Veterinary Practice Loans On The Upswing
For veterinarians ready to go out on their own, the timing may be right to purchase an existing practice.
For veterinarians ready to go out on their own, the timing may be right to purchase an existing practice–as long as they have stellar credit, access to liquid assets, a polished business plan and a seller who’s willing to carry a percentage of the loan, according to veterinary loan experts.
“The market is fairly active on the acquisition front,” says Travis York, senior loan officer for Live Oak Bank headquartered in Wilmington, N.C. “We’re getting a lot of calls from people who want to buy practices in the current economy, and there are some veterinarians who are OK with the fact that they need to sell and retire.”
William Murray, national sales director for Bank of America’s Practice Solutions veterinary division, reports similar activity.
“We’re seeing a lot more first-time practice owners coming to the table looking for financing,” he says from his New York City office. “About 60 percent of our business right now is associates who are buying out the [practice] owner or purchasing an existing practice outright.”
The hitch: Some of those ready-to-retire practitioners are sitting on the fence, says Byron Farquer, DVM, who sits on the board of directors for VeterinaryLoans.com, which is based in Cheyenne, Wyo. Like many investors, they lost a good percentage of their personal retirement accounts when the market collapsed in 2008 and 2009, Dr. Farquer says, and they’re drawing a few more years of income before hanging up their lab coats.
“A lot of these potential practice sellers are the right age and the right point in their careers to be selling and transitioning ownership,” he says. “But they’ve been sitting on the fence and have not been selling their practices.”
Wendy Bren, a regional manager for Wells Fargo Practice Finance, has seen the same scenario in the San Francisco Bay area and Arizona.
“The inventory has been fairly low,” she says. “A lot of the doctors who were going to sell three or four years ago decided not to sell. So doctors who want to buy practices don’t have a good inventory.”
The sellers, however, aren’t the only ones sitting on the fence, says Farquer. Because of the uncertain economic and political climate, some buyers are waiting until November’s presidential election wraps up before investing in real estate or acquiring a practice, he says.
“Not much is going to change until after the election is over,” he says. “The end of November is probably going to spark some movement regardless of who gets elected because business owners just want to find out what’s going on.”
Another hitch on the practice acquisition front is actually obtaining a loan, Farquer says.
“The reality is that it’s still more difficult to get a loan as a veterinarian than it was three or four years ago,” he says. “And it appears that a lot of the policies now are a reflection of some of the policies that have been put in place with some of the banks in the consumer market.”
That means more conservative lending practices, duplicate requests for financial data and loan officers checking documentation with a fine-toothed comb, Farquer says. It also means a heftier down payment, he adds.
Many veterinarians have relatively little cash on hand but minimal revolving debt, and are looking for 100 percent financing—but that’s not happening too often in today’s economy, York says.
“It may be available, but it’s limited. Lenders want to see the seller carrying back something.”
Having the seller carry a percentage of the loan makes good business sense, York says.
“With practice acquisition, the primary thing you’re buying is good will,” he says. “And that good will is oftentimes tied to the seller. And so having the seller retain a financial interest in the future success of the business can be very beneficial.
“We have not had any transactions come across our desk where, if the seller is willing to work with the buyer, that we’ve had to decline the deal based on equity,” he adds.
The seller should expect to carry anywhere from 5 to 15 percent, Farquer says.
“Under current lending conditions, sellers should plan to participate in the financing of the practice,” he says, noting that the seller’s financials should be squeaky clean before a practice is put up for sale.
“You probably are not going to get 100 percent cash at closing, so you need to be prepared to probably carry some depending on the size and type of practice.”
In general, veterinarians who wish to obtain a loan aren’t having too much trouble, Murray says; Bank of America’s approval rate sits at about 75 to 80 percent. But applicants should be prepared before they head into their lender’s office.
“They should ask themselves if they are financially ready to look at a bank and make themselves look bankable,” he says. “Lenders are looking at someone’s personal financial statement as well as their credit score. You have to demonstrate the ability to save money, make good purchase decisions and be responsible borrowers.”
They should also have a solid business plan ready to go, understand the profitability of the practice they hope to buy and be prepared to show how they’ll generate revenue.
“What they need to know going in is whether the practice has had some decline in revenue,” he says. “If it’s only marginally profitable, it’s going to be challenging to get that loan and they’re going to have to treat the process much more like a startup. So they’ll need a clear financial plan and business plan describing what they’re going to do with this practice going forward.”