Refinancing a dental practice loan: when it pays and how it works

Most dental practice debt is taken on at the least favourable moment: when you buy the practice, with no trading record under your ownership and a lender pricing in that uncertainty. A few years later the picture is usually different. This guide explains when refinancing a dental practice loan is worth doing, what it costs to switch, and how lenders assess a practice that already carries debt. Smart Funding Solutions is a broker, not a lender: we search our panel of 300+ lenders and arrange refinancing from around £10,000 to £500,000+, with larger facilities available in suitable cases. Other practice borrowing is covered in our dental practice loans hub.

01Why practices refinance

Refinancing replaces one or more existing facilities with a new one, from the same lender or a different one. In dentistry the triggers tend to be specific:

• Proven ownership. Two or three years of accounts under your name, with the seller's handover complete and patient numbers held, make you a lower risk than on the day you bought.
• A stack of small agreements. Chairs on hire purchase, a scanner on a lease, a short-term loan for a refit and a card-based advance for a quiet summer can add up to several monthly payments that no longer match how the practice earns.
• A fixed period ending. Many acquisition loans and commercial mortgages fix pricing for a set period. When that ends, the practice has a natural point to test the market.
• Buying out a partner or funding a second site. New borrowing is often best combined with the old in one facility rather than layered on top. See our page on dental partner buyouts.
• Releasing equity from the freehold. A practice that owns its building may raise capital against the property's current value to fund growth or repay goodwill borrowing.
• Covenant pressure. If a change in NHS contract income or associate costs has put a loan covenant under strain, restructuring before a breach is better than negotiating after one.

02When it does not make sense

Refinancing is not automatically a saving. It is usually poor value when early repayment charges on the existing loan outweigh the benefit, when only a year or two remains on the current facility, or when the new term is much longer and the total paid rises even though the monthly payment falls. It also does not fix a practice whose profit has fallen: a lender will see the same accounts, and moving debt around can delay dealing with the cause.

03Refinancing routes compared

Route	What it replaces	Suits	Trade-off
New goodwill term loan	The original acquisition loan	Owners with a few years of proven profit	Exit fees on the old loan; personal guarantees usually still required
Commercial mortgage refinance	An existing mortgage, or goodwill debt, secured on the freehold	Practices owning their building	Valuation and legal costs; the property is at risk
Asset refinancing	Nothing directly; raises cash against equipment you own outright	Practices with newer chairs or imaging paid for in cash	Adds a secured agreement over kit that was unencumbered
Consolidation loan	Several short-term loans, advances or overdrafts	Practices juggling multiple repayments	A longer term can raise the total cost
Facility under a government-backed scheme	Any of the above, where security is limited	Practices a lender would otherwise decline or cap	The borrower remains fully liable; scheme cover protects the lender

For the property route, see commercial property refinance; for equipment you own, asset refinancing; for several smaller debts, debt consolidation loans. Some lenders offer facilities under the British Business Bank's Growth Guarantee Scheme; the lender still makes the credit decision.

04The cost of switching

A refinance should be judged on the total cost over the remaining life of the debt, not the new monthly figure. Add up:

• Early repayment or exit charges on each facility being cleared, taken from the settlement statement rather than the original offer
• The new lender's arrangement fee, and any broker fee, disclosed before you proceed
• Valuation of the goodwill and, where relevant, the freehold
• Legal costs for new security, and for releasing the old charges and debentures
• Settlement figures on hire purchase agreements, which may include interest that a straight comparison misses

Equipment finance is usually cheapest to leave alone. It is secured on the kit and often priced competitively, so clearing it with a general loan can cost more. The case for including it is usually simplicity, not price.

05What lenders look at on a dental refinance

• Performance since purchase. Whether profit under your ownership matches or beats what was forecast when you bought, and whether patient and plan numbers held after the seller left.
• NHS contract delivery. Recent delivery against target, any money recovered, and how contract reforms such as those in the NHS dentistry quality and payment reforms affect your income.
• Total debt against profit. Every repayment the practice will carry after the refinance, including equipment agreements and any deferred payments still owed to the seller.
• Repayment conduct. Clean payment history on existing facilities. Missed payments or a string of short-term advances raise questions a lender will want answered.
• Security and charges. Who holds a debenture now, what is registered at Companies House, and whether existing lenders will release their charges on repayment.
• Clinical and regulatory position. CQC registration, recent inspection outcome and any associate departures.

£137,500A transaction we arranged£137.5K to fund an accountancy practice acquisition.An established firm had an acquisition agreed. We structured the funding around the transaction and got it completed.

06Illustration: tidying up after the first years

The numbers in this illustration are invented and rounded. A principal bought a four-surgery practice four years ago with a goodwill loan. Since then the practice has added a £40,000 short-term loan for a refit and a £25,000 card-based advance taken during a slow period, alongside hire purchase on two chairs. Profit is ahead of the original forecast. The practice refinances the goodwill loan, the short-term loan and the advance into a single term facility, leaving the chair agreements in place because they are secured and nearly paid off. Monthly outgoings fall and become predictable. The owner accepts that the longer term on the refitted element means paying more interest overall on that part, in exchange for cash flow headroom while a fifth surgery is equipped.

07Documents for a refinance

08Risks and alternatives

Stretching debt over a longer term lowers payments but increases total cost, and the practice may still be repaying a refit long after it needs another. Moving goodwill borrowing onto the freehold puts the building at risk for debt that was previously unsecured on property. New personal guarantees may be wider than the ones they replace, so read them with a solicitor; our guide to personal guarantees explains what to check.

Before switching lender, ask your current one to reprice or extend: it may do so to keep a well-performing practice. If the pressure is a tax bill rather than debt, a Time to Pay arrangement with HMRC may be cheaper than borrowing. Our general guide to refinancing business loans covers the mechanics that apply in any sector.

09How a refinance works with us

1. You send the facility schedule and recent figures; we work out what refinancing would cost and save, including exit charges.
2. If it stacks up, we identify lenders on our panel with appetite for dental practices at your stage and debt level.
3. We present the practice's performance since purchase and the purpose of the refinance, and handle lender questions.
4. We set the offers side by side, including exit terms and any guarantees, so you can choose; the credit decision rests with the lender.
5. We coordinate settlement figures, security releases and completion with your solicitor.

Completion is where refinances slip. In a £212,300 business debt consolidation we arranged, the credit was approved but the lender's requirement for precise confirmation of property ownership and title from the client's solicitor nearly stalled the deal; working through it kept the structure intact. It is free to enquire; any broker fee is disclosed separately before you proceed.