9 Dec 2025
Competitive finance is essential for any practice, whether it’s in the start-up phase of business, or a mature practice upgrading equipment to enhance efficiency and grow. Regardless of business stage, the costs of running a practice can be substantial, often requiring external finance as few have the capacity to self-fund…
Adam Bernstein
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Image: jamesteohart / iStock
Understanding the various financing options available (and the implications of each) is key to making an informed decision that supports long-term growth without compromising the financial health of either the practice or its owners.
Given that finance is rarely simple it should be no surprise that there are numerous options including the traditional bank loan, asset finance, leasing, government support schemes and alternative funding sources. Each has pros and cons, and practice owners will need to navigate their way through the maze of options to find the most suitable route for their needs.
It should be an obvious question to ask, but before investing – and committing to long-term expenditure – it’s important to understand why a business has decided to make a particular investment.
Thankfully, the answers should be clear – to increase capacity say, through a larger x-ray machine in a new consulting room; by acquiring new computers that are faster and better able to automate office processes; to meet compliance or environmental standards, possibly by investing in air source heat pumps or solar panels; or to generally gain a competitive edge over rivals encroaching on the practice’s territory.
In essence, all these benefits seek to translate investment into improved efficiency and profitability.
However, they usually require substantial capital outlay, particularly for any sector where specialist or large equipment is involved.
One of the most common methods of financing large purchases is through a traditional bank loan. Here, the borrower seeks a lump sum that is repaid over time with interest.
Such loans feature either fixed or variable interest rates with loan terms that typically range from 1 to 10 years.
However, they tend to demand collateral such as a charge on business assets.
On the positive side, a simple bank loan with fixed repayments makes budgeting easier, the practice will retain ownership of the machinery from the outset and there is the potential for tax benefits.
However, a bank will demand a strong credit history and financials, the approvals process may be slower compared to alternative sources and the loan facility may reduce future borrowing capacity.
The bank loan may work for an established practice with solid cash flow and credit rating that wants to own the machinery outright.
It’s worth noting that if the practice approaches a British Business Bank-designated bank with an eligible request (tinyurl.com/2jjnvtpb), and fails with its first approach, then the applicant can be referred to the other designated banks for a decision.
Another commonly used option is asset finance, which is a form of lending that is used specifically for the acquisition of tangible assets such as machinery, vehicles or equipment.
There are various flavours of finance here.
Finance lease. The finance provider purchases the asset and leases it to the business, which will make monthly repayments that encompass both the initial asset cost and the accrued interest. At the end of the lease term, the business – the lessee – will have three options. They can continue renting the asset, return the asset to the finance provider, or facilitate the sale of the asset on behalf of the finance provider to (potentially) generate value.
Operating lease. A form of asset finance that allows a business to secure equipment for a specified time span, with the added flexibility of potentially upgrading to a more advanced model within the rental period, subject to the terms of the agreement. The finance provider maintains the asset during the finance agreement.
Contract hire. Often used when leasing vehicles. The provider sources and maintains the vehicles.
Hire purchase. Used for assets where the end goal is to own the asset outright. Until the lessee fully pays off the asset, ownership remains with the finance provider. The lessee is responsible for maintenance, and the item cannot be sold until it’s paid off.
Business contract purchase or hire purchase with a balloon payment. Similar to hire purchase, except that monthly payments are designed to only cover the interest on the loan. However, a final (or “balloon”) payment is required to fully repay the loan. Overall, the total cost over the term tends to be higher.
There is limited help from government – local and national – to help businesses invest.
The Growth Guarantee Scheme generally supports facility sizes of up to £2 million that provides accredited lenders with a 70 per cent Government-backed guarantee. Administered by the British Business Bank, it supports term loans, overdrafts, asset finance, invoice finance and asset-based lending facilities.
However, not all lenders will be able to offer all products.
The borrower must be viable, pass an affordability check, not be in financial difficulty and have a turnover below £45 million.
The Government has a page on gov.uk – Finance and Support for your Business – which offers a searchable directory on support available according to support type, business state, industry, number of employees and region.
While the support is variable, there are options, including, at the time of writing: Access to finance – Greater Manchester and Lancashire that offers help to those employing 249 or fewer that need help with introductions to lenders include business angels (private investors), business plan development and more; BCRS Business Loans for West Midlands and Gloucestershire businesses needing between £10,000 and £150,000 to be repaid across one to seven years; and Business Boost Grants – Elmbridge that offers up to £2,000 for businesses that benefit the local economy.
There’s also the Government’s Find a Grant page, which offers a boiler upgrade scheme that can provide between £5,000 and £7,500 to replace existing fossil fuel heating with something more efficient.
The key here is time and searching for options that offer a glimmer of success; some of the money is “free” and without the need to be returned.
Alternative finance has matured somewhat and offers another way to raise money, but directly from investors through online platforms rather than from traditional sources. There are two routes:
Crowdfunding. This is often used for niche or projects supported by the community.
P2P lending. Investors lend money to businesses through a regulated platform.
Platforms for either of these can be found easily online. As to the benefits, there are several, including less reliance on banks, faster application processes and the potential for lower interest rates than the banks.
However, on the flip side, this is not necessarily suitable for very large sums, investors may demand higher returns for risk, and the lending is not always regulated.
That said, they’re possibly useful for start-ups and SMEs looking for flexible, quick funding without traditional constraints.
This route might seem obvious, but some businesses choose to reinvest their profits – for a while at least – rather than seek external finance. This approach avoids debt and interest payments altogether.
The benefit of this is that it involves no debt or interest obligations, the “borrower” has full control over the purchase, and it helps to boost investor confidence.
However, self-funding can restrict cash flow or growth in other areas and offers a slower path to expansion if funds are limited.
Overall, though, if a business is very profitable and has strong cash reserves and isn’t urgently looking to grow, self-funding should be a consideration.
When it comes to selecting the method for financing, practices need to consider a number of key important points:
Cost of capital. What are the interest rates, fees and tax implications of the route chosen? Could money work harder being invested versus a combination of borrowing costs and tax relief?
Ownership versus access. Does the practice really need to own the asset, or just use it?
Flexibility. Will there be a need to upgrade or replace equipment regularly?
Cash flow. Can the practice afford the repayments or upfront costs?
Speed and ease. How quickly is the funding needed?
Risk tolerance. Is the practice (and its owners) willing to use other assets as collateral?
Investing in a practice is essential for it to grow and stay competitive. While it can be a significant financial commitment, there are a diverse range of funding options that can be tailored to many different needs and circumstances.
Whether through the traditional loan, leasing, government support or alternative finance, the key is to align the financing method with the practice’s strategic goals and cash flow.
Regardless, before committing, a financial advisor or accountant should be consulted to evaluate the full cost and benefits of each option.
