Dental students are coming out of school with more debt and oftentimes they think they can’t get financing to purchase a dental practice. However, this is not the case. Learn more as Matt and Joe tell you how it is possible.
Matt Scherer: Thank you for joining us. My name is Matt Scherer. I’m with PMA Practice Transitions and I primarily cover all of Ohio and western PA and I assist dental professionals in buying and selling practices and my colleague here is…
Joe Gordon: Joe Gordon and I do exactly what Matt does in the great state of Indiana and northern Kentucky.
Matt Scherer: Awesome. So, today’s topic is…
Joe Gordon: Today’s topic is-
Matt Scherer: Financing.
Joe Gordon: Something near and dear to Matt’s heart.
Matt Scherer: It is near and dear to my heart.
Joe Gordon: Financing.
Matt Scherer: Financing. Why is it near and dear to my heart? Because it’s been over 10 years financing dental practices with a large bank.
Joe Gordon: Exactly. And I’ve spent 10 years trying to get money out of you to finance dental practices.
Matt Scherer: That’s right. One of the biggest questions Joe that I think I got when I was in banking from buyers and actually from sellers is can people get financing these days? Especially when we went through the recession, but today buyers are coming out of school with much more student loan debt, probably three and a quarter, maybe a little bit more, maybe a little bit less, on average for a general dentist. And yes, banks are lending money to finance purchasing a practice.
Joe Gordon: Exactly. They are.
Matt Scherer: Yup. You know, one of the big things that banks do look for when you’re looking at financing is what do you look like on paper? Meaning, what does your debit look like? Do you have a lot of credit card debt? Obviously, you’re going to have student loan debt. Do you have a house and what type of house? Is it a million dollar house or is it you know, a $230,000 house? Do you have the Porsche in the garage or do you drive the Chevy? Things of that nature because there’s always two side to a loan, right. There’s the purchasing of the practice itself and then there’s being able to essentially personally finance your debt, right.
Matt Scherer: The key is when you’re looking to buy a practice and I know you helped many, many dentists in your 38 plus years of dental CPA, as I call it. You know, make sure that your debt structure makes sense. Just because you put DMD or DBS after your name doesn’t mean you go out and buy the Porsche, right or the million dollar home. You’ve got to take things in stride.
Joe Gordon: The other thing is too, there’s a little difference in financing when it comes to buying an existing practice or starting one from scratch. There’s going to be some different criteria we’re going to look at. Another thing that can really help you on the finance side if you fortunate enough to have a spouse or if you think that way, do they have a decent income coming in? Can they help supplement what the household needs to survive? That goes a long way in terms of what you need to borrow, particularly on a start up stand point because do you need to borrow money just to be able to eat?
Matt Scherer: Right. Just not though, if you are going to include your spousal income, typically the banks will require your spouse to sign as a guarantor on the loan, which is okay because down the road, as you grow your practice and you become more profitable, they’ll need that so called income as support, you can always have him or her removed off of the loan.
Matt Scherer: One of the things also I wanted to touch on is when you’re looking at should I pay down debt or should I put money in the bank? You know, what do I do? Certainly, my advice to anyone is do what makes you sleep at night and what makes you feel comfortable, but I will tell you that from the bank’s standpoint, or at least the bank that I work at, if you have student loan debt, that’s okay. If you have money that’s in the bank, savings, that’s even better because when you buy a practice, that practice should be able to support your debts and certainly from a bank stand point, the stronger you look on paper, meaning you have money in the bank and you’ve got some debt, but that’s okay, but mainly you have money in the bank.
Matt Scherer: And why is that important? Because if you ran into a situation where you needed to grab some of that money, you’ve got it there.
Joe Gordon: Exactly.
Matt Scherer: And you don’t have to go out and get more loans.
Joe Gordon: Exactly. It’s much more efficient to do it that way.
Matt Scherer: Absolutely. Absolutely.
Joe Gordon: We could go on for hours about this.
Matt Scherer: We could.
Joe Gordon: And probably in some of the more later segments, we’ll talk about some of types of lenders that are out there and what you should look for from a lender and how they can support you and understand your transactions, but that’s probably for another time and road.
Matt Scherer: Another. Absolutely. That’s right, but we’ll cut it here for today. Again, Joe said we could probably talk another 30 minutes or an hour about financing, but certainly give us a call if you’d like to talk about it. We’d be happy to certainly sit down with you or chat over the phone, but we appreciate you joining us today. If you like us, give us a thumbs up and please feel free to share us with your colleagues and friends. Thanks.