Brexit – buying a practice
You might think that the decision to leave the EU is far removed from your plans to buy a dental practice. Think again. The decision to leave the EU has had an immediate and dramatic effect on the UK’s credit rating and the value of Sterling. Put another way the UK is now seen as a less safe place to invest in and less secure to lend money to.
The negative effect of this will undoubtedly filter down to commercial lending. The main banks have to secure their own funds to then lend out money to SMEs (small and medium size enterprises) and the cost of doing this has raised post Brexit. To maintain their margins lenders will undoubtedly pass the cost of borrowing onto the borrower. By how much and for how long is a question that remains to be answered.
On a positive note the likelihood of an interest rate rise is now less so. In times of economic uncertainty (and especially if UK growth falters) the Bank of England are more likely to reduce rates than increase them. I am cautious on this issue as rates went low in 2009 and haven’t been increased since. Also the Bank of England will be careful not to react to Brexit with undue haste. An interest rate rise is probably more of a ‘use it if really necessary’ action at this point in time and The Bank of England won’t see it as necessary right now.
It needs to be said that the UK remains one of the world’s largest and strongest economies with good banking liquidity, relatively low unemployment and perhaps now the potential for improved terms with global export markets. If you subscribe to this view then the cost of borrowing money will probably stabilise and remain at a reasonable rate.
So in summary interest rates are unlikely to increase in the near future and may even decrease. This could offset an inevitable (perhaps short-term) rise in the cost of money. The longer term prospects for commercial borrowing remain good, especially if you have positive outlook on the UK economy.
All of this emphasises the need for buyers to examine their business plan and the cost of running a business. Are you being realistic about the interest rate you can achieve? Do your projections stress test for an interest rate rise? If you haven’t got a comprehensive set of projections for a proposed purchase then you probably don’t know if buying is the right thing for you. Engaging with a professional adviser to secure the most competitive lending, rather than going straight to the bank, is advisable.
Speak to Jon Drysdale on 01904 670820 to discuss your practice purchase plans