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Ask the Expert: Will my student loan debt impact my ability to secure a practice finance loan?

February 13, 2020

By Christine Olmstead Lopez, CHFP, BMO Harris Bank

Dear Christine: I graduated four years ago, and I am considering buying my first practice. However, I am carrying so much student loan debt that the idea of taking on even more in my professional life is daunting. Will a bank even say yes to me, anyway? – Highly Leveraged

Dear Highly Leveraged
: It is true that buying an existing practice will likely require you to borrow money. Though the process may seem daunting, rest assured that it doesn’t have to be. And like student loans, borrowing money to acquire a practice can be viewed as an investment in your future.

First of all, your situation is hardly unique. Although it can be unnerving, having high student loan debt is the norm: According to the American Dental Education Association, the 2018 class of dental school students graduated with $285,184 in debt, on average.

So, carrying student debt does not preclude you from obtaining a loan. In fact, it makes you a typical first-time practice owner. In this case, where do you start? The recommended course of action is to work with a lender to help determine how much you can borrow.

BMO HarrisYour lender will meet with you to better understand the practice you’re buying and gather key information: its history, how many patients it serves, what kind of staffing model it has, financial information, whether the seller plans to stay on for a period of time to help with the transition, and so forth.

With that, there’s a lot of self-evaluation involved, such as:
•    Determining how much of your savings you want to invest in the practice.
•    Evaluating your credit history, including your credit score and what type of debt (outside of student debt) you’re currently holding.
•    Assessing other personal needs, such as whether you plan to purchase a home in the near term.

These key questions will help the lender understand your full financial picture and arrive at an amount that will help ensure you have enough cash flow to cover a new practice loan and also finance your day-to-day living expenses.

A commercial banker since 2006, Ms. Olmstead Lopez advises mid- to large-size practices, leveraging her background in commercial credit underwriting and structuring, and providing industry-specific expertise and local market insight to add value, foster long-lasting relationships and — above all — helping dentists realize their vision for growth.

Editor’s note: This article is provided by BMO Harris Bank, the ADA Member Advantage-endorsed provider for practice financing. Call 1-833-276-6017 or visit bmoharris.com/dentists for more information.