Fun fact: Banks love you. I don’t mean “you” as a general term for everyone in the world; I mean “you” as in—YOU. Banks love dentists. Dentists are among the safest financial bets in the world, so banks love lending to them.
So if you’re buying a practice, and you’re prepared, you’ll have options when it comes to the bank you choose to do business with. How do you know which one to choose? I’ve got a few thoughts.
Bigger, in this case, usually is better.
Should you go with the massive, national bank or the small local one? In theory, there are plenty of pros and cons either way. “Big banks have deep pockets, but are impersonal.” “A small local bank ties you to the community, but doesn’t have the same resources.”
In practice, though, I almost always point my clients toward the big banks. They have more resources, better websites and mobile apps, and most importantly, they’re more likely to have a dental-specific banker.
The banker is as important as the bank.
Big banks have more resources, which means more specialization among their bankers. So you’re more likely to find a dental-specific banker at one of the larger institutions. “Who cares? It’s a loan! Any banker can facilitate a loan.” Nope, sorry. All loans are not created equal.
Just like with a dental-specific attorney, a dental-specific banker knows more about your situation than a generalist. Understanding the issues around how a practice is run and what the numbers are supposed to look like: that’s what the banker should be bringing to the table. Because…
The bank is your friend during due diligence.
Due diligence is the period between submitting a Letter of Intent and closing on the purchase. In this time, you want to make sure you’re buying what was advertised, that the practice is what you hoped it would be when you found it. You’ll do your own due diligence, looking at patient charts, advertising strategies, employees, and so on. But the bank will do its own in-depth financial due diligence.
They’ll dig deep into the numbers of the practice to be absolutely sure they know what’s going on before they lend to you. This is part of what makes dentistry so attractive: the numbers tell a very detailed story that’s easy to interpret…if you know what you’re looking for. Provide the financial statements to a lending generalist, and they’ll have an idea of what’s going on. Give the same reports to a dental-specific lender and they’ll paint a much more detailed picture of the health of the practice. Does the generalist know what the average advertising budget should be as a percentage of annual collections? How about supply costs? You get the idea.
So do you have any recommendations?
Yes I do! I know many very good dental-specific lenders that work nationwide. Once I get to know my clients and their situations, it’s easy for me to recommend a great banker to them. In fact, I’ll usually recommend that you compare two banks—but that’s an explanation for a different day. If you’re ready to buy a great practice and want a tip on a good banker, give me a call.
