Recently, we heard a horror story about a dental group owner who had taken out loans to open several different practices.
Now, this owner had a great relationship with his bank. Every time he got a de novo successfully up and running, his bank would top off his line of credit so he could move on to start a new one.
He did this several times and every time, it went smoothly. His business was booming, he made all of his loan payments on time, and after a while, he felt like he’d cracked the cheat code for sustainable long-term growth.
Until his bank sold his loans to another bank. This new bank wasn’t interested in the dental space and called in the loans for repayment in full.
The owner had to end up selling multiple practices to repay his debt.
This is a worst-case scenario, of course. But if you’re planning on debt-financing your expansion, here are two steps to take that could help you avoid finding yourself in a similar jam.
First, get absolutely everything in writing. Make sure your lending agreement covers every aspect of your deal (big picture and details) so that if you do wake up and find that your loans have a new owner, you’ll have some protection against sudden changes to the terms.
Second, develop a relationship with a growth consulting firm that specializes in helping practice owners expand (our friends at Polaris Healthcare Partners are just one example). The right consultants will have relationships with a stable of lenders — so if you need to refinance, you’ll have an easier time finding a new loan partner.
The irony here is that a dental practice is an extremely low-risk investment. Most small businesses have a brutal failure rate (some estimates suggest 95 percent will fail) while the average dental practice has a 90 percent chance of succeeding.
The right banks know this. If you can get in the door with lenders who understand the industry (and be smart about your agreement), you’ll put yourself in a strong position to succeed.
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