Healthcare Finance

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Looking for Healthcare Finance?

At Sterling Commercial Finance Ltd, we recognise that the healthcare finance sector is unique.  We have our own in-house specialist, with years of experience within the specialist healthcare team of a high street bank.

Most lenders regard Healthcare Finance as funding for GP’s, Pharmacists, Dentists, Vets and Care Homes.

This can be in respect of practice acquisitions, buy ins, new premises, premises purchase, practice purchase including goodwill or simply funding for working capital or new equipment. Funding is also available for new build surgery or medical centre developments.

Most lenders have a very significant appetite to lend for healthcare acquisition or perhaps purchase of freehold business premises or simply to buy into a practice and will often – depending on the sector – do so with a significant unsecured element or for the right business totally unsecured and little if any customer contribution at 80% to 100% loan to value with interest rates that other sectors can only dream of.

Funding for GPs
Funding for Dentists
Funding for Vets
Funding for Pharmacies
Steve Divall

There is a greater appetite to lend, even in difficult financial times, as in some sectors the government / local authorities provide financial support or incentives not available to everyday businesses whilst in others perhaps NHS contracts or love for pets means an almost constant demand with payment from insurance backed payments

This means that lending defaults are, as a group, lower than other sectors giving lenders greater confidence that the business should do well and importantly lenders feel able to consider lending what can be very significantly amounts on an unsecured basis.

This equates to up to 100% loan to value funding for freehold property purchase and generally 80% loan to value business acquisition (but can be higher for the right deal), lower interest rate margins and higher unsecured facilities.

Steve Divall

Healthcare Finance Guide

Healthcare Finance Q&As

How much can you borrow?

Healthcare lenders are less focused on a maximum amount as they are on serviceability, sector experience and qualifications. The ability to show you have, or can with the right support, manage the target business(s) is more important. If looking to expand, perhaps high fee generation, then comfortable stress tested serviceability with good financials and a clear view of the way forward is essential.

Whilst some lenders will have an unsecured maximum of £300,000 per individual, we have seen as much as £20,000,000 unsecured arranged, depending on how a lease(s) may be valued.

Vets are seen as being partially protected from recession as pet owners will often prefer to spend on their pets than themselves.

Healthcare lenders are less focused on a maximum amount and are prepared to look at any deal so long as it is comfortably stress tested for serviceability.

100% Loan to value for freehold premises
With GP surgery, dental practice, vets and pharmacy owner occupied premises, there are enough lenders who will be happy to lend. As always, subject to serviceability and for GP’s adequate notional rent to consider 100% LTV. For the remainder lenders will generally look at up to 80%.

100% Loan to value for business purchase
Lenders will probably want a cash contribution. the thinking is that if you have money in the proposition and importantly if you have had to work to get that money then you will make a greater effort if the business struggles.

More than 100% loan to value
Some lenders will but usually only in two sets of circumstances;
A – Up to 105% LTV generally subject to 100% LTC to cover cost overruns in new GP surgery developments.
B – To cover early repayment penalties when refinancing GP surgery borrowing to obtain significantly lower interest rates. Depending on serviceability, lenders may seek additional security.

More than 100% loan to cost
Unlikely, however they should be happy to consider additional funding for say premises extension / upgrades.

How long can you borrow for?

15 to 30 years repayment terms depending on purpose and lender.

What experience do you need?

Experience is an important factor in evaluating a lending proposition. Lenders are not generally keen to lend to people inexperienced in the sector they are looking at.

However, depending on the proposition, level of contribution and security, we do have lenders who are prepared to consider lending to recently qualified professionals. Why not contact us and see what we can do?

What fees will you have to pay?

There will be interest, usually linked to base but a great variety of fixed rate options are available with most lenders.

Arrangement fees: These can vary significantly from one lender to another.

Solicitor and security costs. You will be expected to cover your own solicitors cost  and security costs (don’t forget stamp duty on property). Where the transaction is sufficiently large or a company is purchasing the share capital of another company, the lender may well want to put in their own solicitors to run alongside your own and you would have to cover these costs, which could be expensive. If you are looking at a significant new build, the lender is likely to ask for monitoring surveyors, their own solicitors and you would have to cover the cost.

Broker fees: Our costs are usually met by the lender – we will not ask you for a fee – and very unusually where they are not, we will advise you of this up front. We earn our money by structuring a funding package that suits you best and we only get a broker fee from the lender on drawdown of any facilities. The lender will not have increased their costs to you to cover any broker payment to us. We would expect to take an additional charge if you need help in preparing a business plan.

Valuation costs: This may be property and or business valuation, and these can vary depending on the lender and valuers used. The list is not exhaustive.

Preparing to apply for Healthcare Finance?

What is required to put a proposition to a lender

  • Accounts, Bank Statements and a Business Plan
    3 years audited accounts as well as business and personal bank statements. Business Plan is not always necessary but good to prepare one as it should help highlight potential problems.
  • Valuation of business and premises
    Needs to be undertaken by a specialist bank panel valuer.
  • Facts, Forms and Reports
    Personal fact find including mini CV and ID requirements. Variety of compliance regulatory broker and bank forms. Good CQC reports where applicable.
  • Income Data
    This will include Notional rent if a GP and Target sales details where applicable.
  • Due Diligence
    Solicitors experienced in the sector will be able to navigate the due diligence complexities.
  • Taxes
    Accountant confirmation of personal and business taxes are paid to date.
  • Experience of the applicant
    ie if a dentist, vet or pharmacist first practice purchase have they ever worked in and managed (on a day to day basis) a practice. What special interests and qualifications eg implants, cosmetic or orthodontics can they carry out.
  • Pharmacy
    Location is particularly important; Are you located in or close to a GP surgery, how many patient, how many other practices are close by, how many pharmacies are close and could be seen as in competition. You will also need to show FP 34’s.
  • Dentists, Pharmacies, Vets and Care Homes
    A copy of the sales pack is always very helpful to lenders.
  • Dentist
    Able to show current work as an associate that you can either do the fee income required (evidenced by say number of UDA’s and or fee income as shown in your accounts) or that you should be able to step up and why . Also the value of each UDA as is some areas can be as low as £10 and others xs of £40. List dentists issued with a contract and get a monthly vital signs report. Banks will want to see the contract summary and last twelve months vital signs.
  • Stress tested serviceability checks
    Stress tested serviceability checks currently Bank of England expect lenders to work to a suggested minimum of base 3% but lenders do use other calculations eg base on a term fixed rate.

 

When checking serviceability lenders may want your accountant to estimate the tax you and or your business or both are likely to pay over the coming two / three years after you purchase your target to enable them to show you can afford loan repayments. They will also take into account the information you provide on your fact find and a review of your own and any business bank statements.

I am a GP wanting to buy the surgery premises?

Will banks lend to one GP partner to buy the surgery premises
Yes but they will want a lease between the practice partnership and the doctor.

Banks will almost always want a lease between the practice partners and property partners where they are different. Where the partners are the same in both cases lenders are may / may not want a lease but will almost certainly want a commitment to have a lease in place should matters change.

Do banks lend to single handed GP’s to enable them to buy their surgery premises.
Yes but lenders would need to be convinced that the CQC are supportive of a single handed practice and are not looking, now or in the short term, to merge the practice into a larger practice/medical centre. The premises would also need to be suitable for use as a GP surgery now and for at least the term of the loan.

Can doctors take out “their own loan”
When a partnership arranges surgery premises finance, most lenders will agree to a partnership loan facility which enable partners to have funding “tagged” with their name. Essentially a partnership loan facility broken down into segments eg ABC practice Jon Doe allows partners to agree to a faster loan repayment for “their share” of the partnership loan within a joint and several liability within a partnership loan. This can be messy when a partner leaves and or joins and wants to borrow as it can require new loan forms for all parties. Generally better to have one loan with accountant making annual adjustments to amounts outstanding and apportionment of interest.

Can I get finance for a leasehold property?

Lenders in this sector are used to lending for leasehold property so the straight answer is yes, subject to the usual caveats regarding serviceability etc.

The lender would want to know the terms of the lease and may want any onerous clauses removing. They would also warn you as to your commitments regarding continuance of paying rental if you stop trading and cannot sell the lease on.

You also need to consider the term of the lease, and if you are the first lessor. Also, are there any commitments at the end of the term i.e. that may require the lessor to convert the property back to the condition and layout when the initial lease was taken.

However, most lenders would not see any security value in a lease unless it was long term i.e. over 21 / 35 years.

Can I get funding for Buy-In or Buy-Out purposes?

Do banks lend unsecured to doctors looking to buy In to partnership premises and will they lend unsecured.
Yes, but the number of lenders doing so and the maximum amount of unsecured funding has reduced significantly over recent years. If would be fair to say secured borrowing for this purpose can be at a much lower rate. Banks are likely to want you to take out decreasing term life cover for the amount of your loan. They should let you use your own IFA.

Do banks lend to partnerships for GP buy out purposes
Yes. Generally when a partner leaves and is not replaced a bank may or may not require security.

Discuss your Healthcare Finance needs with Steve on 0115 9849800 or email steve@sterlingcommmercialfinance.co.uk

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