October 7, 2019
What Lenders Look for in Dental Practices
While it’s important to be choosy when shopping for a dental practice lender, a lender will likewise be selective when looking to award your practice a loan. Lenders will put your dental practice under a microscope whether evaluating a loan request to an existing practice or startup. Here are some factors for what makes a good borrower.
Lenders look not only for site specifics, like ease of access and good parking, but also general aspects, such as positive market demographics. A desirable location is one that is typically urban or suburban.
It’s important for lenders to know the types of insurances carried by patients compared to the insurance plans that the dentist participates in. What’s more, lenders will want to see knowledge of a practice’s dealings with different insurers. Practices should be able to provide insights into receivables and treatments not covered by insurance, including deductible and co-pay.
Patients aren’t the only ones interested to see how the dental team interacts. Lenders will likely approach a dental office the way a new patient would, noting first impressions and team cohesion and strength. Related, practice and employee longevity contribute to a stable working environment.
How many treatment rooms does the dental office have, and are each fully equipped? Is the technology digital? These are questions a lender will ask of a dental practice when evaluating its technology and use of it. What’s more, there should be a diverse skill set in terms of different types of treatments.
A lender will monitor how a dental practice is handling its growth in terms of patients and marketing, in particular, the growth rate of the patient list and the subsequent gross billings per year.
How a dental practice handles its finances should be noted in relation to cash flow, expenses, payment policies, and overhead (60-65% is ideal). Collections should be stable for the past three years; if there is a 10-15% drop, banks will ask questions and not be in favor of lending. Ultimately, the biggest consideration is to make sure the practice hasn’t crashed.
Contact the experts at Professional Transition Strategies to help make your dental practice more appealing to lenders.