Goodwill is usually the largest part of a dental practice purchase price, and the part that separates a healthcare lender from a general commercial one.
What goodwill actually is
When you buy a dental practice you are buying an established patient base, a trained team, working systems, a reputation in the area and a predictable cash flow. None of that appears on a valuer’s report of the building.
A generalist commercial lender looks at that and sees an intangible asset it cannot repossess. A healthcare lending desk looks at the same thing and sees decades of low failure rates in a regulated sector with resilient demand. That difference in view is worth a great deal of money to you.
Lenders will lend against it
Specialist healthcare lenders will lend against a practice’s goodwill and equipment rather than requiring a charge over your home. For well-structured purchases, high loan-to-value funding against goodwill is available, and in the strongest cases it matches what is available against freehold.
The test is straightforward: does the practice’s profitability comfortably service the borrowing? It is assessed on actual trading performance, not on what you intend to do with it.
Term is where the money is
Goodwill is funded over a shorter period than commercial property. The freehold element of a transaction typically runs to around 25 years; goodwill runs materially shorter.
This is the single most under-appreciated feature of a dental transaction. Two offers with identical rates and identical total borrowing can produce very different monthly costs depending on how the goodwill and property elements are split and termed.
Both can usually be adjusted to suit serviceability. Ask for the split to be modelled before you compare offers, not after. Our goodwill vs freehold guide works through an example, and the practice loan calculator lets you run your own figures.
What affects the goodwill valuation
- Profitability, and how sustainable it looks without the departing principal
- The mix between NHS contract income and private work
- Patient list size, retention and demographics
- How much of the income is attributable to the principal personally versus the practice
- The clinical team and whether associates are staying
- Location and competition
Our guide to how dental goodwill is valued goes into this in more depth.
Where goodwill lending gets difficult
Three situations consistently cause problems. A practice heavily dependent on a principal who is leaving. A rapid recent uplift in profit that a lender suspects will not persist. And an income mix that has shifted sharply, in either direction, without a clear explanation.
None of these is fatal. All of them need addressing in the proposal rather than being left for an underwriter to find.
Common questions
Can goodwill be funded without any property?
Yes. Leasehold practice purchases funded entirely on goodwill are routine in dentistry. The lease terms then form part of the assessment, and a short unexpired term is worth addressing before you go to market.
Is goodwill lending more expensive?
It is generally priced above a property-secured facility, reflecting the security position, and runs over a shorter term. The right comparison is the total cost of the structure, not the rate on one element of it.
What if the vendor stays on as an associate?
That usually helps. A managed handover with the principal remaining for a period reassures lenders on patient retention, and is worth negotiating into the deal for funding reasons as well as clinical ones.
Related: dental practice purchase loans.
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.