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A loan to buy an optician's practice is usually a term loan for the goodwill, combined with your own deposit and sometimes…
Professional practices
Goodwill loans: funding the purchase of a pharmacy or practice's goodwill
How goodwill loans work when buying a pharmacy, dental, veterinary or accountancy practice: what lenders value, how loans are sized and the risks.
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In short
What you need to know.
A goodwill loan funds the part of a business price that is not bricks, equipment or stock: the client list, patient base, NHS contract income and reputation.
Because there is little to repossess, lenders size it on the practice's maintainable profit after a realistic cost for the buyer's own work, and usually take a debenture and personal guarantees. Specialist lenders understand pharmacy and professional goodwill better than generalist banks.
A transaction we arranged
£137,500
£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.
Read the transaction- Sector
- Accountancy
- Structure
- Acquisition facility
- Outcome
- Acquisition completed
About goodwill loans
Specialist knowledge. Better outcomes.
When a pharmacist, dentist, vet or accountant buys an established practice, most of the price usually pays for goodwill.
When a pharmacist, dentist, vet or accountant buys an established practice, most of the price usually pays for goodwill: the expectation that patients and clients will keep coming back. That is the hardest thing to borrow against, because a lender cannot sell a client list the way it can sell a building. This page explains how lenders approach goodwill across the professions, with pharmacy as the clearest example. Smart Funding Solutions is a broker, not a lender. We search our panel of 300+ lenders, including specialists in professional and healthcare goodwill, arranging funding from £10,000 to £20 million. Other funding needs of professional firms are covered in our professional practice finance hub.
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What goodwill is, and why lenders treat it carefully
Goodwill is the difference between what a buyer pays and the value of the identifiable assets: premises, fixtures, equipment, stock and debtors. It represents future income the business is expected to earn because of its location, contracts, reputation and relationships.
Lenders distinguish between two kinds:
- Transferable goodwill stays with the business when the owner leaves: an NHS dispensing contract tied to a location, a recurring compliance fee bank, a patient list registered with the practice.
- Personal goodwill leaves with the owner: clients who follow a particular adviser, patients loyal to a single clinician, referrals that depend on one person's relationships.
Only transferable goodwill supports a loan. A large part of a lender's work is estimating how much of the price is really transferable, and how quickly the rest might fall away.
Pharmacy goodwill in more detail
Pharmacy is the profession where goodwill lending is most established, because NHS dispensing income is visible month by month and relatively resilient. It is also where the specific risks are clearest.
- The contract follows the premises. In England, a pharmacy's NHS listing is for a particular location. Relocation needs approval, and the lease or freehold position is part of the goodwill. A short lease can make the goodwill hard to fund; our guide to buying a pharmacy with a short lease covers that problem.
- Ownership has to be re-registered. On an asset purchase, the premises must be registered with the regulator in the new owner's name and NHS approval obtained for the change of ownership. The General Pharmaceutical Council sets out what is required on pharmacy change of ownership. Lenders will not release funds until this is in hand.
- Items, not accounts, tell the story. Lenders study monthly prescription item numbers and the mix of dispensing, services and retail more closely than the last set of accounts.
- Owner-pharmacist or manager. Profit must allow for the cost of a responsible pharmacist for every hour the pharmacy is open that the owner does not cover personally.
The full process of buying a pharmacy, from deal structure to NHS approval, is covered on our pharmacy acquisition finance page. This page focuses on the goodwill element itself.
Security lenders usually take
- A debenture over the buying company's assets, including its goodwill
- Personal guarantees from the directors or partners
- A legal charge over any property bought with the business
- Sometimes life or critical illness cover assigned to the lender, because the goodwill depends on the principal being able to work
- A deed of priority with the seller if part of the price is deferred
A real goodwill-heavy acquisition
In our accountancy practice acquisition case study, a significant part of the value being bought sat in the client bank, recurring fees and goodwill rather than physical assets. We presented the transaction to the lender as the acquisition it was, supported by agreed heads of terms, and a facility of £137,500 was arranged. It shows why goodwill funding needs to be explained around the transaction rather than submitted as an ordinary loan application.
Tax points that affect the funding
How goodwill is bought changes the tax outcome, and therefore the cash available for repayments. A company buying goodwill may get only limited corporation tax relief on it, and goodwill acquired from a related individual, such as an owner incorporating their own practice, is largely excluded; HMRC's guidance on the restrictions for goodwill sets out the rules. When a sole practitioner sells goodwill to their own new company, the company often owes them the price through a director's loan account; our guide to the director's loan account explains what lenders make of that balance. Take advice from an accountant who knows your profession before agreeing the structure.
Risks to weigh
- Goodwill can disappear. A surgery relocating, an NHS contract change, a key associate leaving or a few large clients moving can erode value faster than the loan is repaid.
- Personal exposure. With little hard security, guarantees put your own assets at risk if the practice fails.
- Overpaying. Goodwill multiples rise in competitive markets. Debt that only works at the top of the market is a risk.
- Restrictive covenants. Make sure the seller is bound not to compete or solicit clients and staff for a meaningful period after the sale.
Underwriting
What lenders look at when sizing a goodwill loan
Lenders start from maintainable profit: the practice's profit after adjusting for the seller's personal costs and one-off items, and after deducting a market cost for the work the buyer will do or pay someone else to do. From that, they deduct existing commitments and test whether the new repayments are covered with room to spare.
Other factors move the answer up or down:
01
The buyer's contribution
Lenders rarely fund the entire price of goodwill and expect a cash deposit from the buyer.
02
Experience
A pharmacist who has managed a branch, or an associate dentist who already treats the practice's patients, is a lower risk than a first-time owner from outside.
03
Freehold or long lease
Buying the property with the business closes the security gap and can improve the goodwill terms.
04
Deferred or retention-linked price
If part of the price depends on clients staying, as is common with fee blocks, the lender's exposure falls. Our explainer on deferred consideration and earn-outs covers how those terms are negotiated.
05
Term
Goodwill loans usually run for a shorter term than a property mortgage, reflecting the risk that goodwill erodes.
A goodwill purchase with little tangible security is the kind of case the British Business Bank's Growth Guarantee Scheme was designed for. Participating lenders apply their own criteria, the guarantee protects the lender rather than you, and you owe the whole loan regardless.
Checklist
Documents you will need
- The seller's last three years of accounts and current management figures
- Profession-specific income data: monthly prescription items, NHS contract statements, fee bank analysis or client and patient numbers
- Heads of terms, including how the price splits between goodwill, equipment, stock and property
- The lease or title, and any landlord consent needed for assignment
- Your CV and professional registration details
- A cash flow forecast for the first two years under your ownership
- Evidence of your deposit and a personal statement of assets and liabilities
Side by side
Compare your options
How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.
| Option | How you repay | Security | Often used for |
|---|---|---|---|
| Unsecured business loan | Fixed instalments, usually monthly | No charge over assets; a personal guarantee is usually required | Growth, stock, tax bills and cash flow |
| Secured business loan | Fixed instalments, often over a longer term | A charge over property or other assets | Larger sums, property and refinancing |
| Revolving credit facility | Interest on what you draw; repay and redraw | Varies by lender and case | Recurring or uneven cash flow gaps |
| Merchant cash advance | A share of future card takings | No charge over assets | Card-taking businesses with uneven months |
| Asset finance | Regular payments over the life of the asset | The asset being financed | Equipment, vehicles and machinery |
| Invoice finance | Settled as customers pay their invoices | Your unpaid invoices | Businesses waiting on customer payment |
General information only. Every lender has its own criteria, and all finance is subject to status.
How goodwill drives value in each profession
| Profession | Main source of goodwill | What lenders worry about |
|---|---|---|
| Community pharmacy | NHS dispensing income and clinical services, tied to a registered location | Falling item volumes, a nearby surgery moving, reimbursement pressure, lease length |
| Dental practice | NHS contract value, private and plan patients, hygienist income | Reliance on the seller as principal clinician, associate retention, contract performance |
| Veterinary practice | Registered client base, pet health plans, out-of-hours arrangements | Staff recruitment, competition from groups, dependency on one vet |
| Accountancy practice | Recurring compliance fees and annual engagements | Client attrition after the sale, fee concentration, seller handover |
| Optometry | Recall database, NHS sight test income and spectacle sales | Retail competition, clinician dependency |
| Law firm | Referral networks, recurring private client and commercial work | Fee earners leaving, indemnity history, work in progress |
Not every practice has saleable goodwill. Regulations prohibit the sale of the goodwill of an NHS general medical practice, so funding to join a GP partnership is about capital and premises rather than goodwill; our page on GP partnership buy-ins explains how that works.
Architecture practices work differently again: goodwill often rests on the founder's client relationships and the order book rather than on recurring fees. Our guide to buying an architecture practice explains how buyers and lenders assess it.
Goodwill-led trades outside the regulated professions follow similar logic. Our guide on how to buy a funeral director business shows how lenders weigh local reputation, funeral volumes and seller dependence when funding a purchase.
Financial advice firms add a regulatory twist: bought goodwill does not count towards FCA capital resources. Our page on IFA business finance explains how that shapes where the debt sits, with a worked example of a client bank purchase.
The broker’s view
How we arrange goodwill finance
We look at how much of the price is genuinely transferable, present the profession-specific data lenders need, and approach lenders on our panel that fund goodwill in your sector, including specialist healthcare and professions lenders. You compare the offers on cost, security and guarantees, and the lender makes the decision. It is free to enquire; any broker fee is disclosed separately before you proceed. For deals across all sectors, see our acquisition finance guide; for a practice-specific route, see dental practice acquisition finance or veterinary practice acquisition finance.
FAQs
Questions clients ask
Can I get a goodwill loan without buying the property?
Yes, most goodwill loans are made without property security. Lenders then rely on the practice's profits, a debenture and personal guarantees, and they will look closely at the length and terms of the lease, because a pharmacy or practice without secure premises has less transferable goodwill.
Is goodwill finance only for buying a whole practice?
No. It is also used to buy a share of goodwill when joining a partnership that still charges for it, and to buy a block of clients from another firm. See our pages on partner buy-in finance and block of fees finance.
Do lenders accept a valuation from the seller's agent?
They will read it, but most form their own view of maintainable profit. For larger pharmacy, dental and veterinary purchases, a lender may ask for an independent valuation from a specialist valuer before agreeing terms.
Can goodwill be refinanced after I have owned the practice for a few years?
Often, yes. Once you have a track record of profits under your ownership, lenders may refinance the original goodwill loan, sometimes on better terms, or release funds for a second site or refurbishment. Lenders assess the practice as it is then, not on the original purchase price.
Can I get a goodwill loan if I have never owned a practice before?
Yes, first-time buyers are common in the professions, and lenders that specialise in goodwill expect them. They look at your qualifications and experience in the sector, the practice's profit record, the deposit you can contribute and how the seller will hand over patients or clients. A longer handover or a deferred part of the price can strengthen the case. Our page on practice acquisition finance covers the full purchase.
Can I get a goodwill loan to buy a business outside the professions?
Yes. Any business purchase where much of the price is goodwill, such as an agency, a services company or a trading business with a loyal customer base, is funded the same way: a loan sized on maintainable profit, usually with a debenture and personal guarantees, and often with part of the price deferred to the seller. See acquisition finance and start with Instant Quotes.
How much can I borrow against goodwill?
Lenders do not lend a fixed share of the goodwill value. They work out the profit the business can reliably make after a fair cost for the buyer's own work, then lend an amount whose repayments that profit covers with headroom, after any deferred payments to the seller. The stronger and more recurring the income, the more a lender will usually provide.
Keep exploring
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