Ash sits down with Danielle from Huntington Bank to answer pressing questions about dental practice loans. Danielle shares insights into the two main types of loans available for dentists: startup loans and acquisition loans. For dental students and new graduates, she emphasizes the importance of living within their means and maintaining a healthy financial profile to secure startup loans without needing high down payments. She also talks about the importance of producing enough to sustain overhead costs and the nuances of working capital.

Danielle also touches on practice acquisitions and how they are significantly different from startups. She explains the various factors lenders consider, such as production capacity, cash flow, and personal lifestyle, to ensure the practice can support itself. Additionally, Danielle outlines the benefits and considerations for refinancing existing loans, discussing how it can aid in practice expansion despite higher interest rates.

Key Topics Discussed:

• Preparation for applying for a loan
• The importance of living within one’s means
• Types of dental practice loans: startups vs acquisitions
• Role of student debt in loan approval
• Criteria for securing a startup loan
• Significance of working capital
• Current lending climate and interest rates
• Practice acquisitions and sustainability
• Importance of lender specialization in the dental industry
• Benefits and process of refinancing

Welcome to Beyond Bitewings, the business side of dentistry, brought to you by Edwards and Associates, PC. Join us as we discuss how to build your dental practice, optimize your income, and plan for your future. This podcast is distributed with the understanding that Edwards and Associates PC is not rendering legal, accounting, or professional advice. Listeners should consult with their business advisers before acting on any of the information that is shared. At Edwards and Associates, PC, our business is the business of dentistry. For help or more information, visit our website at enassociates.com. Hello, and welcome to another episode of Beyond by Wings. In today's episode, we have a very special guest.

Her name is Danielle. She's with Huntington Bank. And the reason why we have her on this episode is because I've been getting a lot of questions from our clients regarding how to apply for loans, what do I need to prepare for, what's important, what's not, and how early should I consider applying for a loan to make sure that everything's in order. So to talk further on this subject matter, Daniel, hi.

Hi. Hey. Thanks for having me. Yeah. I think the biggest thing is when we're talking to these doctors and talking to these clients on, you know, opening a new business or expanding their career in business, having a plan and making sure that you're prepared is kinda right number 1 at the top of their mind, or it should be, because then it can get really sticky afterwards if it's not. So when you're going into those plans where you're talking to your CPA or bank or financial adviser, may make sure you know, everyone's cohesive. Right? So I guess that most of the people that you're talking right about right now, are they practice owners that currently know practices or ones wanting to start up their own or buy into existing? Or where are you hearing most of these comments from?

Well, honestly, a lot of them are

dental students. Okay. Dental

students. They're dental students or someone who's been out of school for a couple of years. They are ready to start their own practice because they've been hearing from their friends and family members and say, oh, it's about that time. You know, I don't wanna be an employee forever. I wanna be my own boss, you know, implement some of my own culture. They get all excited. You know, they're listening to all kinds of podcasts, including ours, hopefully. And they're just ready to pull the trigger.

But they know that they most likely don't have all the funds needed to enter into this venture, and that's when they consider lending options.

Yeah. Absolutely. So I guess, like, we can kinda categorize the different types of options that are out there for these people. So, obviously, you have to you took 2 options when you wanna go buy a business or open a business. Are we gonna start our own shop, like, from the ground up and just kinda, like, create it ourselves? Are we gonna buy something from a retiring doctor, and we're gonna transfer and grow it, or maybe just keep it consistent. Right? So let's go ahead and talk about startups first. Absolutely. I feel like they're kinda the easiest and most, like, dry cut.

So when you're a newly graduated dentist, actually do a lot of work or doing educations for a lot of the dental schools in Texas, and that's a really big question that I usually get is, like, hey, what's the one thing that you see that we do wrong that keep us from just being able to open a practice or buy a practice? And the big thing is is living above your means or living above the means that you possibly could be at when you go to buy or start that practice. So example, when you're doing a start up, right, you have a 750 to $800,000 loan right out the gate and no patients, which means you're not gonna be making money for a little while. And a lot of these doctors are coming from associate positions where they're making, like, a 150 to $250,000, which is great money. Right? You know, we can have a pretty nice house and a nice car and a great lifestyle with this. But as soon as you open that new practice, that lifestyle is gonna go away for a time, you know, a period of time. So just living concern if you're knowing that you're wanting to own your own practice or start your own practice, even within that associateship, if you're making good money and you can afford more things, don't buy those things. Yeah. No.

We don't need a McLaren. We don't need Okay. You know, the GYN series and everything like that. Like, we're cool with the Hyundai Sonata, or, you know, maybe we can do, like, the Lexus, the, like, the easy Lexus. I recently had a doctor that we approved for a start up last year, and they went and bought a $2,200,000 house and wanted to be reapproved for that same start up a year later. Well, you can't get that to work now. Right? Like, you just messed up your dream there because your obligations, your debt obligations are too high. So just making sure that you're talking through those with your financial planners, your CPAs before you make those big life decisions, I think is is important.

Right?

I agree.

And then kind of like going back to that, a lot of them are like worried about, oh, is my debt profile I have huge student loans. We don't really care about your student loans. We understand that there are cost of doing business. If if that's what you got, you have $500,000 in student loans, that's normal to us in this space. You know, we're happy to lend to you on that. Now, after 500, it gets a little sticky and sometimes we need to make, you know, concessions for that within your loan amount and everything because things we talk about cash flow. Things have to cash flow. But that's quite just the biggest thing to just keep you keeping your debt profile low, personally, personally, so that you can support yourself with that lower income.

Yeah. I'm actually glad you mentioned that because it's true. I mean, it probably comes to you quite naturally. Right. Because you do work with a lot of dentists, but not all lenders do. And it's important for, you know, to lend to work with lenders that are familiar with your industry because of what she just mentioned, you know, like not to have the student loan portion be calculated as part of your debt obligation when they're trying to determine how much loan they can approve with.

Yeah. And it's it's interesting that you bring that up, like, different lenders because there are I mean, there's very few banks that specialize in this niche business. Right? So when you talk about, like, normal banking, which I've worked for, like, 5 different banks over the course of my career, we talk about the 3 Cs, collateral, capital, and your consumer report, basically, okay, your credit. So with that, a lot of banks are looking at that collateral piece. When you look at dental lending from a traditional collateral, you know, position, it doesn't exist because that equipment portion, it's, you know, it's kinda like a car. The moment you drive it off the lot, it depreciates in value. There's not actually a lot of value there. Right? You as the dentist and the procedures that you're providing, that's your collateral.

And we call that enterprise lending in our space, and a lot of banks just don't understand that. And they're not necessarily good at it. So that's a lot of times when you'll, you know, talk to someone and they're, like, oh, you know, you have a collateral shortfall here. We're gonna have to do an SBA guarantee on this, which SBA, great when it needs to be done. I always say it's, like, no, it's an option when we have no other choices, but you have other choices. Yeah. Because there's

Usually more expensive with the It's

more expensive. Yeah. You're gonna have a variable rate. The term's a little smaller. You're gonna have to put more injection into that yourself.

Right.

Whereas the loans that I do, if you wanna do a dental start up at $750,800,000, I'm gonna give you that whole pocket.

Zero down?

Zero down. Yeah. Zero down. And we're talking probably 2, 3 percent less Uh-huh. In the interest rate with no loan fees compared to the other banks that is aren't specialized in this business. And the reason we did that is, you know, we see default rates. Right? And we look at different residences and their default rates. Dental's the number 3 low has the number 3 lowest default rate of any profession.

Country. Right? Now the only things that are gonna beat you is the funeral homes and, veterinarians, because what do we spend more money on than ourselves? Our pets. That's right. And then dental come in comes in 3rd. So we look at that and we take that into consideration, and we're very comfortable living in this space.

Wow.

And we're I mean, as a so say we can, you know, go ahead and pivot. So what do I need to do to be able to afford to get approved for an $800,000 startup loan?

And how how how early should we start?

How do we start? Right? How do what do we do? So my big thing is, like, I don't think it's ever too early to start. If it's a plan that you have, talk to your lender, talk to your CPA, talk to your financial advisor, and make sure you're doing the things that are gonna get you where you wanna go.

Right.

Because every situation is different from everyone. But if we wanna put a a blanket hold on it, right, we're going to look at we wanna make sure that you're producing a a capacity of dentistry that's going to be able to support an Overhead. An overhead and an average dental practice. Yeah. So if you're a normal associate, you know, say, right, I'm in the Texas market. So in the Texas market, most are paid between 27 32 percent of collections. Let's call it 30%. Alright?

For a general dentist.

Yeah. For a general dentist. Right? General dentist. So say you're collecting, you know, you're at 30% of collections, you need to be making about a 145 to a $150,000 a year as an associate to, from a production standpoint, qualify to do a stardust. Now, if the same I know. I'm listening. You're a female dentist and you had a child and you're out for 3 months, we're gonna know that story and we're gonna make concessions for that. But as a blanket statement, 150 is a good way to start.

And then if you're, you know, in a Medicaid office where you've been paying a salary instead, sometimes we need to look at production reports instead. But I think the big thing is to know is, like, this is a it's a like to have. It's not an absolute heart and stone necessary. It's a good baseline. But then we wanna see you have some liquidity. Right? So we're gonna have savings that are going to sustain you personally while you're building this practice, because like I mentioned earlier, you're not gonna be making the money that you're used to be making. So it depends on how long you've been out

of school.

So I'm I'm probably one of the only lenders that will lend to doctors straight out of school without any experience. For those people, I wanna see 5%. You've been out for a little while and had some time to save some money. We wanna see you at closer to 10. Because not only are we looking at your credit background, so looking at your lifestyle. If you're someone that's going on a lot of trips, not saving a lot of money, you know, we're humans. Right? We're accustomed to this lifestyle. I mean, example, this is really silly.

I get my nails done every 3 weeks. I'm not cutting back on that. That's what I like to do. You know, I go on 3 trips a year. That's just it's what I'm accustomed to. I'm not gonna be happy as a human enough if I'm not able to continue with that lifestyle.

Right.

So we make considerations into lifestyle as well. And yeah. And then student loans under $500,000, we're gonna help you make sure that you're not being raked over the coals by your landlord, getting, you know, your, lease space situated. We wanna make sure that that works out okay for you. Then we're gonna look at your equipment budget and your contracting budget. Currently, right now, industry averages in Texas, you're, if you're looking at a 22 to 20 500 square foot space, you're looking at 350 to $400,000 in just construction, 225 in equipment, and then you're gonna need working capital.

So let's talk a little bit about the working capital.

Yeah. Working capital. Yeah. So working capital is just gonna be things that you're gonna need to kind, you know, pay your people, keep the lights on. And then, honestly, you're not gonna be making any money for a while. So to make your rent payment and any any overhead expenditure, that's gonna be what you use your working capital for. And we build that directly into the loan as well. So it's usually between, you know, depending on what the other parts of the budget come in at.

You know, if you're skinny on your, construction or maybe you take, you know, a little bit cheaper equipment or something like that and not adding in, you know, with the newest, fanciest CBCT or something like that. You're gonna save more and more that can go to working capital. Your marketing will be used with your working capital funds as well. And you definitely wanna have a really good marketing program.

Oh, yeah. Absolutely. Especially if you're a start up. And I'm glad Absolutely. You expanded on the working capital because I sometimes have clients reaching out to me and asking me, hey, Ash, you know, I do want to start up, but I worry how long is it gonna take for me to reach the breakeven

Mhmm. Because this

is how much I have saved. And then they're like, okay. If I'm gonna start with just 1 hygienist, I'll try to find a oh, sorry. One dental assistant, one front office. I'll try to find a hygienist. You know, this is how much I will need for payroll. This is my current rent. You know, I'm in a very urban, you know, very posh area.

So my rent is on the higher side. I worry that the money that I currently have saved will only sustain me for, I don't know, 4 or 5 months. What if I need more? And that's where you talk about, okay, well, your initial loan from them should include a working capital. Yeah. Just make sure that it covers for a few months.

Yeah. And it definitely does. And I think especially the past 4 years, I mean, you think about it 4 years ago, it cost $550,000 to start up a new practice. Yeah. I remember. Yeah. And now we're I I don't think I've done one under 825 in probably 6 months. So, you know, you talk about, like, when's the right time? Sometimes I I, you know, I talk to dentists and they're like, oh, man, I really wanna start this practice, but things are so expensive right now.

Interest rates are so high right now. I always take it back to, you know, okay, what does your feasting schedule look like? You had your feasting schedule. When did you last increase it? Why did you increase it? Well, I had to get a new hygienist, and they're a lot more expensive. I had to hire a new office manager, and I had to make up that cost. Okay. Well, say if that hygienist walked out tomorrow and you were able to hire someone at $10 less an hour, would you decrease your fee schedule?

I doubt it.

Right? Yeah. It's the same thing with construction. It doesn't matter if supplies go down or anything like that. That's the new standard, and things are only gonna be up. So as far as, like, getting started and getting things going, this is the cheapest that's ever gonna happen. And if interest rates are a little bit higher right now, which we do have, like, a lot of relief in that right now at the moment just because of volatility of the election year, It's as cheap as it's gonna be. You can always refinance. Yep.

Like, you know, interest rates are not consistent. They go up and down. Supply cost, equipment cost, those can go up.

Right.

So if this is something you're thinking about doing something, I mean, now's the time.

Now's the time. Absolutely.

Now's the time. Yeah. So So

that's what the start up. What about, you know, the practice acquisition, something called?

Acquisitions. Yeah. You know, I jokingly say I'm kind of a numbers nerd. Right? Which is not typical of people in my space, but I love acquisitions just because you gotta pull pieces of the puzzle together and make sure it's like dating, I say.

Oh, yeah.

Because not everyone's right for everyone. Not every practice is right for everyone. It's a specific situation. But usually, what we wanna see in from the lending space is we wanna make sure we're gonna look at that practice. We're gonna work with your CPA or broker, whoever's selling that to evaluate that practice and make sure that that practice can cash flow. Okay? So the net income plus any, you know, little tax breaks that the seller was getting, we're gonna add those back into the cash flow. We're gonna take out what it's gonna cost to pay you to maintain your lifestyle.

That's right.

Right? And then we're gonna add the loan, the debt service is what we call in, and we wanna make sure that the cash flow there's a little bit of a cushion for emergencies or something like that, and it's gonna be able to sustain itself. So we wanna make sure the practice can sustain itself. We wanna make sure that this practice can sustain sustain you individually. Right. And then also on the flip side of that, we wanna make sure that you can sustain the practice, which means you're producing dentistry at the same level or better than the selling selling doctor. Yeah.

Very important.

Yeah. Absolutely. That's kinda how that works. There's a a lot more that goes into it with that, but there's so many nuances, and, I mean, a lot of times doctors will come to me and, like, hey, I wanna get an acquisition. I wanna get a pre approval. Uh-huh. I tell them all the time. I was, like, well,

it varies from practice

to practice. Yeah. It varies from practice to practice. So much goes on the practice that you're looking at. They're like, well, how much can I get approved for? I was like, well, that's based on your production. Right?

That's right.

And how much is that practice? It's

different from a house.

It's different from a house. Right? So it's based on your production, how much you're producing. So, you know, if you're producing $750,000 in production annually, and you're looking at a practice, it's doing a million with probably 25% in hygiene. Yeah. I could say, okay, yeah, you can afford a $1,000,000 practice. But is that $1,000,000 practice gonna cash flow? Is it gonna be able to sustain your lifestyle? So once again, it's like dating. Not everyone is for everyone. Not every practice is for every doctor.

So I think that's that's really important to remember because I think they do get frustrated sometimes and they're like, hey, well, you told me I was approved for $1,500,000. And I was like, you know, I said you could afford something that was $1,500,000. This particular practice can't afford you though, is what the problem is.

That's true. Yeah. Yeah. Very important. And good points that you raised there without going through much of detail. But it's true. I mean, if she does, we'd be recording this for quite some time.

Yeah. But I think the

main message here is that, you know, talk to a professional, talk to a lender that is well versed in this industry that can guide you through.

Yeah.

Because something that may seem like the right fit for you just because either the numbers are making sense to you or you're like, oh, I love the culture here. You know, I would love to adopt this. It may or may not be for you. Right? Right. Because you said it's like Dayton. So It's Dayton. You know, the cab Yeah.

Absolutely. Absolutely. And it it's one of those things too that when you go in there and you see that office, that's the best that office is gonna be. Because if I'm here to present to you, I'm here to sell myself. Right.

As

soon as you take over those keys and you open their door and you're playing house with that practice, things change.

Oh, sure. Oh, goodness. Just like with a new relationship.

Exactly. Right. It's exactly what it is.

Yeah. Okay. Awesome. Exactly. So that's great. I know we were just going to talk about people that are thinking about buying their first practice, but what about refinancing?

Yeah. Refinancing, which I think when you're coming off, you know, rates were very, very low back in COVID, and they've just kind of gone up. I mean, refinancing is not always about the interest rate too. It's about positioning yourself for your expansion and your growth and, like, are are you doing the things that you need to do? So Yeah. But just making sure once again that you're always ready for something happens or maybe you just need a line of credit in case, like, as an emergency fund or something like that. I usually tell my doctors, if you don't have a line of credit, then you're doing yourself a disservice because the moment you say, oh, I kinda need a line of credit, is probably when you no longer qualify for it. So just having it as a background and just keeping it there as well. But, you know, with our refinances, we're looking at all the same things that we would if you were doing an acquisition.

We're making we're looking at cash flow mostly. You know, we're looking at your overhead. And then also, like, does it make sense? Right? So, you know, maybe okay. So maybe okay. Example, rates were a little bit higher in January. Right? We were booking loans in at, like 7, you know, 7%. They're quite a bit lower than that right now. But a lot of these banks will have prepayment penalties.

And maybe you wanna go ahead and switch over to another bank. You're not happy with your relationship, but you're gonna have a prepay penalty fee. Okay. So say I am able to save you, you know, 75 basis points on your current rate. What does that prepay language look like? And, you know, if if if it doesn't make dollars, then it doesn't make sense. Right? So we have to evaluate those and look and make sure that, you know, we're putting your best interests at our end and stuff like that. But, yeah, refinances. Okay.

Yeah. There's there's a lot of movement.

Let's talk also a little bit about the term life. Why is that relevant? Because, you know, most people, they always think, oh, refinancing has something to do with the rates. It's like, oh Mhmm. Maybe I could refinance through a cheaper rate.

Mhmm. And, you

know, that makes more sense. But at times and specifically because you brought up the whole line of credit Mhmm. How do they increase the maximum limit of the line of credit Yeah. Absolutely. By refinancing.

Yeah. Absolutely. So you can refinance. So okay. Don't really wanna talk product and, like, do a plug here, but, we're one of the few banks that has a growth line of credit. Okay? So if you're a doctor that is looking to expand, you wanna have you know, say you have 2 offices right now, and your 2 offices are doing $3,000,000 plus. You're like, I wanna add, like, 4, 5, 6 different, you know, additional offices in the next, like, 5 years. We can look at your current collection rates and your current debt service coverage and give you a loan up to 65 a line of credit up to 65% of your collections to go and buy additional practices with.

Right. Like

and you're pretty much a cash buyer at that point in time. So and usually, those doctors that are doing that are competing with the DSOs and DSO suites. Right? So it makes you more competitive. It makes you look quicker to close. Right. Because typically, when you're looking at, you know, traditional lending, when you're just, you know, doing tit for tat, acquisitions, you're probably looking at, like, a 60 to 90 day turn time once all the due diligence is everything done. This particular product with us, like, 30 days.

30 days.

You're done. Now, I mean, it's a pain in the neck to get set up in the beginning, so I just wanna make that very clear. But, yeah, we we can move forward. Those those are great. But just having that constant relationship with your bank and, like, it's I I get so frustrated with some of the, like, some of our competitors sometimes, and they, like, really just sell, like, oh, here's your room. It's a super low rate. We're waiving all your loan fees. Here you go.

Do you want it? Right? I'm I'm a very relationship driven person. Like, I I jokingly say sometimes, like, I do what I do because I don't have the guts to go owning my own business and kinda live vicariously through my doctors. I wanna be part of that relationship. I wanna see you grow. I wanna know your plans and so then. I wanna keep talking to you, and see how we can help. So I think having that relationship and just being, you know, very in the weeds with with your bank is important. It's important.

Oh, it's absolutely important. I would tell you right now, that's that's the number one complaint I hear from people. Yeah. I Someone who just found a shell. They're like, oh, I'm gonna build this out. You know, I'm gonna apply for a loan with one of the bigger banks because they had a better rate.

Mhmm.

But then it's a long process. Right? It's not like, oh, okay. I just signed up with them and boom, I have a practice the next day. It's a year long process most of the time.

Yeah. Absolutely.

In a year long time, they're like, oh my gosh, Ash, I have to talk with 4 different people. Yeah. The turnover rates were so high and this is really annoying.

Yeah.

Like I wish there was a go to person that I connect with. Mhmm. Like, anytime I had a question or something, that's that one person I can talk to and build a relationship, and I think that'll go a long way.

It does. Yeah. It definitely does. And I think right I mean, if you think about this, so, I mean, Huntington has been doing dental practice, lending for years upon years. Upon years. Okay? But we are very new west of the Mississippi. And I think that's our big differentiator is we are very, like, people centric. I mean, examples.

So I'm literally the only person that you talk to when you do your loan through us. Now once we're going through closing, you're handed over to a person that, handles, like, your your accounts receivable and your accounts payable and all those things here designated to one person. Like, with us, you never call our 1 800 number. Like, you don't call a 1 800 number. If you are, then you're not, like, reaching out to the contact that you should be reaching out to. You know, have that relationship with that person. So I think I think that's really important, and then I think it's a miss for, you know, a lot of the banks that are out there.

Yeah.

I mean, I came up within banking and, you know, started as, like, a new accounts banker when I was 22 years old, fresh out of college, and people would come in and ask me questions. I had no clue what I was talking about. Right? Right. No idea. It's like, oh, you want a credit card? Oh, okay. Sure. Let me just click these buttons

and get

in there. Like, they're they're not in the position to consult you and everything. So I think having someone on the back end that you can just talk to, you don't have to walk into a real cool facility or something like that is really important.

Right. I agree. I really agree. Wow. That's amazing. Yeah. Well, thank you so much for sharing all this information with our listeners and our audience.

Thanks for having me. I really appreciate it.

Yeah. Absolutely. Alright. Alright. You too. Bye. Bye.