(Recently Apex Law has been working more and more with professional service providers seeking to sell their practices and/or transition into retirement. Here is the second in a series of posts passing along some of the knowledge that we have obtained in that process)
As we covered in our first post regarding professional practice buyouts, the lending standards by which most lenders are judging potential borrowers have become stricter. This means that obtaining the loan you need to acquire your new practice may not be easy. This is ok. Most things worth obtaining aren’t easy to get. The key is to have patience, and focus on those key points that will make you a better lending candidate in the eyes of financial institutions.
To do this, you should focus on several key factors:
1. Find a Practice where the Seller is willing to work with you. Focus your search on practices where the seller is a few years away from retirement, but starting to look around. Discuss with them the possibility of you coming on as an associate, or potentially buying a 25% stake in the practice initially. This will help you establish yourself as a practitioner, prove to potential lenders that you can handle yourself, and enable you to gain valuable insight from a veteran (the seller) in the industry. This can be a 24 or 36 month period, during which time you will be gaining experience and proving yourself to be a better borrowing candidate.
2. When you land your first job – Be financially responsible. As you start out in your practice, you will, for the first time, have a good salary and some disposable income at your command. Use that income wisely. Pay down your school debt. Buy appreciating assets (such as real estate) that can be used as collateral in future transactions. Avoid money pits like expensive foreign cars or personal watercraft (ie – don’t buy a Bayliner after 6 months of being on salary). Improve your credit so that when you go out for financing to buy your own practice, or take out your boss (financially – not a professional hit) and purchase the practice where you are working, lenders will look favorably at your financial planning and money management.
3. Have Patience. This cannot be overstated. In today’s society, we are a now now now population. We want what we want when we want it. Take a deep breath. Channel the spirit and fortitude that your grandparents had when they went to buy their first house. They saved. 1 month at a time. Until they had a sizable down payment on a house they could afford. That’s how it was done in their generation and so it will be again. 15-20 years ago any new practitioner could walk into a bank and walk out with financing for a practice, a new house, and a car. All with just a signature. Those days are gone. That’s ok. It’s a little harder now but so be it. If your grandparents could do it – you can as well. Take your first job and make the most of it. Spend your money wisely and do what you can to make yourself a better borrowing candidate. Lenders still want to lend. They will reward your efforts and you will get your practice.
Ultimately, lenders are just being more selective with their selection of borrowing candidates. To put yourself in the best position possible, make sound financial decisions, and “check the boxes” that lenders are looking for when they determine whether or not to lend to a borrower.