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Welcome to another episode of the Shared Practices Podcast! Today’s guest is Rick Shneyder, a business banker working in Milwaukee at Bank of the West. We’re really excited about sharing this episode with you. Rick lays out the broad strokes of factors that affect a new grad’s ability to get financing and then, more broadly, how lending works for dentists. Key takeaways include the lending process from top to bottom (including timeframe for each step), advice on financing for multiple locations, and exactly what to look at in the terms of the loan. Rick also shares some tips on how to figure out if your banker knows what they’re doing. All that and more on today’s episode!
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Reach out to Rick at Rick.Shneyder@bankofthewest.com
Rick was born and raised in Milwaukee, WI. He attended UW Milwaukee with an undergraduate degree in Finance (2004) and an MBA with a focus in Leadership & Negotiation (2006). Currently, Rick is a Vice President & Business Banking Officer at Bank Of The West specializing in several areas. He has a focus on Real Estate Financing (Investment & Owner User). Real Estate financing ranges from apartment buildings to medical offices to manufacturing facilities. He is also an expert in Dentistry, Veterinary and Optometry Financing. Within those 3 industries, Rick focuses in on Acquisitions (full or partial), Consolidation Financing, Start Ups, Tenant Improvement Financing and More. Rick is also an expert in providing operating lines of credit and financing company equipment needs.
- Rick’s intro. Business banker. Dental lending specialist. 0 – 1
- Factors that influence the ability for new grads to get financing. 1 – 9
- There are rules, but always exceptions.
- Keep clean credit, pay bills on time. Things affecting credit: late payments on medical bills, car payments, house payments, etc.
- Amount of student debt not as important, payments are most important. Get lowest payments possible b/c affects cash flow the greatest. Choose longest amortization.
- Non-retirement assets. Good amount to have is enough to cover 3 to 6 months of all personal debts (student loan, car, house, etc.).
- Credit card payments
- Monthly historical income taxes
- Ideally, banks want 2 years of associateship experience, but there are exceptions. If seller stays on or holds the note (at least 10 percent) then banks will lend with less than 2 years experience. 9-12
- This is because there will be less patient attrition and selling doc has skin in the game for you to succeed.
- Banks look at value of practice. If over 1 million, they look MUCH harder at the loan. This means you are less likely to get a loan if fresh out of school.
- How to know if your banker knows what the hell they’re doing and has a good relationship with their underwriters: ask Dental CPAs, folks on DentalTown, colleagues 13 – 15
- Something interesting to ask a potential business partner (CPA, banker, attorney, etc.) is for 5 references from clients similar to yourself. Love this!! 16
- Associate production important? Yes. Lender will compare your historical production to the seller’s. 17 – 19
- How many loans approved at an associate’s 2-year mark? 9/10, assuming you have the experience. Other professionals you are in contact with (CPAs, lawyers, etc.) will recommend banks that are the most compatible for you. 19 –
- Max loan size? 1 million, but can go higher. This is regardless of whether it is 1 or multiple docs applying for the loan together. If attempting to finance a larger practice it is a good idea to have multiple lenders lined up. 21
- Underwriting process. They analyze the buyer and seller, with goal of making sure bank isn’t at risk of going unpaid. Generate a list (called post-underwriters or closers) of what’s needed to be able to fund the loan. 23 – 25
- Valuation method. At Rick’s bank (Bank of the West), they look at only what the bank is financing (not what the seller is holding, if applicable). Anything over 75% gets a further valuation. 25 – 27
- Lending process. 30 –
- Buyer and seller checklist. Busy times for banks and underwriters: May, end of summer, and Oct-Dec.
- Don’t be offended if the bank comes back with questions. They are doing their due diligence.
- Then loan documents need to be put in order and filed before loan can be dispersed to seller.
- Bank will recheck financials and credit scores of buyer and seller every 90 days or so to make sure nothing has changed.
- LOI, bank application, purchase agreement at some banks. LOI, purchase agreement, bank application at other banks. Just depends.
- Have prior year’s tax returns done before applying for a loan (seller and buyer). Makes the whole process MUCH easier.
- Advice on a business plan. Rick only looks at a business plan for startups (that was very surprising to me).
- Dentists are unique among small businesses because we have almost no collateral (except patient charts), so cashflow is KING. 42
- Explain, justify, and verify non-recurring expenses. If you can find expenses in the financials of the seller that you will not be paying for, the bank likes to see those things taken out. Makes them less worried about you defaulting.
- Bank is looking for a 1.25:1 income-to-debt ratio. 44
- What to look for when looking at loan terms. 45
- Interest rate and amortization schedule
- Pre-payment penalty. Some banks charge it, others don’t
- What ongoing reporting requirements will you have? How often do you have to send your financials to the bank?
- Working capital. Is it a loan or a line of credit? Line of credit preferred.
- What banking requirements are there? Often, they want to be your personal bank (no biggie).
- Lending for multiple practices. Acquiring a second practice not much different than a first. At some point (different for every bank), they don’t want to lend to an investor they want to lend to a doctor who is going to be there practicing, NOT a satellite office you just staff with an associate doc. You then need to go into private equity! 49
- Associate buying into a practice. Look at who has the lien filing. Path of least resistance is you, the associate buying in, to get a loan from the same bank as the owner. The new loan will be the sum of what the original owner still owes on the loan plus your equity buy-in price. 53
- Keep student loan payments low when first starting 58
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