Dental surgery refurbishment finance: funding refits, decontamination rooms and new surgeries

Most dental refurbishments are funded with a blend of facilities rather than a single loan, because the equipment and the building works suit different products. A common structure looks like this:

• Equipment finance for chairs, delivery units, imaging, scanners and decontamination equipment, through hire purchase or leasing secured on the items themselves. Our page on dental equipment finance covers this in detail.
• A business loan, often unsecured at smaller sizes, for the building and services works that a lender cannot repossess and resell. Some lenders will include fitted items and works in a soft-asset or fit-out facility; see our general page on fit-out and refurbishment finance.
• Property-backed borrowing where the practice owns its premises: additional borrowing on an existing commercial mortgage, or a new facility, can fund larger works over a longer term. See dental premises finance.

Specialist dental equipment suppliers and fit-out contractors sometimes offer their own finance packages. These can be convenient, but they cover only that supplier's scope and are worth comparing with independent options before you sign.

Compliance-driven works

Much dental refurbishment is not optional. In England, practices are registered with and inspected by the Care Quality Commission, and decontamination is guided by the Department of Health's HTM 01-05 guidance, which encourages separate decontamination facilities away from the treatment area. Ageing surgeries can also fall behind on infection control finishes, ventilation and accessibility. Lenders do not assess your compliance, but those familiar with dentistry understand that works driven by inspection or guidance protect the practice's ability to trade, and they will want to see that the project addresses any points raised.

Refurbishment finance suits an established practice that can show the works will maintain or increase its income. Typical cases include:

• refitting one or more tired surgeries, often in phases to keep the practice open;
• building a dedicated decontamination room to replace decontamination in the surgery;
• converting a spare room or storage space into an additional surgery for an associate or hygienist;
• upgrading a newly acquired practice that has had little investment;
• repositioning a practice towards private, implant or orthodontic work, with consultation rooms and better patient areas.

It suits less well where the lease is close to expiry, where the landlord has not consented to the works, or where the practice is loss-making and the refurbishment is expected to fix that on its own. A practice that has not yet opened should look at squat practice finance instead, and a practice buying the building it occupies, or a property that needs works before it can trade, may need a different structure altogether.

Decisions on the equipment element can come within a few working days in straightforward cases, while the full package for a larger project often takes a few weeks to put in place. The timeline is usually set by the project rather than the finance: quotes need to be final, landlord consent obtained and equipment lead times known. Arrange the finance before you commit to a contractor's start date, so deposits and stage payments are covered. Where works are phased, some facilities can be drawn in stages to match the contractor's valuations, and equipment finance is normally paid to the supplier on delivery and installation.

Security depends on which part of the project is being funded. With hire purchase or leasing, the finance company owns the equipment until the agreement ends or the final payment is made, so the asset itself is the main security. Building works have little resale value, so loans for them are usually supported by personal guarantees from the principals or directors, and larger facilities may be secured by a debenture or a charge over property. In leased premises, some equipment funders ask the landlord to confirm they can remove financed equipment if needed. Where an acquisition lender holds existing security, its consent may be needed. Our guide to personal guarantees explains what you are signing.

The cost of a refurbishment package is the combined cost of each facility in it, so it pays to understand how each one charges. Hire purchase and leases have fixed regular payments, sometimes with a deposit or advance rentals, and a documentation or option fee. Business loans charge interest, often with an arrangement fee. Property-backed borrowing usually adds valuation and legal costs but can spread repayments over a longer term.

VAT deserves particular attention in dentistry. Because most dental treatment is exempt, many practices cannot reclaim VAT on building works or equipment, so it is a real cost that needs funding. With hire purchase, VAT on the asset is usually payable at the start; with leasing, VAT is typically added to each rental, spreading it over the term. Tax relief on equipment and some fit-out costs may be available through capital allowances; our guide to asset finance and capital allowances explains the interaction, and your accountant can confirm what applies to your project.

Alternatives depend on the scale of the work and whether the practice owns its building. Practices commonly consider:

• Phasing the works over two or three years, funding each phase from cash flow.
• Refinancing existing practice debt to release headroom for the project; see our guide to refinancing a dental practice loan.
• Asset refinancing of equipment the practice already owns outright, releasing cash for the works. See asset refinancing.
• Working capital finance to cover lost income during closures, alongside the main package; see dental practice working capital.
• Bridging finance where a practice is buying premises that need significant works before longer-term finance is possible; see refurbishment bridging finance.