4 Recommendations in Financing Your Way from Associate to Owner

If owning your own practice is a professional goal of yours, one of the tasks you are likely to encounter is securing the capital to do so.  There are many possible options to finance a practice acquisition, whether buying an existing one or starting one from scratch.  However, the three most common methods are:

• Bank Financing- Conventional & SBA loans

• Private Money Loans (family/friends/hard money)

• Seller “Carry Back” Financing- Selling practitioner offers to extend the loan to buying practitioner

More often than not, the last two options are unavailable in many circumstances, leading us to the first option.  As a lender, I typically recommend for buyers to pursue conventional financing if they can qualify, as opposed to loans from the Small Business Administration (SBA).  While SBA 7(a) loans serve a purpose in cases where conventional financing is not available, the guaranty fees, additional collateral requirements, higher rates and rigorous application process can make them a less attractive option.  With a little planning and by implementing the below action items, you will increase your chances of having a smooth approval process for a competitively priced, conventional practice loan.

1. Prior to applying, get your financial house in order—Put away a minimum of 6%-10% of the purchase amount in non-retirement savings. Put off any major purchases until you have your loan and start now to repair any known issues with your personal credit.

2. Ideally, work as an associate at the selling practice prior to purchasing. If associating at the selling practice is not an option, try to select a well running, profitable practice for your purchase.  Unlike the “worst house in a good neighborhood” scenario, buying a fixer practice will make getting a loan more difficult.

3. Consider negotiating an agreement to have the selling practitioner work with you through some phase of the transition—While cold handoffs can be executed smoothly with proper due diligence, they statistically have lower first year revenue and net income than warm transitions.

4. Student loans over $200,000—If possible, refinance these with a fixed rate at the longest term possible. Loans in deferment, while providing a temporary low monthly payment, can be a hindrance to obtaining your practice loan.

The above steps are merely a few suggestions and not meant to be an all-inclusive list.  Every request is different and has numerous variables for a lender to consider, and every bank has a set of underwriting criteria that is equally unique.  Having a discussion with your lender to strategize in advance of making your purchase is recommended.  All the best in your pursuit of practice ownership!  

--Jon Garrison, Practice Lender

First Citizens Bank, Guest Contributor