On Episode 27 of the Texas Dental Practice Podcast, I had the opportunity to interview Justin Klingshirn, vice president of Bank of America - Practice Solutions; We discussed frequently asked questions about start-up dental practice loans.
The Practice Solutions team at Bank of America specializes in lending to dentists and healthcare providers who are interested in starting, expanding, or acquiring private practices. Justin Klingshire focuses on the Central Texas market and is an expert in his field.
Q: Do student loans from dental school need to be paid off before starting up a practice?
A: It's not necessarily the amount of debt that you have that will affect whether or not you get approved, whether you're starting up or buying a practice. It's the amount of money you have to pay on that debt, your repayment terms and how aggressively you're looking to pay down that debt.
Q: If a doctor has a good credit score, does that guarantee a practice loan?
A: It's not the only thing we look at. Credit is more of a threshold. You want to keep your credit score at least above a 680. Bear in mind, it's not as if the better your score, the better your rate will be (like in the mortgage world). It's more of a barrier to entry.
Q: How much cash should a doctor have in the bank before starting up a practice?
A: Most doctors can't qualify for 100% financing to start up their first practice. They don't need to have that much money in the bank. It's a matter of saving what you can while you've been working. Ideally, 10% of the money you're looking to borrow should be saved in the bank, but that's not a hard number or a hard line that we draw.
Q: What advice would you give to associate dentists?
A: Bear in mind, your friends who are dentists have been working for six years or so. Don't try to immediately buy the car that you've been wanting to have, now that you've got your license and you're making good money. Instead, try to save as much as you can so your debt is low. Live within your means. Understand that if you do want to buy a practice or start up, you'll already have relatively low debt. When we perform a cash flow analysis on that transaction, we can say with confidence that you'll be able to pay for your own debt in your first, second, third, fourth year.
Q: What advice would you give to established practice owners?
A: If you're established and you're looking to expand, relocate, or build another location, it's important to understand how the bank looks at that from an established doctor's underwriting perspective.
We want to make sure any new loan to be approved can get paid for by your existing cash flow or net income.
Let's say you have a practice and after three years, you've made a million dollars. You borrowed $500,000 three years ago to start it. It's now paid down to $400,000. We can typically lend up to 85% of last year's revenue, meaning on a million dollars, $850,000. You have to subtract your existing practice debt of $400,000, leaving you with a budget of $450,000.
However, you have to keep in mind, even though it fits within the 85% number, your net income or cash flow that's coming out of your current practice needs to be able to pay for any new expenses from that new office, namely the lease payments and the new loan payment back to us.
It's going to take a little longer than a year after you started your first to start your second.
Another good number to have in the back of your head is $12,500. Usually if we say you're doing more than $12,500 per month, per operatory, at that point you're going to want to add another operatory if you can. If you can't, it might be time to look at a new location and relocating to a bigger size.
Do you have questions about starting up a dental practice? Our experts will guide you through the process and introduce you to dental industry specialists, such as Justin Klingshire at Bank of America.
Contact us today for an educational consultation about start-up dental offices.