Veterinary Lenders Eager to Do Business Veterinary Lenders Eager to Do Business cover stories, practice mgmt By Jessica Tremayne
Practice owners hoping to purchase, construct or expand in this economic environment won’t have much trouble finding a lender if they present a favorable portfolio.
And for some applicants this year, 100 percent financing isn’t out of the question.
How Do You Compare?
Veterinarians interested in knowing how they compare financially to colleagues locally and nationally can use a benchmarking tool on the National Commission on Veterinary Economic Issues website, NCVEI.org.
Jim Stephenson, DVM, president of Simmons Northeast, a Maine company specializing in veterinary practice appraisals and sales, recommends the service.
“Any veterinarian who is a member of the American Veterinary Medical Association or the American Animal Hospital Association can enter their financial information on the NCVEI site and find where they stand financially.”
Packaged Facts’ U.S. Pet Market Outlook 2010-11 study projected that growth in the veterinary industry over the next five years will outpace that of the pet food, pet supply and non-medical pet services.
“This report shows the veterinary industry will grow annually by about 9 percent,” Dr. Stephenson says. “It predicts veterinary medicine will account for more than $34 billion by 2014.” —J.T.
“We offer 100 percent financing,” says Cole Gillespie, senior vice president at Practice Solutions, a subsidiary of Bank of America. “While rates vary every week, we only offer fixed rates at the standard five to 15 years.
“It’s common that a veterinarian’s only experience with borrowing is from studentloans, a mortgage or car loan, so choosing a lender and loan specifics can be intimidating. A basic rule is to know your options. Not all loans are created equal.”
Finding a lender familiar with the veterinary industry often leads to better customer service, a shorter loan acceptance period and less stringent requirements.
Veterinaryloans.com, based in Cheyenne, Wyo., allows veterinarians to fill out an online form, the first step in a matchmaking process that potentially involves more than 200 lenders. The system minimizes footwork and makes banks compete to offer the best rate and overall deal.
“Veterinaryloans.com is a Lending Tree meets eHarmony,” says Byron Farquer, DVM, an advisory board member at Veterinaryloans.com.
“Banks can read the veterinarian’s profile and then choose to contact them with an offer,” Dr. Farquer says. “The first banks that veterinarians can choose to be contacted by are the ones known to have lending policies specifically for veterinarians–known internally as first-tier lenders. If no deals are made, the second tier of lenders will have access to the potential borrower’s information.”
The online matchmaker reported $5.66 million in veterinary loan requests in the first two weeks of May. For all of April, the company saw $7.01 million in loan requests, Farquer says.
“This lays a very positive outlook for veterinarians,” Farquer adds. “I see no indication that rates will reach the 10 percent mark this year, but right now they are at about 6.5 percent for Small Business Administration loans and 9.25 percent for conventional loans.”
Cash Flow or Collateral
Experts say that depending on a veterinarian’s borrowing experiences, he or she may be led to a local bank because of the lender’s familiarity and the geographical convenience. But the warm feelings may end, of course, if the unexpected happens and the practice’s finances falter.
“In general, veterinary lenders try to accommodate clients if they run into trouble,” says Gary I. Glassman, CPA, of Burzenski and Co., an accounting firm in Easthaven, Conn., that works with many veterinary practices. “They’ll help you come up with a format that will get the loan paid. Most veterinary lenders are cash-flow lenders, which take a little more risk than collateral lenders, which tend to be the local bank that asks what collateral you have in the event you default on the loan.”
Small Business Administration loans typically charge fees ranging from 0.3 to 3 percent of the loan amount, Glassman says. These fees have temporarily been waived on a month-to-month basis as part of the U.S. government’s stimulus package.
“The market has been driven by SBA loans for a long time, so veterinarians instinctively go for those,” Gillespie says. “Our division doesn’t offer SBA loans, but we do offer alternatives. We have individualized loan models for expanding a practice, refinancing, relocating, acquiring and starting a new practice.”
Speaking generally, Gillespie says a veterinarian practicing for four years without a lot of debt and with a good loan payment history would be eligible for a $400,000 loan. Anyone thinking about a loan should investigate now, he says.
“We’re at the lowest point for rates right now and the only place to go is up,” Glassman says. “Rates are competitive and will probably creep up during 2010. Variable rates are good today, but it depends on how much of a risk you are willing to take.”
Jim Mahan, vice president and director of marketing at Live Oak Bank, says a typical practice loan through the Wilmington, N.C., lender would be prime plus 1.75 or 2 percent, depending on the veterinarian’s credit strength.
“A start-up practice with strong credit would entail more need for buyer equity,” Mahan says. “The bank may finance
75 to 80 percent, but that has to be strong. An existing practice that is trending up in its financials is easier to finance and could be as a high as 90 percent. A vet with average credit can find a loan. No doubt.
“Poor credit is a killer,” he says. “Students and associates need to pay everything on time and not worry about paying off everything right now. Just be smart, pay on time and a business opportunity will surface. Veterinarians need their personal credit to look right because no banks—none—will risk lending to someone with shaky credit right now.”
Glassman says veterinary revenue is edging upward.
“We’ve seen quarterly stats, from January to March 2010, in which many practices are seeing an increase of 1.9 percent but a decrease in the number of invoices by 1.34 percent,” he says. “While 2009 ended relatively flat, with 1.2 percent growth for the typical small private practice, the growth can’t compare to the 5 percent growth of days past.”
To be sure, not every veterinary applicant is going to qualify for a low-rate loan, says Veterinaryloans.com’s Farquer.
“For the first time in my 10-year exposure to veterinary borrowers, there is a significant drop in borrower worthiness,” he says. “It used to be that veterinarians had stellar credit and it was shocking to hear a bank say it wouldn’t finance a loan—it might have happened once a year. Now it’s seen with more frequency, and even pharmaceutical companies and medical distributors are saying veterinarians can’t pay their accounts.”
Farquer says banks don’t want potential applicants to prejudge their loan worthiness.
“Banks want a chance to work with you,” he says. “Fluctuating financial strength is just one of the changes being observed now. More veterinarians are having credit problems and it’s more important than ever to protect good credit.”
Another trend in veterinary lending is a requirement that a practice seller carry part of the bank note, Farquer says.
“Banks are still fearful of loans going bad and are requesting some investment by the seller and requiring a larger down payment,” Farquer says. “Veterinary associates and relief veterinarians losing their jobs due to the economy may have added to the number of veterinarians looking to buy a practice.”
Gavin Shea, director of Partner Services at Matsco, a Wells Fargo company, says the bank has noted a decline in practice acquisitions, not so much because of a lack of buyers but more from a shortage of quality practices available for purchase.
“We suspect that as the economy struggles, potential sellers are choosing to stay in practice and defer their retirement,” Shea says. “Now, more than ever before, we are looking at declining revenues as a key area of focus as lenders seek to understand whether a practice can make their payments.”
The veterinary industry has been labeled recession-proof in the past, but Shea says the depiction isn’t accurate or fair.
“To label any industry as recession-resistant or recession-proof would be a disservice to the individual business owner, as it might prevent [him] from examining potential risks that he could have otherwise managed,” Shea says. “Understanding the impact a recession is having on the practice owner’s surrounding community is a much more productive examination that an practice owner should be focusing on.”
Tom A. McFerson, CPA, ABV, of Gatto McFerson, a veterinary financial consulting firm in Santa Monica, Calif., says the first quarter of 2010 revealed less “skittishness” among veterinarians. They are more willing to make purchases after holding off in 2008 and 2009.
“Overall, I think things will continue to get better for veterinarians in 2010,” McFerson says. “In the 150 private and specialty practices that we track in California, we’re seeing more activity and interest in acquiring a practice loan.
“Many industries were hit harder in the recession than the veterinary industry, but among vet practices, newer ones seemed to suffer the most financially. The down economy really made veterinarians manage their practices more closely, and they will benefit from the experience for the rest of their time in practice.” <HOME>
This article first appeared in the July 2010 issue of Veterinary Practice News. Click here to become a subscriber.
Practice owners hoping to purchase, construct or expand in this economic environment won’t have much trouble finding a lender if they present a favorable portfolio.Practice owners hoping to purchase, construct or expand in this economic environment won’t have much trouble finding a lender if they present a favorable portfolio.veterinary lenders, finance, practice owners, veterinarians, banks