When seeking financing for a second practice acquisition, asking four key questions can help you to borrow well--and become profitable sooner.
FOUR KEY QUESTIONS ON FINANCING
WHAT AM I FINANCING?
Borrow enough for the acquisition, working capital and a small amount for needed equipment and improvements.
WHAT IS THE TERM OF MY LOAN?
Loan term is a more critical factor than interest rate in determining your total acquisition cost and overall debt management.
WHAT COLLATERAL IS REQUIRED FOR MY LOAN?
Expect to pledge the assets of the practice you acquire and commonly the assets of your existing practice.
ARE THERE ANY HIDDEN LOAN TERMS?
Insist on transparency in disclosure of interest rate, prepayment penalties and any additional loan terms or covenants.
“I was turned down for a practice acquisition loan, but I don’t know why.”
As bankers who specialize in lending to independent optometrists, we frequently hear that. The reason why: The OD had sought financing from a bank that doesn’t specialize in optometric practice acquisitions, and they likely dealt only with a business development officer not involved in the loan decision.
This underscores two primary mistakes that optometrists make in seeking financing. First, they don’t deal with a lender that understands them and the specialized needs of independent optometric practices. This would be like sending a person with eye problems to their primary care doctor for evaluation and treatment. Second, they fail to establish a personal working relationship with someone at the financial institution who can answer their questions directly, intelligently and add value to the process.
In order to facilitate communications and understanding, your financial institution contact person for this transaction should be a loan officer, involved with the decision making team and available to you from the initial loan application through funding. Your contact should keep you apprised of the status of the application throughout the process and be able to explain any issues and proposed resolutions that may arise. If done properly, your contact should be available for your subsequent practice borrowing needs and should help you understand the cash flow impact of your practice investment and financing decisions. To help you, at Vision One Credit Union we assign you a “Private Practice Banker” who knows you and your account.
Once you establish the right relationship with the right lending institution, you need to develop a “Project Budget” to identify the full amount of funds needed to purchase the practice and related items (see below). The process then breaks down to four essential questions you must ask and have answered to your satisfaction.