As a dentist, no one needs to explain you area of expertise to you. You’ve dedicated yourself to providing the best care for your patients that you can; you are the one in the best position to treat and advise them. And while excelling in your field requires a lot of diverse knowledge and skill, it does not require a high level of financial expertise. You may need to be able to balance your books, and maybe run and P&L report, but you can also have a bookkeeper or accountant do that. But, when it comes to more complicated financial transactions, you are not alone among dentists who may quickly get out of their depth.
At the same time, the more complicated financial aspects are exactly what is involved when buying a dental practice or starting up a new practice. Just as your patients deserve quality, compassionate dental care, you deserve financial advice that is just as reliable and accessible as the care you provide to others. So, when you are ready to take the next step in your career—to either buy or start your own practice—you need to find a dental financial advisor who understands the transaction in the same way you understand your specialty.
What to Consider Before Choosing a Lender
First, you need to work with people who understand the unique needs of your business, the dental business: a dental financial advisor (on your side) and a dental lender (on the bank’s side). While your local bank may be a trustworthy and reliable institution, you have no guarantee that they understand the dental business. And if they don’t, it can create trouble.
Lack of knowledge about the dental business can lead to a lender making errors in valuing the practice you are considering buying or starting. There are unique aspects to how dental practices are valued and financed that don’t align with typical business financing. And that leads to the second problem—that the type of loan you will likely need doesn’t fit into a typical loan structure. You need to work with a lender who understands the type of business you are buying, and what kinds of loans work in that field.
Depending on whether you are buying a dental practice, building one from the ground up, or something in between, a Small Business Administration (SBA) loan can be a good option. For one thing, SBA loans are designed for small business like the one you are starting. They also are available for ground-up construction, which many conventional banks won’t offer. Even if you aren’t building something new, but are planning to buy land or a building, you may need a commercial real estate (CRE) loan.
Also, if you have credit problems, you may still qualify for an SBA loan, even if other lenders have turned you down. You may also have an option for an A/B loan (also known as a syndication loan), where a lender provides part of the loan from its own money, and partners with a second bank for the remainder, reducing the risk for each lender. With these loans, typically the A bank is the lead lender, and administrator for the entire loan.
As you can see, this gets tricky very quickly. This is why you need a financial advisor on your side who understands the dental business, and can help you figure out the answers to these five questions, which you need to have sorted out before you start talking to banks:
- How much money will you need for your project? This is an important question to get right, because an error on either side will create a real problem down the road. You definitely do not want to take on any more debt than necessary. On the other hand, you also don’t want to run out of money part way through the process. Getting a second loan can be tough. Talk this through carefully with your dental financial advisor, and review your numbers until you are sure they are correct.
- What is your plan? Here is where you identify the specifics of what you are doing. That is, what the is money for. Are you buying an existing practice? Does it include ownership of a building, land, or both? How is the practice equipped—will it need to be updated? Are you constructing a building? Are you outfitting a completely new practice? Again, talk this through thoroughly with your financial advisor and review your numbers carefully.
- When do you need the funds and when will they be repaid? Whatever your plan is, the seller (whether it’s a dentist, landowner, or contractor) typically has a strong interest in having the deal closed by a fixed date. Make sure you can meet that deadline, or you risk losing the deal. Also, make sure you will be prepared to start repayment on the loan terms on a schedule that will satisfy your lender, without creating a financial hardship for your practice or yourself personally.
- Do you have a solid business plan? All new business are started in a spirit of optimism. Optimism, however, doesn’t pay the bills. If you don’t have a good business plan, it’s likely you won’t get a loan. So, for the bank’s sake, and for yours, make sure your documents are complete, accurate, and based on reliable information. Look closely at the projections, and make sure they support the amount of money you are asking for, and your repayment plan.
- What is your backup plan? Things rarely go as we plan them. While many dentists buy or start a practice and it all works out fine, it’s unlikely that it worked out just as they had planned. Given the size of the debt you will take on, you will be better off with a contingency plan in case external factors impact your business. How will you repay your loan? Think about this carefully and work it into your business plan. This is definitely a case in which it’s much better to have something and not need it, than need something and not have it.
Having a solid business plan supported by complete and accurate documentation will go a long ways towards getting where you want to be with a lender. It will make their job much easier, smoothing out the process, and allowing them to determine the most advantageous way to fund your request.
Buying a Dental Practice? ddsmatch Southwest can help!
At ddsmatch Southwest, we are in the business of matching those who are selling a dental practice with those who are buying a dental practice. You can read more about buying dental practices in our article “Ten Things to Consider when Buying a Dental Practice.”
We understand that you are not just exchanging cash for an office and equipment. This business will be where you invest your time and your energy. You are not just investing money, but also your hopes for the future, and your plans for your family and loved ones. You will be building your legacy. We have many practices available for purchase and proven methods for matching the right dentist with the right practice. Give us a call and find out what we can do for you today.