Drs. Matt & Ann Bynum
If the title of this article caught your attention, we accomplished something. Those of you who have borrowed money in the past can understand how banks often can make you feel like a beggar. As we always say, approach business as business. While lending institutions do have the upper hand, remember one very important thing: You, as the client, are going to bring a lot of money to that bank! Not only will you pay a fair amount of interest, most likely you will be placing your money in the bank's possession for a long time and providing referrals. Be professional, courteous, and confident. You are bringing just as much to the table as the lending institution is; you are just delaying your payoff!
Last month, we discussed the development of a business plan and loan proposal. Now we are going to take this new plan, walk through the steps of presenting it to the bank, and get ready for construction.
First, inquire about aggressive lending institutions in your area. By aggressive, we mean institutions that are usually small-town banks with only a few branches. Ask your dental supply representative, friends, relatives, or other small businesses in the community for referrals. Not only can they give you valuable insight, they just might end up being loyal patients in your new practice.
These financial institutions have a vested interest in the community where you want to establish your business. They also are more apt to lend money to start-up businesses. Many times, the bank officers and lending personnel are the ones who make the decision on whether to lend you money. They often are authorized to make those decisions in a shorter amount of time. Banking is still based on personal relationships, much the way your business will be. In larger banks, the person you spend your time with often is not the same person who will make decisions on your behalf. Instead, it might be someone in another larger branch who decides your fate.
Once you have a list of aggressive banks, make appointments to share your plan with at least three of them. One should be a local lending institution and another a large conglomerate, such as Bank of America.
The experience of meeting with financial institutions is a learning process in itself. While some larger institutions are willing to lend money to small businesses, most are not. We call this type of bank "butt-whippin'." Our experience made us feel as though we had been beaten; we left with our tails between our legs. We came, we presented, and we left without answers, feeling as though we had made a mistake. We were professional throughout the whole process, but the bank told us "no!" A week later, a letter informed us that if we could come up with collateral equal to the loan amount, we could have the money. Hey, if we could have come up with the entire amount in collateral, we wouldn't have needed the loan! Regardless, we left better-educated about how the whole process works.
Don't just walk into a bank and expect to be able to present your loan proposal. It is best if you make an appointment. Telephone ahead, introduce yourself, and ask to speak to someone who can assist you with a commercial loan. This may be a chief lending officer, a vice president, or even the president. Requesting to speak with the president, intimidating as it may be, often is the best way for you to discover the bank's personality. Art Seaver, president and CEO of our financial institution, Greenville First Bank, recommends speaking with someone who has the authority to make decisions. Whoever it is, make sure you don't waste your time or theirs.
Mr. Seaver also recommends that you do business with someone who wants to do business with you. He says, "Given the potential business relationship being presented, it is imperative that the lending institution provide a positive atmosphere for future business. If the institution itself is not able to lend the money, and there is some interest in the relationship, the institution should be willing to offer some viable alternatives to assist in making the loan a possibility."
The alternatives he refers to are specialized dental equipment financing companies such as Matsco, PPC, and HPSC, independent private investing groups, SBA loans, and community-enhancement programs. These are all viable options for helping you start a business. While they may offer rates that are higher than those of standard financial institutions, they serve the purpose of getting your business off the ground. There is a cost associated with doing business, so consider this option as one of those costs. While it would be nice to have a loan with a low interest rate, the objective is to start your dental practice. A low rate may not be a possibility based on your particular circumstances. What if the interest rate and the terms are different and higher than average? Is this going to be enough to stop you from creating the practice of your dreams? No. Nothing in life is free; the cost of doing business must be viewed simply as a means to getting your foot in the door of opportunity.
Realistically, what do two to three percentage points mean over the course of the original loan? Analyze the numbers, but consider a fact that is often overlooked: Assuming that the practice does well and that it takes three years for this to happen, what happens to the numbers when you factor in loan refinancing? The astronomical number that you figured at the initial higher rate of interest now dwindles to slightly above average. A few percentage points spread out over the life of the loan for 20 years is minimal when the loan is refinanced the third year. The cost of doing business is often forgotten in light of other factors.
We recently had a conversation with Ray Doherty, president of HPSC, Inc. He agreed that financial lending institutions often are unwilling to lend money to new dentists for practice start-ups. He shares, "Providing the highest level of customer service is at the core of our business. After 27 years in the dental industry, I'm proud to say that we understand the entire life cycle of a dental practice. This knowledge helps us to design a loan program that is individualized to the dentist's needs." You can contact HPSC at (800) 225-2488.
On another occasion, we spoke with Allison Farey, senior vice president of Matsco. She points out that there are differences among lenders, so don't talk to just one. She advises, "A good lender will understand your unique financing needs and will work to put together the right financing program for you. Banks often consider financial net worth to determine how much to lend, while specialized financing firms analyze cash flow - current and projected. They often offer special deferred payment plans that allow the dentist to build an accounts receivable base during the first few months in a new facility before starting to make payments." You can contact Matsco at (800) 326-0376.
Fred de Roode, president of Professional Practice Capital, agreed that financial lending institutions are too often unwilling to lend money to dentists for new practice start-ups. "This is where a group such as PPC can help in designing a loan program that is best suited for the dentist's individual situation. A dental practice has very unique financing needs. Because we understand that these needs are often a determining factor in the success of the practice, we are here to provide what other lending institutions simply cannot - a chance to succeed." You can contact PPC at (800) 456-2779.
Once you have an appointment to present your business plan, make sure you are prepared. Dress appropriately, be on time or early if possible, and have all necessary information in your possession. Take your business plan, floor plans or drawings of your new office, and a map of the surrounding area that illustrates other dental practice locations and areas of growth. Ask plenty of questions. Be familiar with the numbers you present, and always depart with the next step clearly in mind and written down. Will they be calling you back within a week? Are you welcome to contact them in a week? Whatever the agreed-upon timeframe, mark it down and adhere to it.
Once your meeting is over and you are back home, send a thank-you note to the bank for allowing you time to discuss your business plan. Give your reassurance that you will do whatever it takes to achieve your goal of a successful dental practice.
If you have not done so already, now is the time to begin relationships with the following people: a building contractor to discuss the construction; a dental supply company for your equipment needs; an attorney to take care of legal transactions; a certified public accountant to assist with tax assignment and bookkeeping; and an insurance agent to provide you with professional and personal coverage.
Next month, we will talk about the people who will be involved in the construction of your new dental practice.