Frequently Asked Questions (FAQS)

Medical practice lenders know young dentists have a lot of student debt. They factor this into their analyses of the cash flow a buying dentist will need to generate from the practice he or she is acquiring. Enough cash flow is needed to not only make the payments on the medical office loan, but also on personal debt, including student loans. For most lenders experienced in the industry, this is a routine situation.

Many times, a medical practice can be acquired with no, or very little, equity down. Experienced medical practice lenders are comfortable with the industry, and will stretch to minimize the equity needed upfront, recognizing this can be a barrier for a doctor just out of school. If there is a small equity requirement, often the selling dentist will take a seller note back for a small percentage (10%) of the purchase price to facilitate the sale. Don’t be deterred if you don’t have a lot of money to put into a good practice. Many industry lenders will view the investment you made in your education as the necessary down payment.

It’s usually a good idea to spend two to three years acquiring the skills to manage a medical practice before going out on your own. However, a medical professional surrounded by great advisers (accountants, practice management consultants, experienced medical office lenders, etc), may be ready to buy a practice sooner. Some continuity in the practice’s management personnel is helpful if they are excellent employees.

Medical Professional loans are more available for a practice acquisition or expansion. This is because an existing practice has an established customer base and a historical cash flow that can be analyzed. A startup practice will have a period of negative cash flow before becoming established, which is harder for most lenders to finance. If you are doing a startup, it is critical to find a medical practice lender who will help provide the working capital (cash) necessary for the first few months of operation.

Most medical office lenders want to see three years of financial statements (usually tax returns) on the practice being acquired, three years of personal tax returns, a personal financial statement showing assets and liabilities, a resume and a description of how the loan proceeds will be used (cost breakdown if a construction project). They’ll also ask for copies of leases on the property and current business debt outstanding. A business plan is typically required for a startup. To make an acquisition, you’ll need to provide a copy of the purchase contract.

A credit score above 700 makes getting a loan easier. A score below 700 will probably require some explanation if there are negative marks on a credit bureau. Some medical practice lenders have minimum acceptable scores, while others, such as Live Oak Bank, will look beyond a low score to the explanation of how it got that way.

A medical practice that is growing revenues with a cash flow margin above 25% before an owner’s salary is usually viewed favorably. If a practice’s revenue has been declining or if the margins have been poor, it requires a more in-depth analysis. Has the current medical professionals been cutting hours, leading to lost revenue? Is the practice not generating good margins because the owner has been ill and paying relief dentists to staff the office? What expenses can be added back that will not reoccur in the future? What is the acquiring medical professional’s experience level? Has he or she practiced in this market before? All lenders’ analyses revolve around whether the practice can support the debt service and the owner’s cash requirements going forward.

In a startup, four primary factors are considered:

• Market attractiveness measured in population growth and median income levels
• Strength of competitors
• Location of the proposed practice (hopefully a convenient building in an area of high residential growth)
• The medical professional’s experience and energy levels

A startup can be very successful, but it takes a dentist with energy, creativity and excellent advisors and supporters. Someone very familiar with the market is typically the best candidate.