The single most useful thing to understand before comparing offers on a practice purchase. It applies whether you are buying a dental practice, a veterinary surgery, a pharmacy or a partnership share.
A practice purchase is two loans, not one
When you buy a practice with premises, you are buying two quite different things and lenders treat them as such.
Goodwill is the patient or client base, the team, the systems and the cash flow. It is intangible. A lender cannot repossess it and sell it, so the security position is weaker and the funding runs over a shorter period.
The freehold is conventional property security. It can be valued, charged and, in the worst case, sold. It supports a much longer term.
Even where a single lender funds both and quotes you one facility, the underlying structure has these two components, and how they are split and termed drives your monthly cost.
The arithmetic
Take a £900,000 purchase: £600,000 goodwill and £300,000 freehold, with the whole thing at 7%.
If the entire £900,000 ran over 25 years, the monthly cost would be roughly £6,360. If the goodwill element ran over 10 years and the property over 25, the same borrowing at the same rate costs roughly £9,090 a month, around £2,700 more.
Nothing about the rate changed. Nothing about the amount changed. The structure changed, and the monthly cost moved by more than 40%.
You can test this yourself on our practice loan calculator: run the goodwill and property elements separately and add them together.
Why this catches people out
Because buyers compare offers on rate. Rate is the number that gets quoted, the number in the marketing, and the number that feels comparable between lenders.
But two lenders offering the same rate on the same total borrowing can produce monthly costs that differ substantially, purely on how they term the goodwill element. One will look considerably better on paper and worse in your bank account.
What to actually ask for
When you receive an offer, ask for it broken down:
- How much is allocated to goodwill, and over what term?
- How much to the property, and over what term?
- What is the rate on each element?
- What is the combined monthly cost, from day one?
- What happens to the monthly cost when the goodwill element is repaid?
That last question is worth asking because it is good news. When the shorter goodwill facility finishes, your monthly cost drops sharply while the property facility continues. Knowing when that happens is useful for planning, because it is frequently the moment a practice can afford to expand.
Both terms are usually negotiable
The goodwill term is not fixed by law and it is not the same at every lender. It can generally be adjusted to suit serviceability, within limits.
If a proposal is tight on affordability, extending the goodwill term is often a more effective lever than pushing for a better rate. A quarter-point on rate is worth a fraction of what two extra years on the goodwill element is worth to your monthly position.
The trade-off, as always, is total interest. Longer term, lower monthly, more paid overall. That is a real cost and worth seeing before you choose, but for a practice in its first two years of ownership, cash flow usually matters more than the total.
Where this applies
- Dental practice purchases, where goodwill is typically the larger share
- Veterinary practice purchases
- Pharmacy acquisitions, where the business is valued on EBITDA and contract rather than goodwill in the dental sense, but the same two-element structure applies
- GP partnership buy-ins involving premises
All figures are indicative and subject to lender assessment, your circumstances, valuation and prevailing market conditions. Commercial mortgages and unregulated bridging loans are not regulated by the Financial Conduct Authority. Property offered as security may be at risk if you do not keep up repayments.