Loan Structure Over Rate: What Dentists Need to Know About Lending Options

Dental Unscripted

🏦 Huntington Bank is a regional bank based in Columbus, Ohio, with a history dating back to the post-Civil War era.1 In 2017, former employees from Mike and Luke's previous employer joined Huntington to develop a unique dental lending program. Luke has been working in dental lending for over 15 years. He describes the dental industry as resilient and constantly evolving, making his work engaging. Contact Luke here: http://calendly.com/lukeakapper He can work with you to understand the best options for you.

This episode emphasizes that rates 📈 are complex and influenced by various market factors, not solely individual credit scores. They are tied to indexes like prime rate (influenced by the Fed) and ten-year treasuries (influenced by market demand). Due to market volatility, the discussion stresses the importance of rate locks. A rate lock provides a ceiling on the interest rate for a specific period, protecting borrowers from potential rate increases.

0:00 - Episode Introduction
2:23 - Mike introduces Luke from Huntington Bank
5:27 - Resilience of dental lending, Emphasizing the stability of the dental industry.
7:18 - Understanding loan rates
9:06 - Federal Reserve rate vs other indexes
11:13 - How banks "broker cash" - Market demand determine loan rates.
15:49 - The volatility of rates and the importance of rate locks.
18:30 - Loan structure, importance over just looking at interest rate.
21:53 - Defining "loan structure", term length, interest-only periods, and loan amount.
23:09 - "Practice Pulse", offering post-loan support to new dental practice owners.
28:34 - Loan amounts, particularly in the context of practice valuations
37:53 - "Modified startups" or "Jumpstarts," allowing for financial flexibility.
40:28 - The challenges that come with owning a dental practice & profit margins
48:57 -Trend of practice "buy-ins" & an "incremental buy-in loan" for a structured transition.

Loan Structure vs. Interest Rate:
The conversation shifts to the importance of loan structure. While rate is important, the podcast emphasizes that structure is even more critical for long-term success. Structure encompasses various loan features beyond the interest rate. Luke defines structure as "all the other stuff that really isn't your interest rate," including the length of the loan term, interest-only periods, and other supporting features.

Key Elements of a Loan Structure:
Three key elements of structure: loan amount, length of the term, and interest-only periods (or graduated payment periods, especially relevant for startups). Michael Dinsio reiterates that rate is less important than these structural elements in ensuring the borrower's financial well-being.

Prioritizing Loan Features:
Mike suggests the order of importance as:
1) Loan Amount
2) Length of Term
3) Interest Rate
4) Interest-Only Period

Luke Kapper agrees, adding the value of Huntington Bank's "Practice Pulse" program, which provides post-loan business support and consulting for up to two years. Luke explains the Practice Pulse program, a free service included with Huntington Bank's loans. Michael emphasize the importance of thorough planning and utilizing available resources, such as Huntington's Practice Pulse program or consulting services, to navigate the challenges of practice ownership.

Cash Flow and Post-Acquisition Challenges:
The conversation emphasizes the importance of sufficient cash flow after the acquisition. They discuss common post-acquisition challenges that require cash, including staff raises (almost a certainty), marketing expenses (often neglected by previous owners), and accounts receivable (AR) fluctuations, which can create a 90-day cash crunch. Michael emphasizes the importance of thoroughly planning and utilizing available resources, such as consulting services like Next Level Consultants, to navigate the challenges of practice ownership. He stresses that while dentists have low default rates, this doesn't guarantee financial success. Many owners may struggle to generate substantial profit despite meeting their loan obligations.

Ownership vs. Associate Dentistry:
Michael also reiterates that practice ownership generally offers greater financial potential than being an associate, even during the initial transition period.

Dental Unscripted Host :
Michael Dinsio is a dentist's buyer representative, helps dentists buy dental practices step-by-step through the acquisition process. With over a decade of experience and more than 500 dental transactions, Michael is a key opinion leader in the dental industry. This program helps walk dentists through the process of becoming a dental practice owner via dental practice acquisitions. If you would like a free consult with Michael or would like to work with Michael in the future visit his webpage. ⁠https://www.nxlevelconsultants.com/buyer-representation.html