Almost nobody buys a dental practice out of savings. Acquisition is funded by borrowing, usually a substantial bank loan against the practice itself, and how you structure that borrowing shapes both your monthly cost and your tax bill for years. Get it right and your interest is deductible, your repayments are affordable, and the structure supports your plans. Get it wrong and you can lose interest relief you were entitled to, or saddle the practice with repayments its cash flow cannot comfortably carry.
This guide is the financing half of buying a practice. We explain how banks lend on dental goodwill, what loan terms and security to expect, and, most importantly, the tax rules that decide how much of your borrowing cost you can actually deduct. The central rule is simple but widely misunderstood: interest is deductible, loan principal is not. Layered on top is the difference between an asset purchase and a share purchase, which changes the tax treatment of your interest entirely. Understand both before you sign, because the financing structure is far easier to get right at the outset than to fix later.
How dental acquisitions are funded
A typical acquisition is funded by a mix of bank lending and the buyer's own equity or deposit. Dentistry is regarded by lenders as a relatively secure sector, with predictable, recurring income and a strong track record of loan repayment, so the major banks run specialist healthcare or dental lending teams that understand the sector and lend on terms that reflect its security. That specialist appetite is why dental buyers can often borrow a higher proportion of a practice's value than buyers in many other industries, and why the financing market for dentists is competitive. The starting point for any buyer is to engage a lender or a broker who knows dental practices, because generic small-business lending rarely matches what the specialist teams will offer.
What banks lend on: goodwill-backed lending
The distinctive feature of dental lending is that banks lend substantially against goodwill, not just physical assets. In most practices the goodwill, the value of the established patient base, contract and reputation, is the largest part of the price, with tangible equipment and any premises the balance. Because lenders trust the recurring income that goodwill represents, they will advance against it, which is what makes high-proportion dental lending possible. The flip side is that the bank is, in effect, lending against the future cash flow of the practice, so its central question is whether that cash flow will comfortably service the loan. Everything in the lending decision, the amount, the term, the security, follows from the strength and reliability of the practice's income.
Typical loan structure and terms
Acquisition loans are usually arranged as a term loan over a medium to long period, with regular repayments of interest and capital, sized so the practice can service them from profit. A longer term lowers the monthly repayment and protects cash flow but means more total interest over the life of the loan; a shorter term costs less interest overall but demands more cash each month. The right balance is the one you can service comfortably through the quiet months as well as the busy ones, not just on an average month. Lenders will also look at how the loan sits alongside any equipment finance, premises borrowing or working-capital facilities, because the total debt service has to be sustainable. Structuring the borrowing as a coherent whole, rather than a stack of unrelated facilities, keeps both the cost and the administration manageable.
Security and personal guarantees
Lenders take security for acquisition lending, typically a charge over the practice assets and goodwill being acquired, and over any freehold premises included in the deal. Where the borrower is a company, the bank will very often also require a personal guarantee from the buying dentist, because it is backing the individual's ability to run the practice as much as the assets themselves. A personal guarantee is a serious commitment, exposing you personally if the company cannot repay, so it is something to understand fully and take advice on before signing. The presence of a personal guarantee also tempers one of the supposed advantages of buying through a company, the liability shield, because the guarantee reaches past the company to you.
The tax: interest is deductible, principal is not
Here is the rule that governs the tax of any acquisition loan. Interest on borrowing taken wholly and exclusively to buy a trading practice is a deductible business expense: against trading profit for an unincorporated buyer, or under the loan-relationship rules for a company. But the repayment of the loan principal is never deductible, because repaying borrowed money is a capital transaction, not an expense of running the business.
This split has a real consequence for cash. Your monthly repayment is part interest (deductible) and part capital (not deductible), and early in a loan's life the interest portion is larger, becoming smaller as the balance reduces. So your tax relief on the borrowing declines over the life of the loan even as your repayments stay level. It also means that two practices with identical profit but different loan balances can have very different spare cash, because the one repaying more capital is using post-tax money to do so. Understanding that only the interest reduces your tax, while the whole repayment reduces your cash, is essential to planning the affordability of an acquisition.
Asset purchase versus share purchase and interest relief
The single biggest structural decision for interest relief is whether you buy the practice's assets and goodwill or the shares of a company that owns it.
If you buy the assets and goodwill as a trading sole trader or company, the interest on borrowing to fund that purchase is generally deductible against the trade, because you have borrowed to acquire the assets of a business you will run. This is the more common and usually more tax-favourable route for interest relief.
If you instead buy the shares of a company that owns the practice, a personal loan you take to buy those shares is generally not deductible against the trade in the same way, because you have acquired an investment in a company rather than trade assets directly. The interest relief position on share-purchase borrowing is more restrictive and more structure-dependent. This is one of several reasons the asset-versus-share decision is so consequential, and our guide to the tax implications of a practice sale looks at the other side of the same choice. The headline for a buyer is that how you structure the purchase changes how much of your interest you can deduct, so the structure must be planned before the borrowing is arranged, not after.
Incidental costs of obtaining finance
Beyond the interest itself, the incidental costs of obtaining loan finance, arrangement fees, broker fees and the lender's valuation or security costs, are generally deductible, for a company under the loan-relationship rules and for an unincorporated buyer under the trading-expense rules. On a large acquisition these fees can be substantial, so claiming them correctly is worth real money. As with interest, the test is that the borrowing is for the trade; fees on borrowing for a personal or non-trade purpose would not qualify. Keep clear documentation of every finance cost so your accountant can claim what is allowable and exclude what is not.
How lenders assess a dental acquisition
It helps to understand the lending decision from the bank's side, because shaping your proposal to it improves both your chances and your terms. A specialist dental lender looks first at the quality and security of the income: the contract mix, the proportion of recurring NHS income against private fees, the delivery history and any clawback exposure, and the stability of the patient base. It then looks at you: your clinical experience, your track record, and whether you have run or owned a practice before. It assesses the price against an independent view of value, because it will not lend heavily against an inflated purchase price. And it tests serviceability, modelling whether the cash flow covers the repayments with comfortable margin.
The practical upshot is that a buyer who arrives with a clear, evidenced picture of the practice's income, a credible plan, and a realistic price is a far stronger proposition than one who has not done that work. The same preparation that makes the lending decision easier, set out in our guide to heads of terms on a practice purchase, also protects you from overpaying, so the effort serves two purposes at once. Lenders reward buyers who understand the business they are buying, because such buyers are less likely to default.
The role of the premises
Whether the deal includes the freehold premises or only the practice business changes the financing picture significantly. Acquiring the freehold adds to the purchase price but also adds a tangible asset the bank can lend against, often on different terms from goodwill lending, and it gives you control of your own premises and a potential future asset. Acquiring only the business, with the premises held on a lease, lowers the capital required but leaves you exposed to the lease terms and to a landlord. The financing of a freehold purchase and the financing of the goodwill and equipment may be structured as separate facilities with different terms, and the interest treatment follows the same trade-purpose principle throughout. Whether to buy the freehold is a strategic and financial decision in its own right, and it should be settled as part of planning the acquisition rather than left as an afterthought, because it shapes how much you borrow and how the borrowing is structured.
Affordability and serviceability
Lenders care less about a fixed deposit percentage than about serviceability: whether the practice's cash flow covers the loan repayments with margin to spare. They will stress-test the income against the proposed repayments, looking at the contract mix, the delivery history, the cost base and any key-person risk. As a buyer you should run the same test for yourself, and more conservatively than the bank, asking whether the repayments are comfortable in a quiet quarter, after tax, and with a reserve for the unexpected. A loan that is affordable only on the practice's best months is a loan that will strain the business. Building a realistic, cautious serviceability model before you commit is the best protection against over-borrowing.
Fixed versus variable rates and repayment structure
Two structural choices on the loan itself are worth a moment. A fixed rate gives certainty: your repayments do not move with the wider rate environment, which makes budgeting and serviceability planning easier, at the cost of not benefiting if rates fall. A variable rate moves with the market, which can help if rates drop but exposes you to higher repayments if they rise. For a long acquisition loan, the certainty of a fixed rate can be valuable to a new owner managing a lot of change at once, while a more established owner may be comfortable with variable. The repayment structure matters too: most acquisition loans repay both interest and capital from the start, but some offer an initial period of lower repayments to ease the early cash flow, which can help in the demanding first year of ownership at the cost of slightly more interest overall. Neither choice changes the tax, interest remains deductible and principal does not, but both affect how comfortably the loan sits against the practice's cash flow, so they are worth discussing with your lender and accountant rather than accepting the default.
Deposit and equity
Because dental lending is relatively generous, the equity a buyer needs can be lower than in other sectors, but some contribution is normally expected, and it signals commitment to the lender. More important than the size of the deposit is the quality of the income behind the loan and your ability to service it. A buyer with a modest deposit but a strong, well-understood practice and a credible plan is often a better lending proposition than one with a larger deposit but a fragile contract. Focus your preparation on demonstrating serviceability and understanding the practice deeply, which our guide to financial due diligence on an acquisition supports, rather than on the deposit figure alone.
A worked illustration
Take a £500,000 acquisition, mostly goodwill, funded largely by a bank term loan.
- The repayments split. Each monthly repayment is part interest and part capital. Only the interest reduces your taxable profit; the capital repayment does not. Early on, more of the repayment is interest, so your relief is higher; as the balance falls, the interest portion shrinks and your relief declines, even though the total repayment is level.
- Asset purchase. If you buy the assets and goodwill as a trading business, the interest is generally deductible against the trade, reducing your tax across the life of the loan.
- Share purchase. If instead you buy company shares with a personal loan, that interest is generally not trade-deductible in the same way, so the same borrowing carries a worse tax outcome.
- Finance costs. The arrangement and broker fees on the loan are generally deductible, a useful relief on a deal of this size.
Same headline price, same loan, but the tax outcome turns on the structure and on remembering that principal repayments never attract relief. This is why the financing and the deal structure have to be planned together.
Fitting the finance to the rest of the deal
Acquisition borrowing does not sit in isolation; it has to fit alongside the other financial moving parts of buying and running a practice. The equipment in the deal may carry its own finance or be bought outright with capital allowances, and how that is handled affects both the cash you need up front and your tax. The practice will need working capital from day one to cover staff and running costs before income settles into your hands, so the acquisition plan should leave room for a working-capital facility rather than stretching every pound into the purchase. And the way you structure the purchase feeds into your eventual exit, because the asset-versus-share decision you make as a buyer mirrors the one a future buyer will face when you sell. A coherent plan treats the acquisition loan, the equipment finance, the working-capital facility and the long-term structure as one financing picture, not four separate decisions, which keeps the total debt service sustainable and the tax efficient. Our guide to working capital and overdraft options covers the short-term facilities that should sit alongside the acquisition loan.
Common financing mistakes to avoid
A few mistakes recur often enough to flag. The first is over-borrowing: stretching to a price or a debt level the cash flow can only just service, leaving no margin for a quiet period or an unexpected cost. The second is ignoring the structure until after the finance is arranged, then discovering the interest is not deductible because the purchase was structured as a share buy with a personal loan. The third is forgetting working capital, putting every available pound into the purchase and then scrambling for cash in the first months. The fourth is not claiming the finance costs, the deductible arrangement and broker fees, simply because nobody flagged them. And the fifth is signing a personal guarantee without fully understanding the exposure it creates. Every one of these is avoidable with planning and advice, and every one is far cheaper to avoid than to fix. The buyers who finance acquisitions well are those who treat the financing as a structured decision to plan, not a form to fill in once the price is agreed.
Getting the structure right before you borrow
The thread running through all of this is that the structure must come before the borrowing. Whether you buy assets or shares, whether you borrow personally or through a company, how the loan is secured, and whether you plan to incorporate later all affect your interest relief and your wider tax position, and all are far easier to set up correctly at the outset than to unpick afterwards. A specialist dental accountant, working alongside your lender and solicitor, should shape the financing so that your interest is deductible to the fullest extent, the repayments are genuinely serviceable, and the structure fits your longer-term plans for the practice. If you expect to refinance or restructure the debt later, our companion guide to refinancing and restructuring practice debt covers how the tax follows the money on that step too. Borrowing to buy a practice is a major, multi-year commitment; the time spent structuring it well at the start repays itself many times over.