As of Tuesday of this week, Bank of America is back open for the business of lending on dental transitions.
This is a big deal, and if you’re in the market for buying a practice anytime in the next few years you need to pay attention to this development. In 2019, Bank of America had over 50% of the market share in dental lending. They held loans for over 20,000 practice transitions around the country. When Covid hit, BofA (like most dental lenders) offered each of those borrowers a 90-day pause on their loan payments. Several bankers at BofA have told me about half of that group took the bank up on their offer.
At the same time, Bank of America stopped lending on all new practice loans. Deals that were already underwritten went through, but no new deals were underwritten starting around March. The obvious question is – why? Does Bank of America see a fundamental shift in dentistry others don’t?
As of today, BofA is back open for business. Indicating that they mostly closed the lending door because they were so stinking busy handling all the PPP loan requests and managing their existing loans! Not because now is a bad time to buy a practice.
The CEO of Bank of America practice solutions told a group of us that do a lot of transitions that while they’re back open for business, there are a few things to be aware of:
- Their stats show 90% of dentists will have no problem exiting their deferment. This is a STRONG indication that dentistry is doing well post-covid.
- They’re going to be more strict about the 10% cash requirement. If you’re going to buy a practice, make sure you’re saving your money. I pressed a little here on the call, and they admitted that there is still wiggle room. So I expect buyers with $50,000 in liquid cash looking at a well-cash-flowing practice to still be able to qualify for a loan.
- They’re going to stick closer to the traditional price limit of 75-85% of prior year collections.
- They’re NOT lending to 1st-time start-up practices. At least for now. If BofA was over 50% of the dental lending market for acquisitions, they had to have been 75%+ of the startup lending market (this is my guess). This will slow down the startup market considerably for at least the short-term.
- They’re going to hold firmer on their requirement to open and use their business checking account. Not a huge deal in my mind, but something to be aware of. (Their business checking account is one of the better ones, in my opinion).
My take on all this is that BofA is being cautious, but indicating trust in the overall market for dentistry in the US. This is good news overall.
This isn’t happy news for startup practices, but as I’ve argued for years, most of you should buy an established patient base anyway.
Finally, sticking to lower price targets could put downward pressure on practice prices in the near term. Prices aren’t coming down yet, but perhaps this will be a catalyst in that direction?