With Practice Transitions – Think Like a Lender
by Peter Smith
(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 first in a series of posts passing along some of the knowledge that we have obtained in that process)
As more and more dental and other professionals reach retirement age in Washington state, more individuals are turning their attention to the exit strategy. Selling your professional service practice can be tricky. There is a limited scope of buyers out there who qualify to own your business (ie – a professional duly licensed in your field of practice), and additional limitations when it comes to lender financing for practice buyouts. Now more than ever lenders are subjecting practice sales to additional scrutiny before agreeing to provide any financing for these deals.
Accordingly, as someone who is looking to move into retirement in the new future, you would be well served to become familiar with what lenders are looking for right now in terms of financing these deals, and then incorporate these criteria into your search for a buyer.
For example – lenders like to see buyers who have experience practicing their craft. They want the assurance of knowing that the individual in question has a demonstrated ability to perform on the job (as this will likely translate to revenue that can be used to pay off the lender). Accordingly, when you go to look for a buyer, look at their experience level. If they are brand new to the practice, consider an associate relationship first, or a longer mentorship period, before requiring that lender financing be acquired. Consider working with them for a while to help show the lender that the individual in question has what it takes to run the practice.
Also, be cognizant of the requirements for different kinds of lender financing, including SBA 7(a) Loans. These options can reduce lender risk and make the loan process easier.
You have worked long and hard to build value in your practice. Make sure that value is realized through the successful transition of the company to your buyer. If you intend to sell through the use of lender financing – become familiar with what lenders are looking for and make a point to incorporate that information into your search.
July 7, 2020