Dr James, 0s:

Today we have Mr Dan Fearon joining us on the Dentists Who Invest podcast. Today we're going to be talking about practice finance what any prospective practice owner or current dental practice owner can do to minimize their repayments. We're going to be talking about something specifically called blended loans, which not that many people know about, but they can offer us a huge opportunity to unlock a great deal of cash flow in our dental practices via restructuring our debts. Looking forward to this one, as ever, I'm also super excited today to announce a brand new feature for the Dentists Who invest platform, and that is free verifiable CPD to all UK dentists who have enjoyed this podcast episode. Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right through the Dentistry Invest website. You'll be able to complete a short questionnaire and, once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle. Let's talk about blended loans, because this is something that I had never heard of until you enlightened me. Very curious to learn more I know.

Dan, 1m 19s:

Thanks for having me on, James. Um, yeah, we was sort of chatting about blended loans and it's interesting because I think banks now are trying to find different ways to engage with clients. There's a lot of competition in the healthcare market and they're trying to find different niches to attract customers and be different from their competitors. Really, so, yeah, there are lenders out that, basically, really so, yeah, well, there are lenders out that, basically, if you're looking to buy the goodwill and the freehold of the practice, instead of doing two separate loans so you know, the goodwill loan over 15 years and the freehold over 20 years what they can offer you in effect is like a blended loan and put that into one, which would allow them to maybe term the whole facility over sort of 20 to 25 years. So that could make a big difference to a client in terms of their monthly repayments, because the facility is over a longer period of time.

Dr James, 2m 16s:

And can I ask a question? What is the traditional logic that the lenders use that justify the fact that they don't, just, as standard, offer you one loan? Why do they split it into a goodwill loan and a freehold loan, for example? What's the reason?

Dan, 2m 33s:

oh, sometimes for clients they may want to do it that way. They may have a separate limited company for the practice and a separate limited company for the freehold. And you know, once you get to the, you know they get to the end of wanting to be a dentist, they may want to sell the goodwill of the practice and retain the freehold because they're separate entities. Then, um, it's nice and clean to do that. In terms of this way, you would probably everything would need to be in the the same limited company name, so that that could be the only drawback, because everything would need to be in the the same limited company name, so that that could be the only drawback, because everything would need to be lent to the one entity. But you know, traditionally they are blended up, they're separate because when they're looking to exit it could be easier for them.

Dr James, 3m 18s:

Ah, understood, and that was a lot more common a setup back in the day, wasn't it, where you had the nhs, perhaps goodwill, sitting in a personal name?

Dan, 3m 26s:

yeah, exactly yeah understood in in terms of, in terms of um, the lenders that we're talking about, yeah, they don't mind that the nhs contracts may not be in their limited company name. They're okay with that. It doesn't all need to be linked in in that situation understood.

Dr James, 3m 47s:

And then the other thing that you shared with me just off camera before we were talking, is that this also can apply to, uh, more short-term loans, like two to five years, you know they can be all. You can basically roll up all your debt into one repayment and spread it out longer, potentially with these blended loans.

Dan, 4m 6s:

Yeah. So if you've got an existing practice already, you know you may have your business debt that you used to purchase the goodwill and your debt for the freehold. But if you know in the meantime you've taken some short-term debt, what you could do you know, obviously it's a case-by-case basis is roll that all into one and turn that out over a longer period of time, which you know if you've got quite a bit of short term debt, it may be impacting your business cash flow. So if you're turning it out over a longer period of time, obviously the monthly repayments would go down.

Dr James, 4m 41s:

So that would free up a bit of cash flow for the business Understood and, apart from what you've just said, what would you say the other major advantages would be of restructuring your debt in this way?

Dan, 4m 53s:

The advantage of structuring it over a longer period. The main advantage is the reducing the monthly repayments, really, because, yeah, like I'm saying is, if you've got a lot of short-term debt, um, it can impact the growth of the business because if you're, if you're looking to maybe expand in the future or, um, maybe even purchase a second practice that could be holding you back because you haven't got the cash to do that where, if you're determining the facility over a longer period of time, then obviously there's more cash available in the business to help you grow and expand what about if you've got debt between you know that's owed to lots of different companies, like you've got your equipment debt with one person and you've got your practice finance with someone else?

Dr James, 5m 38s:

is that possible to roll it all up with one entity still?

Dan, 5m 42s:

yeah, you can. You can still roll it into to the one facility. Yeah, that that wouldn't be a problem. They would look at. Obviously you did have to look at. Um, yeah, if there are any repayment penalties or the interest penalties on on the facility. But yeah, it doesn't matter that you've got one facility with that person, another one with that person, obviously the bank would come in. In effect, take on the one loan, refinance everything. Can you just have the one facility going forward?

Dr James, 6m 10s:

I see, and then, as you were saying just a second ago, the one major advantage is it can really help when things are in a pinch uh, with regards to monthly cash flow. Obviously, just to state the very obvious, what might seem very obvious, but we just want to say it out loud you're going to be paying more back overall, correct, because you're spreading it out over a longer period, but your repayments, the interest rate yeah. Yes, but your repayments per month are going to go down, or at least that's the idea. Have I got that right?

Dan, 6m 43s:

Yeah, your monthly repayments will be lower, so obviously that will free up some cash within the business to allow you to do other things that you might want to do, and I suppose also you. You know you could still have the advantage if you have got extra cash and you want to put like a lump sum onto the facility, then you could still do that. So you take the advantage of the lower repayments, but if you do have some extra cash you could chip away at the loan that way and, you know, still hopefully finish it on a reasonable time frame I see, so there is some flexibility there yeah, yeah, exactly this.

Dr James, 7m 16s:

It's not set in stone, you know if, if you do want to put some extra payments on, then certainly can do that and the reason, one of the reasons that we did this podcast today was because, again, we were talking off camera and you told me that these blended loans are becoming a little bit more fashionable or commonplace these days yeah, I think they're sort of being put forward a little bit more in terms of different options for for clients.

Dan, 7m 41s:

Because you know you've got some banks that can offer like partial amortizing loans where some of the facility will be sort of interest only and some will be capital and interest, and the benefit of that type of facility is the rates can be quite low because they're only committing to the facility for maybe like five years or something like that, so the rates can sometimes start with a one, and so that's quite nice for for people to look at. And there's also other banks out there that if you're just buying a leasehold premise they might be able to term the facility over a longer period. So if you have a 15-year lease they may be able to do the loan over 16 or 17 years, which again helps with the low repayments. So banks I think they're trying to think of new ways to sort of make themselves different from the competitors, and we're always having new banks come in. We've recently just had a new lender come into the market who is really keen to grow their dental book and you know they're looking to do 90% loan to value and offering really good rates. So in the dental market. It's quite strong and they're very keen to lend.

Dr James, 8m 58s:

You know what Interesting thing that you said just then? Because we'd been operating on the pretense that this was just for freeholds up until this point, but you've just pointed out that it is also possible for leasehold as well, but so there are other lenders that could probably push.

Dan, 9m 21s:

if you're looking to buy a leasehold premises, maybe had to do the term of that slightly longer than your lease.

Dr James, 9m 29s:

Ah right, okay, so there won't be like on a blended rate.

Dan, 9m 35s:

That would be a blended loan. Rather Sorry, that would be a different bank, different facility, but still pushing the boundaries a little bit, so they could possibly give you lower repayments because they can turn it over slightly longer.

Dr James, 9m 48s:

Good to clear that one up. Seems kind of intuitive that the repayments the the the length of the loan is going to be longer than the lease yeah, it's on that.

Dan, 9m 59s:

There's there are sort of certain checks and measures in there to do that, and the bank would need to be comfortable with what the level of that is at the end of that lease term to make sure they can do that. But it's, it's certainly possible, as I sorry, if you had a million pounds remaining at the end of the lease, the bank's probably not looking to do that, but it's it's certainly possible, as I sorry, if you had a million pounds remaining at the end of the lease, the bank's probably not looking to do that. But if it's a lower amount and they're comfortable with that, then they would certainly look here interesting.

Dr James, 10m 27s:

Let's revert back to the the loans thing we were talking about a second ago, because I know that you do this stuff day to day, day and day. Have you got you got any case studies or examples of an individual who perhaps had two separate loans or maybe a whole load of equipment, finance or something along those lines, and they were able to draw that all in to? They were able to restructure everything and draw it into one, you know, debt and repayment and what they were able to save.

Dan, 10m 57s:

Yeah. So we had a client recently that we was looking at their facility and they had, yeah, a number of different loans, you know, some short-term finance and stuff all sort of spread out, and they were paying roughly about 20 000 per month in terms of loan repayments. And then we looked at the facility you know, see what was possible in the market and we managed to sort of reduce their monthly repayments down to about 7,000 a month. So it's a huge savings for someone, and obviously that's you are terming the facility out, so you're doing it over a longer period of time and, like you said earlier, there is interest linked to that. But if you're paying out 20k a month and you can reduce that to 7 000 a month, that's a huge saving that a practice can make when they're looking at their cash flow big number isn't it? yeah, oh, and you know, if people were, you know, interested in sort of having a chat about, you know, looking at their deals and how they can get in contact with us about that, then you know they can give me a call, my mobile, which is 07 815 087 488, or just drop me an email which is dan@saroma.co.uk