A category of unsecured lending priced specifically for regulated professional practices. If you have been quoted general unsecured business rates, you may be looking at the wrong product.
The basic idea
A general unsecured business loan is priced for the risk that the borrower is an ordinary trading company, which might fail for any of a hundred reasons. A professions loan is priced for a much narrower population: regulated practices in professions with formal entry requirements, professional registration, and historically low failure rates.
Lenders have long recognised that a dental practice or a veterinary surgery behaves very differently from a general SME. The professional cannot easily be replaced by an unqualified competitor, the demand is largely non-discretionary, and there is a regulator standing behind the whole arrangement.
The result is unsecured borrowing on terms that would not be available to a comparable business outside these professions.
Who qualifies
Products of this kind typically name the professions they cover. Commonly included:
- Doctors and GP practices
- Dentists
- Opticians
- Pharmacists and pharmacies
- Veterinary surgeons
- Solicitors and accountants
- Other regulated professional practices
If your practice is on the list, the pricing conversation starts somewhere different. If it is not, general unsecured lending applies.
Typical terms
- £30,000 to £500,000 as the standard range
- Growth facilities to £2m for larger requirements
- Rates from around 8%
- Terms to around 60 months
- No property or asset security
- Personal guarantees frequently required, which is not the same thing as a charge over your home
What it is used for
- Practice acquisition, particularly smaller purchases or the deposit on a larger one
- Buying into a partnership
- Tax, VAT and corporation tax payments
- Working capital and payroll timing
- Practice refurbishment and fit-out
- Work in progress and disbursements
- Equipment where asset finance is not the better route
When it beats a secured facility
Three situations, in practice.
Speed. Unsecured decisions are made in days rather than the weeks a property-secured facility needs for valuation and legals. If timing is the constraint, that difference is decisive.
You do not want to give property security. Preserving your property for a larger transaction later, or simply not wanting a charge over the practice premises, is a legitimate reason to pay a little more.
The amount does not justify the process. A £120,000 requirement does not warrant a full commercial mortgage process, with the fees and the months attached to it.
When it does not
For a substantial practice purchase with a freehold element, secured lending will almost always be cheaper and run over a much longer term. A professions loan at 8% over five years is a different proposition from a commercial mortgage over twenty-five.
The right question is not which is cheaper on rate. It is what the monthly cost does to the practice, and whether you are using the right tool for the size of the job.
Worth knowing
These products move. Lenders enter and leave this space, and appetite for particular professions changes. A decline eighteen months ago tells you very little about today, and there is currently more unsecured capacity available to regulated practices than there has been for some years.
If you were turned down for unsecured lending in the past and concluded it was not available to you, it is worth asking again.
Related: business loans, working capital and practice purchase finance.
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.