As we previously discussed in Part 1 of this article, “How To Buy A Dental Office – Practice Financing (Part 1 of 2)”, dental lenders continue to aggressively pursue loan opportunities and provide 100% financing plus working capital for dental practice acquisitions. However, these specialized lenders have tightened their standards over the past few years and currently evaluate borrowers in three primary areas: Personal Credit History, Personal Financial Condition, and Professional Experience. We discussed Personal Credit history in Part 1 of this article and will now examine the other two key areas of interest:
Personal Financial Condition
Unlike traditional banks, dental lenders understand that most dentists with only a few years of work experience will be carrying a substantial amount of student loan debt and have a negative net worth. What these lenders are paying closer attention to is if a potential financing candidate is “living within their means”. Lenders want to verify that your lifestyle matches your personal income level at the time you apply for practice financing, as the lender can only assume that your current approach to managing your personal finances will continue into the future. An interest only or adjustable rate mortgage and/or substantial levels of credit card debt are key indicators that a financing candidate is not maintaining a lifestyle consistent with his/her personal income level. This situation will often give lenders an uneasy feeling about a prospective borrower’s spending habits. Therefore, when you think about how to buy a dental office, you may want to consider postponing any major purchases – such as luxury items, expensive vacations, or discretionary expenses – until after you purchase your practice and generate sufficient income to fund these purchases with cash or keep up with the monthly payments using personal income rather than revolving debt.
It is also important to note that lenders will often evaluate recent graduates from a different perspective than when considering more seasoned dentists. While it is understandable that recent graduates will be carrying large student loan balances and a negative net worth, a lender will expect established dentists to be in a more favorable personal financial situation due to the ability to save money and reduce debt obligations during their career. Experienced dentists with weak financial statements should be prepared to provide an explanation for their current personal financial condition in order to mitigate any perceived risk from lenders.
The majority of dental lenders will require that a potential financing candidate has one to two years of experience following dental school prior to pursuing a practice ownership. The exact level of experience required to qualify for a loan can vary depending on the loan amount, the size of the practice being acquired, the type of practice being acquired, the buyer’s production capabilities, the buyer’s business acumen and more. Lenders may require less experience if the financing candidate has been working in the practice that he/she is looking to acquire.
As a young dentist who is considering how to buy a dental office within a few years following graduation from dental school , it is wise to search for an associate position that will allow you to produce a substantial amount of dentistry, quickly increase your hand speed, and expand the array of services that you are capable of performing. Obtaining your production/collection reports from your associate position can also be a useful tool in showing evidence to a lender that you are capable of producing at the level of the selling doctor and experienced at performing all of the dental services historically offered by the seller. While working as an associate it is also extremely valuable to pay close attention to the responsibilities involved with owning/operating a practice outside of performing dental services, which will allow you to better understand the business side of dentistry and prepare you for how to buy a dental office. Lenders typically interview potential financing candidates to verify their production capabilities as well as get a feel for their business acumen. Possessing the experience and knowledge to intelligently discuss and apply both the clinical and business aspects of practice ownership will impress your lender and increase your chances of securing loan approval.
If you take the time and effort to ensure that these three aspects of your personal and professional life are in order, you can rest easy in knowing that practice financing is readily available and you are in a great position to further your career by pursuing practice ownership.