Justin Rust: Let’s Talk: borrowing money to start a practice

Thursday, May 17, 2018

Let’s Talk: borrowing money to start a practice

This episode of Let’s Talk features Christian Pearson, National Director of Dental Partnerships at Treloar & Heisel in a conversation with Jon Burns, Vice President at Bank of America Practice Solutions, a specialty division focused on providing financing to dentists who seek to establish their own practices.

Christian: Jon, I was hoping to learn from you how doctors can get themselves properly positioned to be approved for a loan to start a practice.

Jon: The most important thing is to pay attention to “keeping your personal overhead low.” By this I mean that a graduating dentist needs to have a healthy positive cash flow. As bankers we know that many students carry a large amount of debt. We’re less concerned with the overall size of their debt, than we are with the monthly payment.

If you have student debt, keep your debt payment as low as possible. Maybe consider going on income-based repayment initially, and then switch to another repayment plan as your finances improve.

Christian: What other criteria do you consider when evaluating candidates for practice loans?

Jon: We look at liquidity. Liquidity is basically the amount of money you have saved in the bank, outside of retirement savings. In a perfect world, we’d love for borrowers to have at least ten percent of what they’re looking to borrow. Now, that’s not always completely realistic for a dentist who’s only been out of school for a year. So, five percent typically works for a newer dentist.

One of the common missteps we see a lot newer dentists make is that they use every nickel they earn on paying down their student loans. As a lender, we would prefer to see they have that money saved.

Christian: Great advice, and it lines up exactly with the advice we consistently give to students: build an emergency fund that can sustain you for three to six months. Everyone needs a cash reserve.

Jon: Exactly! And then the third thing we look at when we evaluate a candidate for a loan is their personal credit and credit card debt. Credit card debt is ‘bad debt’ and we don’t like it.

Then of course, there’s the issue of credit score. When you’re starting or purchasing a practice, it’s not like getting a credit card, where if you have bad credit, you can still get a credit card, except the interest rates are just higher. You must have good credit to get a business loan. A piece of advice I’d give to any dental student is to stay on top of their bills, such as their utilities, medical bills, and so on. It’s easy for students to miss a bill as they move from place to place.

Unpaid or forgotten bills can come back to bite you in a really big way. It’s heartbreaking when we can’t offer a deserving dentist a loan just because they didn’t pay a hundred dollar electricity bill they can’t even remember years ago and it adversely affected their credit score.

Christian: I’d never thought about something as small as missing a utility bill having such a big impact.

Jon: Yes, sadly it’s true. What you do now can have a direct effect three, four, five, even ten years down the road.

Christian: Thank you so much, Jon. This was great, and we appreciate all of these pointers!

Christian Pearson is the National Director of Dental Partnerships at Treloar & Heisel, a premier financial services provider to dental and medical professionals across the country. Treloar & Heisel assist thousands of clients from residency to practice and through retirement with a comprehensive suite of financial services, custom-tailored advice, and a strong national network focused on delivering the highest level of service.

Jonathan Burns is part of the Bank of America Practice Solutions team that focuses on providing dental practice owners a single, convenient source for financial services – from practice acquisition and equipment financing to practice expansion and commercial mortgage loans.