So you’ve worked for a few years as an associate dentist and you think you’re ready for ownership. Maybe you’re buying in or buying out an existing practice. Maybe you’re going to build the practice of your dreams from scratch. Where the heck does the money come from?
Do you have $500,000 saved away in your piggy bank? Me neither. And let’s not forget the hundreds of thousands of dollars we may have in college and dental school loans. Yikes.
Almost three years ago I was ready to start a practice with my business partner. We wanted to build a state-of-the-art, beautiful, five operatory office in the center of Long Island. My first thought was to go to my regular bank for a business loan. I had been a loyal customer for several years and this was a NATIONAL CHAIN with LOTS OF MONEY. I’m a dentist, I thought, of course they’ll want to give me some of that money! I went in to a local branch and presented my business plan. It didn’t go well…
A regular bank doesn’t understand that dentists are special. The failure rate of dental offices is ridiculously, incredibly low. Instead, most banks treat us like we’re opening a nail salon or a restaurant. They want to see tons of money saved away, a home that can be mortgaged, etc. Even if you get approved, they will break up your loan amount into fixed monthly payments. This is impossible for a start up office. If you’re starting from scratch with virtually no patients then there is no way you can make loan payments every month of several thousand dollars.
The solution is to look to lenders that have dental-specific loan programs. The two big players out there are Well Fargo and Bank of America. I went with BoA and I’ve been very happy with the terms. Here’s how it works:
Bank of America recognizes that you are probably in debt. Don’t worry! You’re student loan debt is considered “good debt.” You couldn’t have been a dentist without it, right? So they basically ignore that. They will help you look at you business plan and make sure that it will “cash flow positive” which is technical jargon for “making money.” If you’re going to buy a practice for $600,000 and you want to also do $100,000 of improvements but the practice only grosses $200,000 a year, then you’re probably not going to get that loan. And that’s a good thing! The asking price is too high. Rearrange the deal so that it makes financial sense and you’ll get your loan.
Once you have a business and financial plan that makes sense, you’ll get approved and be on your way. As a start-up, you will be able to take advantage of graduated payments. This is critical! You won’t pay anything for a few months, then you’ll start to pay a little more, than after several months you’ll pay a little more, and so on. Your payment amount grows with your business and that’s how it should be.
What’s the catch? Well the percentage will be a little higher than what you would get from a regular bank. But that is fair. BoA is assuming the risk so they are entitled to earn a little more. Hey, that’s the price of doing business. The way I look at it, it’s their money until the loan is paid off.
There are some other perks to a dental-specific loan, including a program called “Practice Heartbeat” that will help you learn the business of dentistry. Talk to a specialist from Bank of America Practice Solutions to find out all the details.