I recommend dental practice buyers comparing loans from banks compare on three factors: rate, fees & process. Rate should be about 50% of the decision and fees about 30%.
That leaves 20% of the decision to be made on process. This last factor is typically underweighted by dentists in making a decision between banks is the overall process of working with them. What do I mean by “process”?
Process means three things when it comes to dental practice loans:
- The Application Process
- The Closing Process
- Working With the Bank After the Loan is in Place
The Application Process
The application process is a pretty good indicator of the overall process of working with a particular bank. Consider the following helpful questions when assessing this aspect of the bank:
- Are you talking with one point of contact at the bank? Multiple people?
- Do they all know what’s going on with you?
- Was the process of submitting documents painless and understandable?
- Did the banker (salesperson) prepare you appropriately for your call with the underwriter?
- How quickly were you able to get a proposal?
- Did the banker carefully explain everything in your proposal? Did anything get left out?
As you go through the process with two (and no more than three!) banks, simply compare the experience and grade appropriately.
The Closing Process
After you choose a bank, how smooth the closing goes is a big deal. Handled smoothly, you get your practice on-time and the seller gets a lot of money when they’re expecting it. Handled poorly, and the office schedule gets messed up, the seller gets anxious, and you’re out of work a few days (or weeks!) longer than expected.
Knowing how the closing will go is tough ahead of time, so rely on your accountant and attorney to fill you in on how closings with this bank typically go. See if the closing conditions are clear ahead of time. And lastly (and least importantly) ask other dentists how their closing process went with the banks you’re considering. But remember, the ones who had a negative experience will be the first to speak up, skewing your view.
Working With the Bank After the Loan is in Place
Finally, I highly recommend you consider what it will be like working with this bank after the closing. This is potentially a 10-year partnership with a company. Think about communication and requirements, specifically.
With regards to communication, if you had a hard time communicating well with the sales team, imagine how much more difficult it’s going to be to get answers and help from the support team who don’t have customer service requirements as high as the sales team.
I also recommend basing your decision on which loan to choose on how the lender will service the loan, sometimes called “requirements after closing”. Requirements after closing is a hidden gem most dentists miss when comparing dental practice loans.
Many banks will throw in various requirements like they’re no big deal. Sometimes I’ll see them and comment on them to the buyer and the buyer will be shocked as I’m the first one to say something. Requirements I see often include:
- “You must use our checking out as your primary business account”
- “You must use our merchant services product, regardless of our fees on credit card swipes”
- “You must use our payroll company.”
- “You must send us monthly financial statements”
If I were a bank and I lent you a million dollars, I’d hope you use my checking account, merchant services, and other products, too. But my belief is the bank should earn that business from you. Not require you to use possibly overpriced services.
The bank is hoping you get tunnel vision on the rate here. They’re okay to give up $98/month in interest income if you’re paying fees on their checking account, fees on their merchant services account, fees on payroll, etc.
What’s more, some banks will even include a provision in the loan documents that if you ever switch your checking/payroll/merchant services business to another bank, they can come back and increase the interest rate on your practice loan! Yikes.
I’m a big fan of convenience. If you’re thinking about using the local credit union as your primary bank after the transition simply because they have a branch close to your practice – go for it! Just don’t let that decision get mixed up with which practice loan is your best option.
Stepping back for a moment, considering the impact of a bank’s processes is important but should be something like 20% of the total decision maker. I think the rate is the most important factor to consider (50%) and fees in second place (30%). The process aspects we talked about here are the least important (20%), but still worth comparing. All three aspects should definitely be on the table.
But, wait! Didn’t I forget the prepayment penalty? The insurance requirements?
There are some elements of most dental practice loans that really don’t matter very much. In my last post in this series, I’ll fill you in a few factors included in the loan that you can mostly ignore.
In the meantime, if you need help assessing a bank’s processes I’ve worked with almost every dental lender in the country and happy to share my experiences. Send me a note firstname.lastname@example.org and I’ll respond directly.
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