VeterinaryLoans.com

Years ago it was the only way to get financing on the veterinary practice, with some financing available on real estate with a sizable down payment.  In the glory days (1998-2002) buyers could expect 100% financing on the practice and often on the real estate too.  Rarely did buyers use down payments in excess of $25,000.  Times have changed.  Even in high   (profitable) practices, some lenders are requiring owners to provide partial financing.  Siting they want the seller to still have some skin in the game.  Practices succeed or fail after sale based upon the buyer’s abilities, not who holds the paper.  Having sellers finance part of the transaction makes sense in tight cash flow deals or those with unique circumstances however the current trend from major banks seem to be more of an objective passed down from the boardroom limiting exposure than a creation out of necessity.   Be aware that some sellers can’t (need to pay of existing debts) or won’t (no tolerance for risk) carry money back on the purchase.  This means higher down payments for buyers.

Common Mistakes Loan Seekers Make

Those who undertake the historically daunting quest of securing veterinary financing for their practice tend to face similar roadblocks.  Understand the common mistakes made by veterinary loan seekers and you will be well on your way to avoiding these inconveniences and on your way to securing a fair loan with great terms.

Common mistakes include:

• Taking the first good pitch at face value.  As a veterinarian, your primary objective is likely to receive financing as soon as possible, with little time invested.  After all, animals and owners in your community need your services.  However, it is not in your best interest to open up the yellow pages, select a financier and immediately take an offer.
• Assuming all veterinary practice financing is the same.  Just as there are lenders that specifically understand our industry, there are others who could don’t understand how you plan to grow your practice into the future.  Some brokers are merely go-betweens for loan companies and are only looking for an initial commission payout.
• Selecting a non-qualified vendor.  If you find that securing a loan for your practice is difficult to finance, it may be tempting to accept any and all terms.  However, history is full of vets who do so and are faced with varying interest rates and delays regarding loan approval.  In the worst case scenarios, the lender may lose all sources of funding.

Avoid the common mistakes when seeking veterinarian financing.  Trust Veterinaryloans.com to prequalify lenders and match you with the veterinary practice financing that best fits your needs.

Imagine the following common veterinary loan scenario.  Dr. “Z’ is searching the Internet for funding for veterinarians.  He’s looking to open a new practice, and is worried about securing the money he needs to fund the start-up.  He calls the first lender who pops up in his search, and is reassured when the salesman says his request sounds promising.  Dr. “Z” completes a lengthy loan application, sends it off, and waits, and waits…and waits.  Months later, he finally hears that his application has been denied.

Don’t let the above veterinary loan scare happen to you.  Allow a trusted source to screen your lenders before they contact you, and know that the people you speak with actually understand the needs of a veterinarian.  Here at Veterinaryloans.com, we always attempt to match vets with industry-specific lenders first before delving deeper into our database.

Your patients are going to rate you based on the medical attention you give their pet(s).  Lenders are a judgmental bunch as well, at once accepting and denying applications seemingly on whim.  Avoid the hassle of re-doing your application over and over in your search to secure funding.  Store your information in our VetVault ™, and you’ll never have to complete another loan application again.

This is the new and improved way of finding loans for veterinarians.  We’re proud to make this process easy and secure.  We know that every day, we allow medical professionals like you the ability to continue helping others.

Impact of a Borrower’s Student Debt on the Acquisition of a Veterinary Practice:

A Lender’s Viewpoint

Having served as Chief Credit Officer for two large regional banks, I have spent 25 years analyzing loan requests, from large complex corporate financings to auto loans. One question that frequently arises as we talk to veterinarians is “How will the $100,000 plus of student debt I have accumulated over my college years impact my ability to acquire or start my own practice?” If you are talking to a lender who specializes in your industry, the answer is very little‐ especially in a practice acquisition scenario! Our view of student debt is that these loans are an investment you have made in yourself, to put you in a position to have a very successful career.

At Live Oak Bank, our bankers have financed over 300 practice acquisitions. In almost every case, the purchasing veterinarian had significant student debt, with very little cash to put down as equity. This personal financial profile did not faze us at all. In fact, it never even comes up in the discussion as we evaluate the loan request. Why? The reason is that we focus on other factors that we feel are much more important in determining the future success of the acquiring veterinarian, and our ultimate loan repayment.

The first factor we focus on is the cash flow of the practice being acquired. The practice needs to generate enough cash to:

1) Pay the practice’s employees and suppliers (including the loan payment to the bank)

2) Pay you a salary sufficient to pay all your bills (including your student debt)

We look at the historical growth in revenues at the practice, the cash flow that has been generated and the competitors in the area to see if it can handle all payments. Because the government allows you to consolidate your student debt and pay it off over a fairly long period of time, a significant amount of student debt translates into a fairly low monthly payment. For a $100,000 student loan, the monthly payment is probably around $1,000. Although still a big payment, it typically pales in comparison to the amount of cash flow generated by a veterinary practice. We spend a great deal of our time making sure the practice you are acquiring can pay all the bills, including the student debt.

The second factor we consider in making a loan is your experience in managing a practice. Have you been managing people and dealing with the business‐side of a veterinary practice in your previous positions? We find someone usually needs three to five years experience, but every situation is unique. Do you have the skills necessary to keep your practice healthy from a financial perspective?

The third factor we look at is your credit history. Specifically, have you paid your bills on time? If you pay your bills on time, that is a huge positive. If your credit history is a little blemished, we’ll need to understand why. Next, we look at your overall level of personal debt (student loans included). We look at the monthly payments on your personal debt, and calculate how much salary you will need to take out of the practice to pay these obligations. Typically, you will need a salary where your monthly debt payments total no more than 40% of your gross salary. For example, if your student debt is $800/month, a car payment of $600/month, and a home payment of $1,100/month, your total personal debt payments are $2,500/month, $30,000/year. With this level of debt, we know that you will need a minimum salary of $75,000. The vast majority of practice acquisitions we finance can easily pay you this salary. Obviously, the higher your overall level of personal debt, the bigger the salary needed from the practice you are acquiring. This gets especially critical in a start‐up. It takes a long period of time for a new practice to generate a significant salary for you. Therefore, if you have a very high level of personal debt, it may make the bank less likely to have confidence in the loan. At Live Oak Bank, we like to see your overall level of personal debt payments to be under $3,500/month if you are starting a practice.

The veterinary industry has a great profile. Revenues for the industry have grown at twice the rate as the overall economy. Loans made to veterinarians go bad at a tiny fraction of the rate of loans in general. That is why at Live Oak Bank, we don’t view your student debt as a concern. We view it as an investment you have made in your DVM. We have successfully financed veterinarians with your level of student debt time and again. If you have additional questions, please give us a call. We look forward to hearing from you.

Sincerely,

David Lucht

President, Live Oak Bank

910‐796‐1641

Now more than ever, protecting your credit rating is crutial.  Borrow wisely, watch for identity theft, and the list goes on.  But what if you have had a credit ding and you want to improve your score?  Is it necessary?  Brian Faulk of Live Oak Bank recently stated that “credit scores below 650 are problematic.  Its better to have a higher score, even beyond 700.”  So how do you climb back up when you’ve stumbled?

Here’s a few tips from www.myfico.com, to help you climb back up the credit rating ladder.

It’s important to note that raising your FICO credit score is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time. See how much money you can save by just following these tips and raising your credit score.

Payment History Tips

• Pay your bills on time.
  Delinquent payments and collections can have a major negative impact on your FICO score.
• If you have missed payments, get current and stay current.
  The longer you pay your bills on time, the better your credit score.
• Be aware that paying off a collection account will not remove it from your credit report.
  It will stay on your report for seven years.
• If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
  This won’t improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.

Want to read the rest of their credit improving tips?  Click here.

Apply With Confidence

How to position yourself for success when applying for veterinary practice financing

by Brannon Moncrief

Purchasing a veterinary practice is one of the most important decisions you will make in your professional career and often unlocks the door to a considerable increase in compensation and personal freedom.  Since most veterinarians rely on third party financing to purchase or make capital investments in their practices, it is imperative that you understand the perspective of veterinary lenders and how to position yourself for success when applying for practice financing. 

Veterinary practices continue to thrive despite the recent economic downturn.  Specialized veterinary lenders have the knowledge and experience to recognize that the veterinary industry is fairly insulated from adverse changes in the economy, thereby allowing this financing niche to remain largely unaffected by the current credit crisis.  While you can expect veterinary lenders to continue to aggressively pursue veterinary loan opportunities and offer competitive pricing, it is important to note that the credit crunch will influence these lenders to tighten their credit standards and evaluate borrowers more closely in these key areas: Personal Credit History, Personal Financial Condition, and Professional Experience. 

Personal Credit History

When you apply for a loan it is often the first time you have been introduced to a veterinary lender.  Due to the fact that the lender does not typically have a long term personal relationship with you, the industry standard is to rely on your personal credit history as the primary character reference.  While it is ideal to maintain a credit score above 700, most lenders will fund transactions for borrowers with a credit rating of 650 or higher.  If your credit score is below 700 be prepared to answer questions pertaining to delinquent accounts, high credit card balances, or any other factors that may have driven your score below this mark.  In order to ensure that you maximize your credit rating and present yourself in the most favorable light, I encourage you to employ the following steps in managing your credit:

ü      Check your credit regularly (every 6 months).

ü      Correct any mistakes or instances of credit card fraud.  If any mistakes or signs of credit card fraud appear on your credit report, immediately contact the credit grantor to dispute the charge or correct the discrepancy.  You should also contact the credit reporting agency to notify them of the mistake and submit supporting documentation so that the correction can be made to your credit report.

ü      Pay your obligations in a timely manner.  A delinquency will appear on your credit report if a payment to a credit grantor posts over 30 days past the due date.  Lenders look poorly upon current or past delinquencies because this shows an unwillingness or inability to repay your obligations as promised.  If delinquencies do appear on your credit report, be prepared to provide the lender with an explanation of each delinquency.

ü      Limit your use of revolving debt.   Revolving debt includes all debt relating to credit cards, charge cards, or home equity lines of credit.  This type of debt can substantially reduce your credit score and is looked at unfavorably by lenders.  Once revolving accounts have been paid off or retired, do not close these accounts, as availability (not use) of revolving credit will boost your credit rating.

ü      Avoid declaring bankruptcy at all costs.  Most lenders will not consider anyone who has declared bankruptcy within the past 7 to 10 years as a financing candidate.

Personal Financial Condition

Unlike traditional banks, veterinary lenders understand and are comfortable with the fact that most veterinarians with only a few years of work experience will be carrying a substantial amount of student loan debt and have a negative net worth.  What these lenders are paying closer attention to is if a potential financing candidate is “living within their means”.  Lenders want to verify that your lifestyle matches your personal income level at the time you apply for practice financing, as the lender can only assume that your current approach to managing your personal finances will continue into the future.  An interest only or adjustable rate mortgage and/or substantial levels of credit card debt are key indicators that you may not be maintaining a lifestyle consistent with your living personal income level.  This situation will often give lenders an uneasy feeling about a prospective borrower’s spending habits.  Therefore, you may want to consider postponing any major purchases – such as luxury items, expensive vacations, or discretionary expenditures – until after you purchase your practice and generate sufficient income to pay for these purchases with cash or keep up with the monthly payments using your personal income rather revolving debt.

It is also important to note that lenders will often evaluate recent graduates from a different perspective than when considering more seasoned veterinarians.  While it is understandable that recent graduates will be carrying large student loan balances and a negative net worth, a lender will expect established veterinarians to be in a more favorable personal financial situation due to the ability to save money and reduce debt obligations during their career.  Experienced veterinarians with weak financial statements should be prepared to provide an explanation for their current personal financial condition in order to mitigate any perceived risk from lenders.

Professional Experience

The majority of veterinary lenders will require that a potential financing candidate has one to two years of experience following veterinary school prior to pursuing practice ownership.  The exact level of experience required to qualify for a loan can vary depending on the loan amount, size of the practice being acquired, type of practice being acquired, buyer’s production capabilities, buyer’s business acumen, and more.  Lenders may require less experience if the financing candidate has been working in the practice that he/she is looking to acquire. 

As a young doctor who is considering purchasing a practice within a few years following graduation from veterinary school, it is wise to search for an associate position in a busy practice that will enable you to receive the necessary training and production responsibilities to quickly increase your hand speed and the array of services that you are capable of performing.  Obtaining your production/collection reports from your associate position can also be a useful tool in showing evidence to a lender that you are capable of producing at the level of the selling doctor and experienced at performing all of the veterinary services historically offered by the seller.  While working as an associate it is also extremely valuable to pay close attention to the responsibilities involved with owning/operating a practice outside of performing veterinary services, which will allow you to better understand and be prepared to handle the business side of practice ownership.  Lenders typically interview potential financing candidates to verify their production capabilities as well as get a feel for their business acumen.  Possessing the experience and knowledge to intelligently discuss and apply both the clinical and business aspects of practice ownership will impress your lender and increase your chances of securing loan approval.

If you take the time and effort to ensure that these three aspects of your personal and professional life are in order, you can rest easy in knowing that practice financing is readily available and you are in a great position to further your career by pursuing practice ownership. 

 
Brannon Moncrief is the Director of Business Development with Professional Practice Capital (PPC), a nationwide lender with over 10 years of experience specializing in providing financing to veterinarians.  Brannon is available at (800) 456-2779 and brannon@ppcloan.com to answer your questions and assist you with your practice financing needs.

Starting Up In Today’s Economic Climate

Many of the associate Veterinarians I have been speaking with are all asking the same question, “Should I start up my practice now or wait until the economy rebounds?” My answer usually surprises them when I reply, “Why wait, start-up now!”  Here are my top three reasons to not wait if you are considering starting a practice:

1 – The costs for rent and commercial space have declined.

Landlords and real estate owners wanting to rent and sell space in today’s market are more willing to work with potential renters and buyers. I am seeing more and more landlords offering deferred rent during (and sometimes after) build-outs, increased allowances for the costs of tenant improvements, reducing and waiving fees, and a greater willingness to negotiate sales prices and lease payments. Locking into a lease while the market is low for 15 or 20 years may help improve the value of your business as it matures. If you are considering purchasing a commercial building or condo space there are some tremendous values in today’s commercial real estate market.

2 – Simple economics of supply and demand.

As demand decreases for equipment, supplies, and furniture prices generally follow suit. With fewer Veterinarians starting projects and purchasing equipment and supplies we are already seeing equipment companies bringing some creative and cost-saving discounts to the marketplace. I have recently seen programs that have offered software, discounted cabinetry, credits toward future purchases, and many other Veterinarian incentives in an attempt to earn your business.

3 – Time is money.

The experts are saying that this period of economic downturn will be significant.  If your intention is to try and “wait it out” you need to be prepared that, if you do, you may enter the market to start your project at a time when many of your colleagues are doing the same. Those who waited for the economy to turn around will all be looking for space, increasing the demand for equipment, and marketing for new patients at the same time. Many of the incentives currently being offered by the veterinary supply companies and manufacturers may no longer be available.

All this being said, when you do decide to venture out and begin a new practice you need to be responsible and perform proper due diligence.  With the amount of time and money you will be investing in your professional practice, you need to make sure you have done your research, formulated a substantial business plan and created a team of industry experts to support and assist you through the process.  Is now the time to be opening your specialty referral practice? Unless you have a pool of general practices and patients already willing and able to support you in that type of practice, the time may not be right. Incorporating a good mix of fee schedules, procedures, and client pool will assist in building the foundation of a solid veterinary hospital.  This diverse patient base will ensure you are seeing patients and generating income during any economy. By building the foundations now, during a time of economic uncertainty, it will ensure that when the economy does rebound you will be ready and waiting with open doors. 

Melisa K. Edwards

Veterinary Finance Manager

Bank of America – Practice Solutions subsidiary

melisa.edwards@bankofamerica.com

Melisa Edwards manages the western territory of Bank of America’s Veterinary Finance Division. She oversees all veterinary related projects and loan programs in the Western United States region for Practice Solutions, Bank of America’s Healthcare financing subsidiary. Bank of America and Banc of America Practice Solutions™ are registered trademarks of Bank of America Corporation.

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