Buying a Dental Practice - Your Loan Options - "Hot Topics Q & A"

Q. I am in the process of purchasing a 25% share in a dental practice. I need to raise £400,000 and have agreed the details of a loan with one of the major lenders.

What else do I need to be aware of and are there any additonal questions I need to ask the lender?

A. You have been offered a number of options, but admittedly you're a little unsure which ones are the best for you.  The lender's variable rate is 1% over the Bank of England base rate, which is very competitive. They have also mentioned a money market rate which currently stands at 5.525% + 1%. Their fixed rate is slightly higher than this, although we don't know the exact figure.

You have also said that you would prefer a loan that will allow you to overpay the debt so that you can repay it earlier. The variable rate option would allow this, with the added benefit that it's the best rate on offer. The other options do not give this flexibility.

It all depends upon your attitude to risk. No one knows which way interest rates will go. The lender HAS said that you could start with a varaible rate and then change to, say, a fix at a future date. Do bear in mind that if interest rates increase the fixed rate deals on offer will probably become more expensive.

If you do go for the fix, check what (if any) redemption penalties there are. They will usually apply for the term of the fixed rate.

Lastly, ask the lender if there is an option to set up the loan on an interest only basis. This will enable you to claim the maximum amount of tax relief on the debt. At the same time, if you have a mortgage on your home it may make sense to reduce that debt prior to the business debt as you don't receive tax relief on residential mortgages. 

We hope this helps!