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InFocus

What are your options for restructuring your practice’s finances?

There are a number of reasons why you might be looking to restructure your finances, and the best options for you will vary according to those reasons

If you’ve set up a veterinary practice and been trading for a number of years, it could be time to review your finances. Reasons to restructure your finances may include:

  • difficulty in maintaining existing repayments
  • interest-free rate period is due to expire
  • interest rate is due to change
  • investment in the latest veterinary equipment or refurbishment works
  • potential change of ownership
  • existing facilities are too costly or don’t suit needs
  • exploring options and/or seeking a better deal
  • investment needed for growth

Options available

Term loan

A lender commits to lend an agreed amount for an agreed period of time. Interest will likely be charged, although some lenders may agree to an interest-free period. The loan (with interest) may be repaid in instalments or as a bullet repayment at the end of the term.

The loan may be backed by security (if the practice has any assets) and/or perhaps a personal guarantee.

Advantages include having clear repayment obligations and options to receive the full loan from the start or in tranches. Interest fees are likely to be less than an overdraft

Advantages include having clear repayment obligations and options to receive the full loan from the start or in tranches. Interest fees are likely to be less than an overdraft. Length of term is usually up to around five years.

Take note of any fees, such as arrangement fees or early repayment fees.

Revolving credit facility

Any money which has been borrowed under a revolving credit facility and then repaid can be subsequently reborrowed, so this is usually used as a working capital facility; this differs from an overdraft because an overdraft can be repayable on demand. Revolving facilities are typically committed and used as core structured finance. You will likely have to pay commitment fees to maintain the facility, but it gives you the security that funds are available to be drawn upon, provided you aren’t in default.

Invoice finance

It is an attractive option where the practice has a high turnover and few fixed assets. Be aware of hidden fees and also take note these facilities are commonly drafted as “on demand”

You may wish to sell the debt due to you by your customers to a lender for immediate cash to provide working capital. This can be kept confidential from your customers or the lender can assume responsibility for collection of the debts and administering your ledger. This is a good way of generating cash quickly and when you most need it. It is an attractive option where the practice has a high turnover and few fixed assets. Be aware of hidden fees and also take note these facilities are commonly drafted as “on demand”, much like an overdraft.

Asset-based lending

If you’re looking to obtain the latest veterinary equipment or an upgrade from your existing equipment but need finance to do so, there are a number of options you can look into. These can include:

  • Taking out a common business loan (see term loan above) to purchase the asset and grant security over such asset to your lender. The asset will show on your balance sheet and you may benefit from tax allowances
  • Lease the asset from a lender (as owner of the asset) by paying rent to the owner. The asset will be returned at the end of the lease. It’s a good option if you want flexibility to use the asset on a short-term basis as and when you need it
  • Enter into a finance lease with a lender (as owner of the asset) again by paying “rent” to the owner plus an amount to cover the lender’s cost of purchasing the asset. At the end of the rental period, you will have the option to purchase the asset for a small residual sum

Sources of finance

There are various sources of finance available to veterinary practices – some of which are detailed in a previous article. The main four for existing practices are traditional bank loans, challenger banks and online funders, recovery loan scheme and private equity.

The main four for existing practices are traditional bank loans, challenger banks and online funders, recovery loan scheme and private equity

Traditional bank loans

If you’ve been trading for a few years, the traditional high street bank loan may now be available to you at a better rate than your existing facility.

Recovery loan scheme

This is available until 31 December 2021. It is a government-backed loan from an accredited lender of up to £10 million (per business, maximum £30 million per group) and can be via term loan, overdraft, invoice finance or asset finance.

Private equity (PE)

PE can provide a business with liquidity to accelerate growth, through capital expenditure expansion or funding acquisitions. PE firms will look to take an equity stake in a business to share in the “upside” on any future exit.

Hannah Oseland

Hannah Oseland is a senior associate solicitor in banking and finance for Harrison Clark Rickerbys, based in their Birmingham office. Hannah works with major high street banks, high-net-worth individuals and corporate lenders and borrowers, advising on all aspects of banking law.


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