Roundtable: How to Choose A Lender — From a Lender’s Point of View
As one of the most tenured teams in practice transitions, we have been fortunate to build strong relationships with national lending institutions that specifically focus on dental practice transitions. In an effort to share their collective experience, we are starting a series of roundtables whereby you will hear directly from each of them on the same topic. If you would like to speak directly to any of our resources, we have included their names and contact numbers at the end of the article. Further, if you have a question that may be appropriate for a future roundtable (whether for bankers or other professionals such as attorneys or accountants), please let us know at newsletter@ADSflorida.com.
Question: What is the MOST important factor in selecting a lender?
Bank Of America Practice Solutions
Conventional wisdom tells us that when looking for a loan, doctors should go with the lender with the lowest interest rate. After all it’s just money right? Wrong! Choosing a bank to finance your practice is also about choosing a business partner. Rate is certainly important, but doctors should also focus on what the total cost of doing business with the bank will be in the long run. For example, what discounts will the bank offer on business checking, merchant services, payroll services and so on? Shouldn’t you get significant discounts on these services if you borrow hundreds of thousands of dollars? We think so.
Also, what kind of business support does the bank offer after the deal is completed? Lenders with a long track record of working with dentists will do their best to protect themselves and their doctors from default by not letting you get yourself into a situation that historically doesn’t work. There are many banks coming into the marketplace that may or may not understand the industry. Be careful whom you choose as a future partner. As always, get everything in writing before committing to a bank. That means proposals, project finance agreements for startups or expansion/relocation projects, final loan documents, and anything else you want to see. If your landlord offered you a lease $1,000 below market wouldn’t you want to see it in writing with all the other terms associated with a lease? The same goes for any bank you are considering. Get everything in writing.
Capital Source
When selecting a lender there are two key elements for evaluation. First, working with a lender who understands your industry is the only way to insure you, a) get approved for 100% financing plus working capital, and b) are able to get the most attractive rates and flexible terms possible. Most financial institutions have loan officers who work on everything from gas stations to grocery stores and have most likely never worked on a loan for a dental office. Dental practice loans and especially practice acquisition loans are very unique, so watch out for the “local bank” that says it can get you a loan but really doesn’t understand why dental practices are so special. Secondly, it is important to keep your options open for the future and be able to negotiate individual business programs. Some lenders (even specialty lenders) will try to require you to do as much business with them as possible (for example deposit accounts and merchant services). Because your loan dictates that you must use their services, they are free to charge the highest fees, just like a monopoly.
Most people are led astray by a dangling low-interest-rate carrot. While interest rates are certainly important, they are not the only way for banks to make their money. It is classic misdirection when your attention is led to an unbelievably low interest rate, and you don’t see that they are making their money back (with interest) on the other services you are paying top dollar for–or the prepayment penalties they don’t tell you about. Keep your options open, as you never know what the future holds!
Wells Fargo Practice Finance*
The single most important factor when selecting a lender is finding a financial institution that understands and is well versed in dental practice acquisition lending. It is important to work with a lender who understands the goodwill and healthy revenues and expenses of a dental practice because they will often finance up to 100% of the purchase price and provide longer and more flexible repayment terms such as deferred payments. An experienced lender will also often provide a more streamlined application process, which is important to meeting critical deadlines.
Additionally, a seasoned dental practice acquisition lender should be able to help educate and protect you from factors that could negatively impact you after the purchase of the practice. They might also suggest other professionals to help you build your advisory team, such as an attorney, CPA, lease negotiator, etc.
Borrowers often focus solely on the interest rate and overlook the yield. Lenders can often quote a lower interest rate but obtain a higher overall yield by adding upfront fees and closing costs, prepayment penalties, variable rates versus fixed rates, etc. To overcome paying more over the life of the loan (even though it might look like less because of the lower interest rate), make sure you compare “apples to apples” by comparing the term of the loan, collateral requirements, prepayment penalties, and all the fees associated with the loan.
Also remember, it doesn’t matter what the interest rate of the loan is if you can’t afford the monthly payment. An experienced lender will do a global cash flow including both the practice and your personal debt to assure the terms of the loan are well-matched for your purchase price.
*ALL PRACTICE FINANCING IS SUBJECT TO CREDIT APPROVAL.
Contact the Lenders
Bank of America Practice Solutions
Matt Adrian at 866.813.8482
Capital Source
Kurt George at 855.248.4375
Wells Fargo Practice Finance
Wendy Catone at 866.817.1059
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