Choosing a Bank for Your Dental Practice
Purchasing a practice is one of the most important decisions of your professional life. That’s why the process of building the right team to guide you must include proper care and diligence. At Old National Bank, we believe that starts with your bank.
Step 1: Choosing the Right Bank
Not every bank likes to lend in every industry. While almost any bank will write a personal mortgage, very few will write a dental acquisition loan. Avoid the hurdles, wasted time – and a potentially failed deal – by making sure your bank has a group that specializes in dental financing.
Why? There are two major factors that distinguish financing for the dentists. First, cash flow lending on intangible assets and, second, the net worth of a typical recent graduate.
Intangible Collateral: Most dentists will approach the corner bank out of convenience. What they’ll find is a general business banker that is used to “tangible” collateral, such as a house, that can be foreclosed upon if you fail to pay your loan. When buying a practice, the enterprise value of the business is viewed as “intangible” collateral. A conventional banker will see limited value – and may require additional guarantor support, collateral, seller notes, or shorter payback periods. These may very well suffocate your cash flow before it even starts!
Net Worth of Young Dentists: With the average student loan debt at $300,000 and minimal cash balances, many early-career dentists have a large negative net worth. Most conventional banks look for a strong net worth, including liquid assets to back up the loan for their guarantors. This can be problematic for those recently out of school. In contrast, a dental-focused lending group would make decisions based on the projected cash flow of the practice, your potential earning power, and historical default rates in the industry. You will be asked to guarantee the note individually, but you should not need to find additional guarantor or collateral support.
Another important consideration when choosing your banking partner is to map out your future goals for the practice and know your banking partner will be able to accommodate those needs. Maybe this includes an expansion of the existing office, or adding more locations. Some banks will have a cap on how many offices they can fund, how fast they can fund them, where they will fund them, or how much money they will lend in total. Make sure your bank has the runway you’ll need to achieve your goals.
Step 2: Interview your Banker
In my opinion, the relationship with your banker is the most undervalued asset in this process. To me, it matters more than anything.
Not all bankers are created equal. Picking a banker that has a strong work ethic, experience and connections is crucial. Interview your banker to see what makes them an expert and different from other bankers. Behind the scenes, your banker is quarterbacking internal and external relationships to help create the smoothest outcome. This could include knowing how to use loan policy to customize loan structures or how to best present your deal to the credit team, both of which play a role in the deciding factors for approval or not.
Being part of somebody’s learning curve will turn out to be costly. It will cost you time, money, stress – and potentially your deal. Make sure your deal team has references and, most important, make sure you build a team that will be committed to you and your practice for years to come.
The Old National Difference
Experience: Clients here are able to build lasting relationships with the decision makers for the bank. Our dental bankers have an average tenure of 15 years and I have personally been with the same bank for 24 years. With us, you get a relationship with one banker, who can serve as a trusted source of information for years. This allows clients to operate with confidence in knowing what their bank can or can’t do, since they are actually talking to the decision maker.
Flexibility: No deal is ever the same. At Old National, we’re proud of our adaptability in finding lending solutions – it’s one of the reasons I’ve been successful as long as I have. In contrast, many larger banks end up trying to fit a square peg into a round hole – and when they can’t, they tell you you’re out of luck. Make sure you understand the capability your bank has in being flexible to its policies, as it will be crucial in getting you to the finish line. At Old National, we believe relationships and results matter.
