as you go through as well. So, though you might not have everything at day one, you could potentially make it work still, given sort of the time scales involved gotcha, so worth the conversation in other words yeah yeah so I think it's just important just to speak with somebody initially, get a feel for what you've got. they'll give you an idea of sort of the, the size and makeup of the practice you want to acquire, and then at least you sort of know, right, this is where I need to be looking.

Dr James, 18m 30s:

Okay, well, listen, for me that was an amazing summary of dental practice mortgages versus finance. Again, just returning to your expertise on this matter, David, I'm just curious to know is there anything else you feel might be pertinent or relevant to the audience, over and above what we've already covered today?

David, 18m 58s:

I just think it's important that you've got somebody who you can work with to arrange for finance, because they'll be working with you throughout the whole process. Make sure you have a specialist lawyer on board. Engage your accountants and speak to your colleagues as well, because you have colleagues out there who have possibly been through an acquisition recently and they'll be able to give you their thoughts on on sort of the process. So, yeah, just speak to as many people as you can, surround yourself with the right people, um, and don't be afraid to ask I think that's some solid input right there.

Dr James, 19m 32s:

Well, listen, you know what I want to keep this podcast short and sweet today, uh, and for it to act as a signpost or a summary of what's out there, because we can definitely delve into a lot of the stuff that you talked about there today on separate episodes, which will be fun and I'm all ready to come forward to. But, as I say, very nice job in terms of the summary today, David. So, thank you so much for your time and your wisdom. Thank you very much, James. Oh, dude, listen, total pleasure. David. If anybody listening to the podcast today wants to reach out to you, how would they be best off finding?

David, 20m 2s:

you.

Dr James, 20m 18s:

Best to email me at david@dental#funding.co.uk or on Facebook.

David, 20m 20s:

Just message me on Facebook, can they put hashtags in the email address. Sorry, hyphen apologies, nobody's gonna get hold of me, are they?

Dr James, 20m 27s:

yeah, no, listen, it's fine. The only reason I asked was because I was like, wow, I've never seen a hashtag in any apology. Sorry, hyphen.

David, 20m 34s:

So it's david@dental-funding.co.uk

Dr James, 20m 39s:

I know that's smashing. Yeah, like I said, I just was curious if that was a thing nowadays. I know it's a thing on text and Twitter and Facebook.

David, 20m 47s:

Let's make it happen. Let's make it happen.

Dr James, 20m 49s:

Yeah, we're going to start the movement right here, right now. Start the petition to somebody on that one. All right, David. Well, listen. Thanks so much for your time, Already looking forward to our next episode, Hope you.