Buying, building or expanding your dental practice is a significant project that requires a good deal of planning. Part of the initial planning process includes getting pre-qualified for a loan amount that will cover both your project development and working capital costs. Pre-qualification can typically take from three to five business days, provided you have adequate documentation prepared for your lender prior to your meeting.
Before approving a loan for your practice project or purchase, your lender wants to know that you have adequate experience to manage your business, sufficient collateral to cover the lender’s risk, and enough cash flow to repay your debt. Following is a list of the documentation typically required when applying for a commercial loan for a dental practice purchase, expansion, remodel or refinance, or a new construction project.
Personal Financial Statement. Your lender will ask you to complete a personal financial statement showing your income, the value of your assets (such as your home, vehicles and savings accounts), outstanding debts, the amount of your debt payments, and monthly overhead. This will give your lender a good idea of your personal cash flow and the amount of additional debt you can comfortably absorb.
Use of Funds. Your lender will look for a detailed description of how you plan to spend or use the funds loaned to you. For example, if you are building a new practice or expanding your current practice, plan to outline projected costs for your architect, contractor, designer, equipment vendor, and other planned expenditures. If you are purchasing a practice, include real estate and practice purchase costs, staffing, technology purchases, and any other transition costs. If necessary, include marketing expenses and any working capital expenditures needed as you get your practice up and running.
Current P&L Statement. If you already own a practice that you are remodeling, expanding or refinancing, include a current profit and loss statement and a balance sheet dated within 90 days. This will allow your lender to see how the practice is performing year-to-date.
Personal Tax Returns. Plan to provide your personal tax returns for the past three years. Your lender will use this information to verify your annual income.
Personal Resume. Your lender may also ask for a personal resume or curriculum vitae, particularly if you are planning to fund a practice purchase. The objective of your resume is to show that you have the business, managerial or educational experience necessary to successfully manage your own practice.
Business Tax Returns. If you own other businesses, your lender will want to see three years of tax returns as well as an interim profit and loss balance sheet on those businesses.
Business Debt Schedule. If you currently own your practice, your lender will ask for a business debt schedule detailing your current business loan, lease, or line of credit obligations.
In addition to the above documentation, your lender will look at your credit (FICO) score to analyze your creditworthiness. FICO scores can range from about 300 to 900, with the vast majority falling in the 600 to 700 range. For business loans, most lenders look for scores in the mid to high 600’s. The key factors influencing how your credit score is determined are past delinquencies, credit management (do you always max out your credit cards?), age of your credit file, frequency of credit applications, and credit mix. Before applying for your loan, be sure to check your FICO score to ensure all information is accurate, and take whatever steps are necessary to strengthen your financial profile.
Once you have gathered the necessary documentation and confirmed an acceptable FICO score, you are ready to sit down with your lender to talk about your needs and the type of loan that will work best for you. With your loan prequalification secured, you have completed one of the most arduous aspects of your project and can now move on to one of the most rewarding – growing your practice as needed to provide exceptional patient care.