Finance for dental and medical practices

Dental and medical practices tend to have two very different incomes under one roof: steady contract money and lumpy private fees. Funders like the steady part. The finance that suits a practice depends on which of the two is paying for what, and on the large equipment bills that come round every few years.

The cash-flow shape of a practice

NHS dental income arrives in equal monthly payments based on contract value, which smooths cash flow. The catch comes later. The year is reconciled after it ends, with a payment adjustment for over- or under-delivery against contracted activity in September or October of the following year. A practice that falls short on activity can face a repayment many months after the work was due.

Private fees arrive by card, often at the chair, and swing with demand. Implants, orthodontics and cosmetic work bring large single payments, sometimes taken on patient finance, which pays the practice on a schedule of its own.

Costs are front-loaded: chairs, imaging, sterilisation equipment, software and fit-outs. Associates, nurses and hygienists are paid every month regardless of how the list is running.

Which finance fits, and which doesn't

Equipment is the clearest case. A scanner earns for years, and asset finance spreads its cost across those years with the machine as security. Paying for it with a 6-month cash advance squeezes years of value into months of repayments.

What it costs: a worked example

Say the practice company borrows £100,000 at 18% APR over 24 months for a refit, repaid monthly.

• Monthly repayment: £4,992.41.
• Total repaid: £119,817.84.
• Interest: £19,817.84.

Sterling's rule of thumb calls under 20% "priced like bank lending". Before you sign, take the monthly repayment off your NHS monthly payment and check the remainder still covers payroll. Then ask what happens if the reconciliation goes against you. The calculator on this page lets you test other rates and terms.

What funders typically ask a practice for

• Filed accounts. A private company has 9 months from its accounting reference date to file them, so the latest filed set can be well out of date. Have management accounts ready too.
• Bank statements for the last several months.
• Contract details, including the contract value and how the practice is tracking against its activity target.
• Split of NHS and private income, and any patient finance arrangements.
• Equipment quotes for asset finance.

A personal guarantee from directors may be required, and a funder may run a credit search, which could be a soft search.

Red flags specific to practices

1. Borrowing against income you may have to pay back. If the practice is behind on its contract, part of this year's monthly payments could be recovered later. Don't size repayments on money that may go back.
2. Kit on short money. A cash advance for a scanner or chair turns a long-life asset into a short, expensive debt.
3. Ignoring the structure of the business. Many practices sit in a partnership or have an associate-led model. The finance has to be taken by the entity that actually holds the contract and the equipment.

Limited companies only

Ask Sterling can only introduce limited companies. Many practices are partnerships, and that's fine, but a partnership of two or three people where not all partners are companies is a "relevant recipient of credit", and introducing it to finance is regulated credit broking, which we don't do. If the practice trades through a limited company, business finance for it is not regulated by the Financial Conduct Authority.