This document provides information for dentists on financing dental transitions and maintaining a good relationship with lenders. It discusses preparing for a practice acquisition loan by assessing personal credit and assembling required documents. It outlines different types of lenders and questions to ask them. It also covers analyzing a dental practice's cash flow, typical loan terms and conditions, and the commitment letter process. Maintaining timely payments and open communication are emphasized as important for keeping a positive relationship with lenders over the long term.

1. As A Dentist:
Your Relation With Your Bank !
Ziad Abdul Majid
BDS, DipImpDent, Orthodontics Resident
Dental Practice Management Course
November / 2016

2. Outlines:
• Introduction.
• Financing dental transitions.
• Preparing for a practice acquisition loan.
• Assessing the borrower’s personal credit.
• Preparing a file for a Commercial Lender.
• Understanding the Commercial Lender.
• Types of Lenders.
• Questions to ask potential lenders.
• Analysis of the Practice.
• Loan terms, rates, and typical conditions.
• How to maintain an excellent relationship with a lender.
• References.

3. Introduction:
• Many new dentists worry about obtaining
essential first time financing, because they
are not prepared to approach a commercial
lender.
• Banks and other financial institutions use
several standard types of statements to assess
the financial health of a business.
• Understanding how to develop these
statements, what each component is, and
what they show is important in which this
information can then be used for planning
and analysis of the practice.

4. Financing Dental Transitions
“The State of the Industry”
• In today’s commercial lending, dental
transition financing can cover up to 100% of
the purchase price.
• The lender will meet underwriting criteria
specific for dentistry and will have a portfolio
or past loans from which inferences have been
drawn and risk mitigated.
• Sources of lending for new dentists include
seller financing, local or community bank
financing. In general, all lenders are looking
for borrowers with ability to manage debt, as
evidenced by a satisfactory review of personal
credit.

5. • Dentists have an attractive record of
paying their commercial loans in full
and on time, as their default rate is
low, this is due to ethical character and
professionalism, lenders do favor
doctors with good personal credit and
allow them to finance a qualified
practice at 100% with favorable terms.

6. Preparing for a Practice Acquisition Loan
• Banks make a distinction between commercial and
consumer loans.
• In general, commercial loans are granted based on
the strength of the borrower and on the business
opportunity they represent, of primary importance
is the doctor’s personal credit profile.
• The typical business loan is structured over a 5- to
10-year period. The interest rates may be fixed or
floating, and there may be conditions that relate to
the business.

7. Assessing the Borrower’s Personal Credit
• Credit report gathers data on each consumer and provide a
report that includes a list of accounts, timeliness of payment,
and public information such as tax liens or judgments. They
also employ statistical modeling through the borrower’s past
performance as they create a credit score on each consumer.
• This score helps lenders evaluate how reliably the borrower is
likely to repay the loan promptly. Credit scores range from
300 to 850; the higher the score the better.
• Credit scores are influenced by the following factors :
-Timeliness of monthly payments.
-Amount of debt.
-Type of debt .
-Inquiries from outside vendors.

8. • Experience in evaluating the credit reports of
new doctors has revealed several common
but easily avoided problems.
• Assessing the income requirements before
buying a practice and applying for a business
loan, it is essential to know the amount of
money necessary to run the borrower’s
household.

9. Preparing a File for a Commercial Lender
• It’s recommended that a borrower have the items
below handy when applying for a loan.
• These items should be ready for the lender:
- 2 years of personal tax returns.
-CV.
-Dental license.
-Production reports from current associate ship.
-Life insurance and disability policies.
-Personal financial statement.
-Income requirements.
-Copy of self-obtained credit report.
-Any appropriate references.

10. Understanding the Commercial Lender
• Lenders can be divided into two categories: asset-based
and cash flow driven.
• An asset based lender looks first at the collateral or hard
assets of the business to secure the loan. (Eg., equipment,
furnishings, inventory, and work in progress).
• Cash flow-driven lenders tend to be specialty oriented.
These lenders make their decisions based on the ability to
generate enough profit to fund the debt.

11. Types of Lenders
• The likely types of lenders encountered are the
seller, the local bank, the specialty lender, and
the loan broker.
• Seller Financing: They may offer more
favorable terms than the commercial lender. In
the event that the buyer is unable to get outside
financing, seller financing may be the only
option.
• It is important for the buyer to make sure he has
a competent and experienced dental-focused
advisor who can thoroughly review the
transactions. The lender will not be there to
analyze cash flow, with the aim of protecting the
buyer.

12. • Local Bank: tend to be generalists with asset-
based lending philosophies.
• The benefits are that the borrowing dentist can
centralize his banking into one institution.
Rates are usually favorable and might be 0.5-
1% lower than some specialty lenders.
• They have difficulty offering 100% financing.
which may require a co-signer for the loan to
shore up.
• They also require the practice to maintain a
business account and to agree to a minimum
balance in that account.

13. • Specialty Lenders: While they offered 100%
fixed-rate financing, their rates were significantly
higher than local banks and had restrictive terms
including significant prepayment penalties.
• There are several large banks that have dental
specialty lending divisions, they benefit doctors
by providing 100% fixed-rate financing, usually
with minimal fees and flexible terms for
prepayment.

14. • Loan Brokers: bring borrowers and lenders
together, but it is important to know that
they do not underwrite the loan or keep the
loan long term.
• Brokers can be of great value in situations
when a loan is difficult to place, but they are
likely to be the highest-cost loan source in
the market, since the broker must be paid in
some fashion, either by fees or by increased
interest rates.

15. Questions to Ask Potential Lenders
• The following questions will help to understand
if a lender is interested, has knowledge of dental
acquisitions lending.
• What markets does your bank serve?
• Does your bank provide commercial loans for
new professional practices?
• Do you offer 100% financing for business loans?
• Do you have other dental clients? May I speak
with one of them?
• How does the loan decision get made?
• How long does it usually take to get a decision?
• Who will fund the actual loan?
• Who will service the loan long term?
• If I have problems, who do I call?

16. Analysis of the Practice
• Cash flow analysis of the practice is
imperative, all lenders must and will insist on
performing their own analysis of the practice’s
cash flow, insufficient cash flow will prevent
loan approval.
• The analysis is performed by taking the net
income of the practice and “addback”
expenses that the new owner can use to cover
debt and personal expenses.

17. • Key to an approval is putting together the
objective and subjective analysis of the practice
and the buyer. Cash Flow Analysis is performed
using the following:
• The practice’s tax forms from 2 years past.
• The current year profit and loss statement
(Income statement Revenue - expenses = net
income).

18. Loan Terms, Rates, and Typical Conditions
• Terms, rates, and conditions will vary from lender
to lender.
The Proposal Letter
• It’s a letter offered by the lender proposing rates,
terms, and conditions for the loan transaction.
The proposal might be issued after a simple
review of personal credit.

19. The proposal letter should contain the
following rate and term information:
• The name of the entity who is borrowing the
money and the borrower.
• An outline of the purpose of the financing.
• The term of the loan (typically 7–10 years).
• The interest rate of the financing.
• The expiration date should be clear.
• Fees should be clearly stated.

20. • The next section of the proposal letter should contain
the standard approval conditions.
Sample conditions include but may not be limited to the
following:
• Evidence of a professional license.
• Evidence of a legal entity in good standing
(corporation or partnership), if one exists.
• Satisfactory review of a buy/sell agreement .
• An office lease that shows the dentist can practice at
the site for a minimum of 5 years .
• A provision stating that the lender may secure a first
security interest in the practice.
• Available funds to be used for business purposes.

21. The Commitment Letter:
• After the credit underwriting is complete and the
loan is approved, the lender will issue a commitment
letter.
• It will states that the application for the loan has been
approved.
• Upon receipt of this letter, it is essential to have an
advisor review it to confirm the terms and conditions
are clear and consistent with the buyer’s needs ( Eg.,
The loan rate, basic terms, insurance requirements,
and prepayment policies should not have changed).

22. • Loan documents including a note,
security agreement, personal guarantee,
and corporate guarantee must be
reviewed and signed.
• A competent lawyer versed in dental
practice transitions is important to the
buyer at this time.
• The lender will follow up for all the
items requested as a condition (license,
buy/sell agreement, evidence of
insurance or that applications have been
made, etc.).

23. How to Maintain an Excellent Relationship with a Lender
Expectation of the Borrower
• The borrower should expect timely and
accurate bills, a good service center
should be available to handle problems
and prevent errors.

24. Expectation of the Lender
• Lenders expect timely payments. This is essential
to maintaining a good relationship.
• In case of a new buyer having difficulty paying
promptly , he must make a priority of informing
the lender.
• The worst situation for the lender and for the
buyer occurs when a bad situation is hidden until
the practice is near default and time is growing
short. At that point the lender has few alternatives
and little flexibility to work with the dentist to
save the practice.
• An experienced lender and an educated borrower
can develop successful transitions and keep
practices healthy far into the future.

25. In
Brief...
When it comes to building a better relationship with your bank, first
remember the adage “don’t be a stranger.” it’s important to visit your
bank and establish relationships with bank managers, loan officers,
and staff. These people can become your company’s champions, and
they are much more likely to do so if they can put a face to a name.

26. References
• David G. Dunning and Brian M. Lange. 2008. Dental practice transition: a
practical guide to management, 1st ed.
• Finkbeiner, Betty Ladley, and Finkbeiner, Charles Allan. 2011. Practice
Management for the Dental Team, 7th ed. Philadelphia: Mosby.
• Rattan, Raj. 1996. Making Sense of Dental Practice Management: The Business
Side of General Dental Practice. Abingdon.

27. “Business, more than any other occupation, is a
continual dealing with the future; it is a
continual calculation, an instinctive exercise in
foresight” Henry R. Luce
Thank You