Dr James:
Fans of the Dennis who Invest podcast. If you feel like there was one particular episode in the back catalog in the anthology of Dennis who Invest podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome, welcome to the Dennis who Invest podcast. Welcome back everyone to another episode of Dennis who Invest, with your host, james Martin, really looking forward to this one. Today Got a really interesting guest. He is someone who is effectively got some insider knowledge, which you’ll learn about in just a second as to how we can maximize the efficiency of how we obtain capital loans, etc. For various needs various times that it might be useful in our career as dentists. Not sure you saw him on the group, but if you didn’t, his name is Kevin Saunders. Kevin, you’re very welcome to the show. I hope that was a good introduction. I hope that was a good synopsis of what you did, but we will go into it in more detail later. It’s not necessarily my forte as loans, but I’m hoping to learn a lot today, as I’m sure everybody else is. Kevin, how are you today?
Kevin:
Fantastic James. I’m really pleased to be here actually.
Dr James:
Wonderful stuff, wonderful stuff. Kevin’s just reignited his Facebook after nine years in the wilderness, which is a little bit like me six months ago. There’s a little bit of a parallel there. At work today, kevin At day off.
Kevin:
No working, no risk of the wicked, Somebody that’s self-employed. It tends to be every day’s be fair whenever my clients are free to zalk.
Dr James:
I know the work never stops, does it when you’re self-employed? I’ll tell you what. I’m getting a little bit of an insight into this as the days goes on. Kevin, I was wondering, for those who don’t know you on the group, would you be able to give a little bit of a background or an introduction to yourself, just so people can get to know you a little better and then we’ll be able to go from there?
Kevin:
Yes, of course. Okay, so my background was in banking. I spent 30 years across two of the major high street banks and the last 10 years of which I was a specialist healthcare financer, mainly focused at dentists actually I’d say probably 80% but what I did was dental applications. I was the chap in London, the Southeast, writing applications for finance maybe 60 applications a year and providing finance for practice purchase, for refurbishment, for both associate dentists and for existing practice owners. So I had a good background, a good bit of inside knowledge there, and for the last nine years I’ve been independent, helping clients obtain finance from all of the banks, not just to obtain the finance but actually to project, manage the purchase of the practices with them all the way through, to draw down on the finance. And I tend to hang on to my clients and they come back to me later then for refurbishments or just to check over the finance they took out with the bank and make sure they’re compliant with the conditions of sanction etc.
Dr James:
There can’t be too many people in your line of work there who’ve seen it from both sides. So you’ve worked in the bank and you also are well, you’ve got inside knowledge in that sense. That’s what I was referring to earlier. And then, as well as that, you also facilitate dentists obtaining these loans by acting as an individual who goes between both parties. Is that that can’t be too common?
Kevin:
No, and certainly when I was in the bank, I dealt with the brokers at that time, who tended just to pass across a name and a number. I think increasingly it’s very important to use somebody who’s actually got inside knowledge of banking and knows how to write an application, because there’s a whole level almost of experienced bankers that did business development before that have disappeared, and so actually I often feel like I’m acting half on for the bank and half for the client.
Dr James:
Yeah, it’s an interesting one, is that? And I can? I can just even though it wouldn’t be something that I’ve ever been through I could just foresee it being a legal quagmire and there’s always going to be little tips and tricks to optimize your applications on those things. But I guess that’s where you fit in. A bit of an interesting one, something I’ve never really thought about, but it totally makes sense and it sounds like a great niche. Can you tell us, as dentists, from using your experience in the industry, what sort of loans are available to us to facilitate potential business endeavors? Because I’m the sort of person maybe there’s other people listening to me who might be like this as well. I just think, well, if I save up really hard, I can eventually get there and do what I need to do. But there’s actually a whole kind of financial argument as to whether or not it’s suitable to just obtain capital in the first place, given the fact that it propels you along that path a lot more quickly. So therefore, I’m sure there’s a million possibilities out there. I think as well as that, maybe because we think loans, we think debts. This is maybe not something we should. We should avoid if possible, but I know that that’s not always the case and that might very well be my completely ill-informed view. Can you give us some more information about the products that we can use and what their purposes are?
Kevin:
Yes, of course, starting off with the bank’s appetite for dentists, because commercial finance is actually quite hard to obtain on an unsecured basis, and by that I mean by not offering up property or charge over your home. But dentists are viewed so strongly by banks that actually unsecured commercial loans are available, and the reason for that is there’s very few defaults on dental practices and when there are certainly all the distress cases I was called in to look at over the years in the bank and since I’ve always been more about the person’s personal spending than actually the practice itself, it’s a very strong sector, but strong You’re one of the banks that are keen to lend. In terms of the actual products available, obviously there’s practice purchase loans and refurbishment loans. Now the actual loan itself is quite uncomplicated. It’s just a very basic loan with interest occurring on a daily basis and there’s no sort of magic to it at all. Really, I think what is complicated is the application process, because if you look for a residential mortgage, it’s quite black and white and basically you know what the terms need to be or the conditions you need to meet to actually obtain that loan. With a commercial loan it’s a bit more of a gray area, so it depends a lot on the write-up and on how the information is presented and once you have the loan, as I say, it’s quite a simple product. So, in order to question, there’s finance available on medium term and by that we mean about 15 years for goodwill purchase, for equipment purchases A lot of equipment can be pushed onto asset finance, which is just five years but also for property purchase as well, and property can be termed out over 20, 25 years and also potentially up to 100% value of the property can be financed for dentists. Again, that is quite unique in other areas If it’s a commercial property loan looking at 60 or 70% depending on the rental income, but for owner-occupied dentists, 100% amount of values are not uncommon.
Dr James:
So basically, the way I’m gathering it is, the banks are. They’re almost niche to dentists because they are such excellent candidates to lend money to and therefore they offer us more favorable rates. Surely because the fact we’re dentists is that correct?
Kevin:
Yes, definitely the sector, the sector’s view has been very strong very few defaults, and the banks also take the view that even in a worst case scenario, if a practice was to go wrong, then a dentist potentially can go back to being an associate and a really good seller and still service a debt. So hence preferential interest rates are provided or extended to dentists compared with other commercial loans.
Dr James:
Presumably a little bit of know-how comes in there which you might be able to help with in terms of knowing which banks are more favorable than others.
Kevin:
Yes, I mean there’s some banks that just aren’t in the market at all. There’s a good group of banks. It tends to be cyclical as well. You’ll find that two or three are the strongest, and then they’ll claw back on their rates slightly, or on their terms slightly. Another couple of banks will come to the fore. It goes round and round, and we’ll talk about that a little bit later on in a bit more detail. But yes, yes, I keep very close to the managers in all of the banks.
Dr James:
The idea of low interest rates which we have at the minute is that there’s a lot of lending, so I’m guessing that dentists are borrowing at the minute. It’s hot.
Kevin:
Yeah, it hasn’t really stopped, even through COVID. There’s a lot of appetite for practices, maybe more so from associates now who perhaps want to be in command of their own destiny. So, yeah, interest rates actually don’t always follow general interest rates. It depends on what the bank’s appetite is about set to roll, how much money they want to lend. But interest rates to dentists have been reasonably low for the last two years.
Dr James:
Can I ask what the typical one is? Well, I guess it really depends on the loan, let’s say a loan for a practice.
Kevin:
Practice good rule purchased. Again, it depends on the candidate as well, depends on the loan, and you banks these days have quite complicated pricing calculators and they plug. All of the information in Each bank is different, so the interest rates come out differently for each bank. So part of what I do is I actually present all of the information across all of the banks to the client on a spreadsheet, so that it’s not just a case of saying, well, here’s the best one, have a look at this. You actually get to look at all of the interest rates, all of the fees as well, because it’s not just about the interest rate always.
Dr James:
Not as simple as that, then no worries, fair enough, and presumably it depends on the terms of why you’re borrowing the money to, so someone who is an associate. They just they maybe want to buy in, you know, as part of a practice, or they’re setting up their new practice. There’s probably a whole host of things in there, isn’t there?
Kevin:
Yes, definitely so. The sort of things that affect interest rates are security, so you would expect to have a finer rate on a freehold purchase, then the practice, then on the good will purchase, also deposit, the amount of deposit you can put in in the lower, the loans of value, then interest rates will drop down as well. That said, and while we had this conversation earlier, I always ask clients at the beginning what’s of the most importance to you, and they nearly always say the interest rate. However, when I present the offers, you soon find out actually what’s the most interest is the loans of value, because most people, especially living down in London and the Southeast, will have spent a lot of money on a property purchase already and practices are expensive and an average price could be 700,000. So to come up with, say, 20% of that is quite a lot of money. So clients always look for the highest loan they can achieve, and that’s probably the best advice as well, because even if it’s half a percent more expensive, it’s better to take out as much commercial debt as you can and keep your personal lending low.
Dr James:
Got you and for anybody who doesn’t know what loan to value is, that’s the deposit that you put down beforehand. Am I right in saying that, Kevin?
Kevin:
Yes, so the value of the loan to the purchase price. So in other words, 80% of the purchase price will be the loans of value.
Dr James:
Good stuff. As dentists going into this world I mean, when we touched on this earlier there must be a myriad of ways that we can make ourselves look more favorable and therefore achieve better terms. Can you just? I’m sure there’s a list of lengths of your own, but can you give us a sneak preview or just some tips, kevin’s tips and tricks as to what those might be?
Kevin:
Yes, and you can almost turn that question around and say what are the problems that clients come up with when they apply for finance? And one is not having a good write-up, I suppose makes people doing my job quite relevant, actually, how the information is presented to the bank in the first place. Reaching the right person in the bank, which I mentioned earlier, because every bank will have a policy for dentists. But you can walk into a high street branch, find a manager who will try an application out and may get declined. Well, once he’s declined, that’s declined bank-wide. So it really is important to reach the specialist within each bank who specializes in dentists as well. That’s really important. When it comes down to looking at the finance, the banks look at this very much as a lifestyle business. So the business you’re buying is important and the financials, et cetera, but also they look at the individual who’s applying for the loan in depth. So we always had a saying when I was in banking that if your personal finances are bad, then probably you’re not gonna manage your business finances either. So it’s really important to do just the small housekeeping points, like making sure you don’t exceed your overdraft facility, not having unpaid item charges or referral charges on your bank statements, just keeping clean bank statements for a period. The banks usually want to see at least six months bank statements. In addition, personal expenditure obviously try and keep that as low as possible. I mean, we all have to live. But if you take personal loans out left, right and center and build up lots of credit card debt, then the bank will assess that and say, well, you’re gonna need to draw out that level of money from the practice the target practice to service that debt. So it puts more of a strain on the net profit of the practice and also you’re using that figure to service the loan as well. So that’s why the bank will look at that in detail. So try and control your personal debt and personal expenditure. I mean again, we all have to live, we all have to take debt out, but just don’t be excessive with that. I guess what looks good to a bank when they’re looking at an associate, for example, buying their first practice, they’re looking for someone who’s grossing decent fees, who has some assets or cash behind them. So isn’t somebody that’s renting no deposits who could just disappear. And basically the last one, which is always the hardest, is some experience, not just clinical experience. One of the things I always give or I hint to my clients on when they create their CV is say you’ve got to get all your clinical experience in, but try and put something about practice management. You may not have managed the practice, but you may have been in charge of a member of staff or just monitored some UDAs or whatever it may be. Put a few lines in and you’ll sit yourself ahead of all the other associates that are applying for finance.
Dr James:
Real quick guys. I put together a special report for Dentist entitled the Seven Costs in Potentially Disasters and Mistakes that Dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realise that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdenisoonvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them Really. Looking forwards to hearing your thoughts. Interesting stuff. I heard you mentioned about looking good in terms of salary. Now, the trouble is with Dentists. Some people work two days a week. Some people work three days a week. There’s private, there’s NHS. Some might have a different concept of what a good salary looks like. Can you give me more information on how we can make ourselves more appealing to the bank in that respect? The more the better, presumably.
Kevin:
Yes, definitely. I always say to clients if you can gross the highest level of fees you can for the year before you buy in the practice, that would be good advice. But we can work it backwards. It is about the level of fees you’ve grossed rather than your actual salary. So Dentists would usually tell me I earn X amount of UDA and here’s the number of UDAs I’ve completed over the years. The banker is interested. If it’s NHS, they’re interested in how many UDAs you can perform as the actual money you make from that. And then when it comes down to private, it’s usually a bit simpler. Whatever people share is 45, 50%. We work it backwards, add back on the material and lab fees and look at what that looks like. I suppose there’s a rough rule of thumb. If somebody who’s doing just private industry is ending up with 60 or 70,000 a year, then you work it backwards and they’re grossing I don’t know, could be anything between 130, 150, depends on their share. Something in that kind of all-park is fine and it does depend, as I say, on their share of the fees. It also depends on how many days they’re working and again, that’s something I bring out in the application. So I would go through all of this with the applicant and actually ask them how many days you’re doing at the moment and what you’re capable of doing, because we have to show how the dentist potentially if it’s a simple situation where they’re just buying a practice and slipping straight into the principal shoes we have to show that they’re capable of grossing that level of fees that the principal has been grossing. If not, if they’re going to gross some of them and have an associate pick up on some of the other fees, I then might need to make an adjustment to the financial accounts to show the payment going out to an associate. So it’s quite a careful, considered calculation.
Dr James:
Andrew Acton was saying something similar in one of the previous podcasts. He says that it’s, whilst it’s unusual, it’s not entirely unheard of, that you can get a principal who’s grossing a 500K, you know, and they’ll part of when you see it from the dentist’s perspective. It’s very difficult Usually. Why that happens is because they have a list of patients that has managed very well and they are incredibly efficient in terms of their communication, what those patients they know what to expect because they’ve been seeing that dentist for so long, and exactly what they charge those people. And for you to come in as a not not always a novice just as a fresh face to the practice, and be able to replicate that straight away. It’s entirely reasonable that that won’t be the case and it’s interesting that the banks have even thought about it to that level of detail. It makes total sense, really, because of course, it is what’s going well. It defines how much they’re willing to lend us, but it’s just an interest and one.
Kevin:
Yeah, I mean it’s a point that I saw somebody else on your Facebook page mention about things you not taught when you finished dental school. You know running a dental practice is just. There’s just so many issues you need to learn. It’s a real baptism of fire really. But no, the banks do think about that and they especially think about it If you’re buying a practice from a principal who’s doing a lot of specialist work whether it’s implants or whatever they may be if you don’t have the experience to do that, you need to pay someone else to do it. So again, it’s all part of that calculation on the bottom line profit as to how there’ll be enough left to service the loan, pay an associate and cover the applicants drawings as well.
Dr James:
They’re on the ball, are the banks? Not surprising, really? How has COVID changed the game?
Kevin:
Well, covid has changed the game. When it hit in March, just about everybody stopped borrowing money more from the clients than the banks point of view. A few of the banks have clawed back and stopped lending for new business, so there’s probably fewer players out there, but still a good handful of banks With an application. Now there’s an extra focus on how our practice has performed in the last year. There’s also questions asked around what assistance has been taken by both the practice and the applicant as well, because if the applicant has taken a mortgage with payment holiday and taken a bounce back loan, for example, then the bank wants to know about all of that and to know about future expenditure related to those that assistance, rather, finding that generally they’re asking for bounce back loans to be repaid. If an associate has taken out a bounce back loan, unless we can really demonstrate why there’s an ongoing need for that loan and the issue with both bounce back and Siebel loans is you can’t refinance them, so you either have to leave them alone with the bank loan money or they have to be refinanced on usual commercial terms to the new bank. In addition to that, once the finance has approved, the banks are actually acting quite slow at the moment and the reason for that is their service centers are under pressure. So there’s obviously all the COVID loans they’re dealing with and also the staff staff staff say it’s staff and sickness so they’ve dragged a lot of staff out of the service centers dealing with the COVID loans and they’re not available to deal with simple matters like issuing loan documents or security instructions to solicitors. So it’s quite a battle at the moment to meet timescales. I guess in their defence those banks will say but we stayed open for business, so you’ve got to allow us to drag some staff out to deal with the COVID loans and to deal with new business, and that’s a fair comment. But you just need to be born in mind that processes at the moment are quite slow. Sorry, I had a question.
Dr James:
No, all I was going to say. It’s interesting to hear that some of the banks have dropped out of the game in that respect, because to me, from the conversations I’ve had with people like yourself, people who are within the industry of well perhaps, as Andrew Acton was a practice broker he said, because of the constraints on the NHS there’s never been more demand for private dentistry at the minute. So I would have thought that the money’s there, the banks are tripping over themselves to lend so slightly harder and intuitive.
Kevin:
It is. So I suppose you’ve got to ask the reason why some of the banks aren’t keen to lend, and that is for two reasons. One, they’re worried about bad debts for struggling businesses going forward. Secondly, when a bank lends money, it has to maintain a certain level of deposits and this balance, this equation, was changed after the credit crunch, so it has to maintain a certain level of deposits against the money it lends. So if you imagine at the moment they’re pushing money out of the door on these COVID loans like nobody’s business, so that it gets rising and rising, which brings us onto the next interesting effects of COVID, which is the future. So again, this is all speculation, nobody knows. But if they’re pushing lots of money out the door, it means they probably need to kill off a little bit of the new business they’re doing to balance the books. So it could be the case they do that by reducing down loans of values or increasing interest rates, and in fact I have already seen one of my principal lenders do that. They reduce down very slightly the money they’ll lend against freeholds and goodwill and it just kills a little bit of the business. Off at the top they’re still lending for new applicants, new business to the bank. But yeah, it just kills some of that off.
Dr James:
Yeah, fair enough. That’s a good answer, actually, because that rekindled a conversation that I had in my head with Vinay Rathod, who was another one of the podcasts, and he said, before all of this happened, it was not unusual that we’d have a well 5% deposits on houses or at least they on houses, at least they existed Whereas now they’re insistent they get that 10% and that’s just surely because there’s so much demand there, they can afford to tighten up the regulations a little bit. So, yeah, fair enough. Complete parallel in the dental industry.
Kevin:
Yeah, I’m not supposed to give you an example. I mean, brokers are terrible. They tend to like to say the answer is always yes until they get a decline. But to be completely honest about it, before COVID we’re probably three banks lending 100% on property. Now we’re down to 100% yeah, 100%, and now we’re probably down to one main lender lending 100%. So it means that that application has got to be really good when it goes in to actually obtain that finance.
Dr James:
I’m sure there’s lots of people on this group who are into their property. In fact, I know they are because one of the biggest podcasts was with Harry singing. It was the first one we got. It’s got loads of views, presumably because they’ve got loads of collateral. They would make excellent candidates to borrow money from the bank. Is it as simple as that?
Kevin:
It’s not quite as simple as that. I mean, yes, if you’ve got a good level of security and assets, the banks really like that. I mentioned that earlier. The problem is really that people perceive property to be an asset even when it’s mortgage up to the hills. So when a client approaches and they’ve got maybe three residential investment properties and they’re all geared up to 70, 80%, the banks don’t always perceive that as being a positive point, and one of the reasons is that when a bank looks at an asset, especially property, they’ll write down the value to 70% of the value. They always look at the value in a distressed sale situation. Then they take the mortgage off. So sometimes actually, if you’ve borrowed a 70% against the property, you’ve actually got no equity in it, but what you have got is a debt that needs to be serviced. So if you get some, well it’s not just that, it’s the debt really. So if you have any rent voids, then basically you’ve got to cover that loan, which means again, that puts pressure on the practice you’re buying and your drawing requirements from that practice.
Dr James:
Interesting stuff. Yeah, I just wondered, was it as simple as that? But then I started. What sort of flow in my mind was mortgages and that’s debt, and yeah, yeah, I really did want to Hang on. That’s alright, don’t worry, hang on. I just really wanted to know the answer on that one. But thanks for that Cool. So, kevin, you mentioned briefly earlier that you are the man with the insider knowledge in assisting us dentists to acquire this capital. Can you speak a little bit about your business and maybe go into more detail about what specifically you do to aid us?
Kevin:
Yeah, definitely. So, as I said earlier, my career in banking was mainly focused on small and medium-sized businesses. After 25 years of advising people about that, actually it would be a good idea to put the money where my mouth was and have a small business myself. So I operate actually very similarly, I suppose, to a single-handed practitioner dentist and I really enjoy keeping it like that. But I have important links to business associates as well to assist me. My business is regulated by the FCA. So, yeah, it’s been a real journey. Actually, I have to say I’ve really enjoyed it. Rather than just talking about it, I’ve actually been doing that. I really lifted and dropped what I used to do in the bank into this, which was writing the application, actually mentoring people about how to apply for the finance, and then I also see myself as almost a project manager now and buying a dental practice. These days it tends to be an average time scale of about nine months, so getting the finance approved at the beginning is just step one really. There’s conditions of sanction to be met, there’s solicitors to deal with, so I actually stay with the client for that nine-month journey and liaise with all the parties the bank, the solicitors. I present the condition of sanction for the client on their behalf to the bank and chase up. Dentalists are busy people and often the bank are chasing for what seems like a small, insignificant form, but it could be holding the whole purchase up, so it’s just good to have a middleman managing everything through.
Dr James:
I think it’s a really good niche and I think that there is no doubt so many ways in there that we could Someone who’s potentially financially illiterate could do with a lot of help on. There must be a hundred ins and outs of it, yeah. So I really think that it’s probably quite a good line of work to be in, really, and I definitely think that there’s a lot of There’ll be a lot of demand from that from dentists, and I actually never really thought about it before until we had our introduction.
Kevin:
I think it’s really important, if you’re looking for a broker, to find somebody who’s got banking experience. And there are other people out there and I always say to my clients it’s about finding the broker that you get on with as well. It’s not looking for a solicitor or an accountant. You have to have that personal relationship. But if you go to one of the old-style bankers who’s got no background in banking at all sorry brokers who’ve got no background in banking then really all they’re doing is collecting your information and just sending it onto the bank.
Dr James:
Totally, totally Awesome. Well, it was really interesting how you speak today, kevin. I’ve definitely learned a lot. I hope you’ve enjoyed yourself, it’s been great James, Thank you. Thanks for inviting me on You’re wonderful, and if anybody would like to speak to Kevin, he is, of course, now in the group as of a few days ago. Really interesting podcast. As I say, we’re going to wrap up now, Kevin. Any more closing words? Anything else you’d like to add, or are you pretty pleased?
Kevin:
No, I think there’s under the duck of talk for hours about this. You know it’s been so many years of helping dentists with finance but, you know, hopefully we can do something getting the future. If anything else crops up an interesting question comes from somebody we can always run another session.
Dr James:
Brilliant guys and for anybody who is not on the group and may be listening to the podcast, the group is aimed at improving financial literacy in the dental community. It is DentistUniversed, a community group for dentists who enjoy trading. You can find it on Facebook If you search for it. Open to anybody who’s a dentist or anybody who is along the lines of finance and dentistry. Kevin, thank you so much for coming on the show. We’re going to wrap up now and I’ll let you get off.
Kevin:
Thank you Thanks.
Dr James:
It’s a pleasure, my friend. I’ll speak to you very soon, in a bit. I’m very interested in improving their finances, well-being and investing knowledge, looking forward to seeing you on there.