Veterinary practice loans for vets and clinics

Vet practices earn in several different ways, and lenders look at each. Companion animal clients mostly pay by card at the desk, which gives steady daily takings. Farm and equine clients are often invoiced on account, so money can be outstanding for weeks. Where the practice accepts direct insurance claims, it waits for the insurer to pay. Pet health plans add monthly recurring income that some lenders view favourably. Meanwhile, drug and consumable stock, locum cover and equipment servicing all have to be paid for up front.

A practice with a large farm or equine book may benefit from funding that eases the debtor gap, while a small-animal clinic with strong card takings has more flexible repayment options.

Lenders fund practice acquisitions by looking at the target's accounts, client base, the mix of companion, farm and equine work, staff retention and the purchase price. Most deals combine the buyer's own contribution with a term loan and, where property is included, a commercial mortgage. Allow time for due diligence and for any property valuation and legal work.

Veterinary practices most likely to qualify are run by RCVS-registered vets, have at least one to two years of accounts, steady card and account income, and enough profit to cover repayments alongside existing borrowing; start-ups and buyers are assessed mainly on a business plan and their clinical experience. Lenders look at:

• At least one to two years of accounts, plus recent management figures
• Six to twelve months of business bank statements
• Profitability and affordability alongside existing borrowing
• Business and personal credit history
• Registration with the Royal College of Veterinary Surgeons, and for acquisitions any practice standards accreditation
• The split of companion, farm and equine income, and any health plan membership numbers
• For start-ups and acquisitions, a business plan and projections
• Details of any assets or property offered as security

Asset finance for an X-ray system, ultrasound or anaesthesia machine typically completes within one to two weeks of a supplier quote and accounts being provided, with the lender paying the supplier on delivery or installation. Unsecured loans and short-term tax or insurance funding for an established practice often move within a similar timeframe. Practice acquisitions, mergers and partner buy-outs usually take two to four months, because lenders review the target's income mix, client records and staff position, and solicitors handle the sale agreement, property or lease and any partnership changes. Where premises are included, the valuation and conveyancing often set the completion date. Up-to-date management accounts and a clear split of companion, farm and equine income help avoid delays.

The security depends on the product. Unsecured loans and merchant cash advances rely mainly on personal guarantees from the directors or partners, and limited companies are often asked for a debenture as well. Equipment and ambulatory vehicles on hire purchase or lease are secured by the agreement itself, which is why asset finance can be easier to obtain. Commercial mortgages and secured loans take a legal charge over the practice building or other property. Acquisitions typically combine a debenture over the trading company, personal guarantees and, where the freehold is bought, a first legal charge; for a leasehold practice the lender may want the lease assigned and reviewed. Our guide to personal guarantees explains what each partner is taking on.

It is possible. Past credit problems reduce the number of lenders and usually increase the cost, but some lenders focus on current trading and card income. Asset finance can also be easier to arrange because the equipment itself provides security. Our guide to bad credit business loans sets out the options.

A term loan is not always the best tool, and some practices combine several sources.

• Invoice finance for practices with a large farm or equine book invoiced on account; see invoice finance.
• Dedicated veterinary equipment finance so a loan is not used for kit that can secure itself.
• Deferred consideration agreed with a retiring vet, combined with veterinary acquisition finance.
• A revolving credit facility to cover drug stock and the wait for insurer payments.

If you are opening a new practice, our guide to veterinary practice set-up costs covers the budget.