Over the past several months there has been quite a bit of grumbling about the state of lending in the dental industry. I’ve heard from clients and from listening to dental podcasts that it just seems like the banks are asking for way too much stuff these days and don’t seem as eager to help dentists these days.
I think it helps to have some perspective. In my opinion, dental lending is still incredibly good.
At Edge Advisors we serve a lot of dental clients, but we also have other healthcare professionals. Our medical, optometry, chiropractic and veterinary practices can only dream of getting 100% financing to do a start-up or purchase a practice. In fact, getting a start-up done in any other health care discipline will require a substantive down payment by the owner and likely require them to take less money than what they’d really like to borrow.
Interest rates across the board are still low, but I remember the days when businesses like dentists were charged a steep premium to borrow money. Back in 2006 the prevailing interest rate for many of our clients was 8% to 10% and now we are in the 5% range and competitive with other businesses.
The Dental Industry still has 4 major banks (US Bank, Bank of America, Wells Fargo and PNC) all vying for their business and we’ve seen some regional banks get into the game. All of these banks are offering competitive rates and 100% financing.
There are a few things a dentist needs to know these days:
While the banks may offer similar products there is a huge difference between the quality of bankers out there. Some are very good at shielding their customers from all the detail that is needed and will coordinate with people like us to get the information.
- You need to be prepared to answer questions about your business and understand that it’s not a personal insult to be asked. Underwriting and regulations has become a little bit tougher meaning more details are required. That said, loans in dental are almost always still approved.
- Lending in dental is based on cash flow. Simply put, the collateral isn’t worth all that much. The reason almost every local bank has shied away from dental is the lack of collateral.
- You generally need to have at least 2 years of experience, a reasonable credit score and 10% of the loan you want in liquid cash to ensure approval. To be clear, unlike other businesses these funds just need to be available and do not need to be injected into the deal.
- Despite having to jump through additional hoops the lending environment is still incredibly favorable.
The amount of documentation that is being asked for in a dental transaction is more than it’s been in the past, but it’s still far less than several other industries. All of the questions can seem burdensome, but it’s a small trade-off to get 100% financing at preferential interest rates.
It should also be noted that the banks are playing a big part in helping to keep dentistry private. They are providing the capital to allow just about any dentist the opportunity to buy or start their own practice. Some day that might change and if it does that will be a huge reason why the corporates take over.