Why Banks are a Major Hurdle when Financing Multiple Dental Practices

Jason P. Wood, Esq., JD, is a dental attorney at Wood & Delgado, based in Mission Viejo, California. In his work, he often deals with dentists weighing the option of expanding their business into multiple practice. In this clip, Wood explains the common hurdles dentists face when considering multiple practice. Chief among them are the major banks.

Interview Transcript (Modified for Readability)

“Some of the hurdles for financing practices, I would say, unfortunately is the banks; the traditional dental lenders, Bank of America, Wells Fargo, US Bank, they all have this box that they like to work in and typically when you start moving to multi-practices, there’s a risk level that most banks aren’t used to. They’ve got some data that says, you take on a second and third practice, there’s a higher risk analysis for them. And so, for a lot of the banks, it is a question as to whether or not they feel comfortable with the risk analysis.

Some of the banks that have done it don’t even lend to dentists anymore, specifically because they targeted the multi-practice segment, and, as a result of the practices not doing the proper due diligence, they had loans that went bad. So, you don’t have many traditional lenders that understand dental that are willing to lend to multi-practices.

However, now you’ve got Bank of America, which is probably now one of the most aggressive banks in terms of going after the multi-practice. You’ve also got Wintrust, and a few other banks that are going after the market. They’re going after it cautiously but they understand that the trend is there for multi-practice ownership, and so, they are still lending.

It’s just that the lending environment is a lot more complicated, especially when you start getting over the $5 million range. Then you’re kind of flipped over into a completely different set of circumstances, ratios that they care about. They’re going to be analyzing things under a microscope, and, as a result, you need to make sure you’ve got your financials down pat. Eventually, they’re also going to ask you for a CPA compiled and then they’re going to ask for basically an outside independent CPA audited, and so, the financial process becomes a little more costly. But, hopefully, if you’re doing multi-practice you could afford it by then.”

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