By J.P. Blevins
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 prequalified for a loan amount that will cover your project development and working capital costs. Prequalification 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, a lender wants to know that you have adequate experience to manage your business, sufficient collateral to cover the lender's risk, and sufficient cash flow to repay your debt.
To follow 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. A lender will ask you to complete a personal financial statement showing income, the value of assets (such as your home, vehicles, and savings accounts), outstanding debts, the amount of debt payments, and monthly overhead. This will give a lender a good idea of your personal cash flow and the amount of additional debt you can comfortably absorb.
Use of Funds. A 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 a 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 a 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. A lender will use this information to verify your annual income.
Personal Resume. A 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 a practice.
Business Tax Returns. If you own other businesses, a lender will want to see three years of tax returns as well as an interim profit-and-loss balance sheet on these businesses.
Business Debt Schedule. If you currently own a practice, a 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, a 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 600s.
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 a 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 the project and can now move on to one of the most rewarding -- growing your practice as needed to provide exceptional patient care.
J.P. Blevins joined the Live Oak team in early 2011, and initially spent much of his time educating young professionals about financing and how to best maintain and grow their businesses. He now serves as a loan officer and general manager who works exclusively with the health-care community. Contact Blevins via email at [email protected].
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