Whether you’re looking for financing for one or multiple dental practices or looking to transition into retirement and sell your practice, it’s crucial to have your financial package organized and ready for presentation. However, finding lending if you’re interested in opening up more than one practice will require more documents as proof that your business is and will continue to be a profitable one. If you’re buying or selling a dental practice, there are many variables to take into consideration and many questions to ask when shopping for lending.
Questions to Ask Lenders
The first and most important question to ask is “do you finance multiple practices?” Institutions should be able to give you a firm yes or no. Most institutions do finance multiple dental practices, but research shows that lenders providing this type of service may ask for more requirements and collateral if opening multiple practices.
There are different types of loans associated with dental practices, including SBA loans and alternative lenders, so you need to inquire about which type of loan serves you best. SBA loans tend to be more popular among dentists as the interest rate is lower than alternative loans and the term is longer. However, if you need lending quickly, alternative loans may be the right option for you. Consider that alternative loans have a shorter payback period and typically only loan up to $500K. Depending on your credit history, ask if your lender requires collateral. They may use a house, car, assets or equity to help qualify you. Ask whether the interest on your loan is simple or compound. Laid out simply, compound interest compounds on the outstanding balance and any interest accrued. This means your interest can change month to month. Simple interest is interest at a fixed rate, payment, and term. Whether you’re just starting out or thinking about selling a dental practice after 30 years of being in business, simple interest should always stay the same.
What Lenders May Ask if Lending for Multiple Dental Practices
The more practices you have, the more difficult it may be to find funding. When approaching a lender, make sure you have a clear vision of what you plan to accomplish. Take into consideration if you plan to own five practices, ten practices, or a larger number which would require a lot of infrastructures.
Lenders will only agree to give you a loan if you can prove that your business is currently profitable or has all its “ducks in a row” giving it a promising head start. And of course, based on credit history. Lenders can inquire as to the specific locations of the practices, so they can geographically see if it’s possible for a dentist to commute to all of his or her locations regularly. They may also inquire as to the amount of cash on hand. This could become beneficial in planning and emergency situations. Laying out a detailed business and marketing plan helps lenders see where the funds are going.
If you envision a large network, hiring a CEO and CFO will be needed to keep track of all credits, debts, invoices, and cash flow. If you intend on selling a dental practice down the road, having people in these executive positions will help you understand how much your practice is worth. The larger your practice, the more employees and organization you will need. Lenders can and will put a hold on funds to expand if you cannot prove that your practice is under sound fiscal control. Some lenders may put a limit on the number of practices you can open and own under your loan portfolio, while others may specify a dollar amount of the maximum debt you can incur.
Factors to Consider When Starting or Expanding your Dental Practice
When looking to start or expand your dental practice, consider the following costs:
- Rent of new location
- Staff salaries
- Dental supplies and lab equipment (if acquiring from someone selling a dental practice, equipment may be outdated and in need of replacement)
- Office supplies
- Marketing and Advertising Costs
- Expanding your Insurance Coverage
- Business License
- Remodeling costs
In addition to costs, consider the time frame that you need the loan. Alternative loans provide quick funding. SBA Loans are known for taking weeks or months.
Making a Smooth Transition when Selling a Dental Practice
Whether you’re the seller or the buyer, you want to make certain that the sale doesn’t negatively affect your staff and patients. With over 25 years of experience, DDSmatch Southwest has a proven process that uses technology to reach a wide range of vetted buyers and long-standing relationships with 3rd party valuation analysts and dental industry experts to make certain your practice is priced fairly and competitively.
Transitioning or selling a dental practice requires careful planning and preparation. Leave it to the professionals at DDSmatch Southwest to ensure everything is handled safely and that the future is promising for everyone involved. Call us today.