How to Win Your Banker
Your banker is arguably one of your most important relationships when it comes to starting or acquiring a dental clinic. Therefore you want the relationship you develop with them to be excellent. A supportive banker that’s on your side is crucial to the career of any start-up dentalpreneur.
With that in mind, let’s go over what you expect and what you should pay attention to during the different stages of your loan—the application and managing your loan. And how to ensure that you don’t go offside with the bank.
Your loan application
Your loan application likely won’t be your first introduction to your banker, but it is the official kick-off of your business relationship—regardless of whether they approve it or not.
Which makes it an imperative time for you to show off not only what your clinic is about, but also where you see it going. And because it’s such a crucial step in the process of building or acquiring a clinic, here are a few tips for submitting a stellar loan application:
Be realistic with your numbers
First and foremost, you’re going to want to be realistic with your numbers. All of them. In this case, being realistic with your numbers is less about shaving dollars and cents off your application and more about not being too conservative when it comes to submitting your loan documents.
Typically when a new dentalpreneur is thinking about how much they want to borrow, they tend to be conservative with their loan number to make sure that they qualify. At this point, your numbers are an estimate. So, don’t be conservative.
When it comes down to it, if you’re including $1-million on your loan application to be conservative but your estimate actually to $1.2-million, that extra $0.2-million is unlikely to tip the scales. Though, a larger jump like $1-million to $1.7-million might cause for concern. So, be honest and don’t be too conservative.
The worst thing is that if you’re approved you might have overrun. When it comes to overruns, construction, equipment and the like, the bank will have more requirements and documentation. And, in some cases, they might deny the extra overruns and you might end up coming up with the difference yourself, which isn’t ideal.
When it comes down to it when you put in your loan application you want to make sure it is actually reflective of what you need.
Build a business plan
Your business plan is another important component of your loan application. It’s a document that needs to be both well-thought-out and is backed by experience. This is not a document that you can just whip up out of the blue and think you can secure a loan. The bank will do its due diligence, so you need to too!
Create an accurate forecast
While your business plan contains the budget and essentials for your clinic, the second important documentation you require for your bank loan application is your two or three-year cash flow forecast—you may want to enlist the help of your accountant for this one.
This is another document that needs to be as realistic as possible, so be upfront with the bank about your expectations. For example, if you are planning to spend $100,000 for marketing in year one, tell the bank that that’s your plan—it’s possible they might even give you part of that money in your loan, rather than you having to use your operating line of credit for it.
Making your loan application doesn’t have to be hard, just make sure to be accurate and honest with your bank. They know what to expect, and when it comes down to it they want to be on your side.
Managing your loan
Once you’ve secured your loan you need to manage it. And managing your loan means staying actively on top of things.
When it comes to due diligence, the bank will be very careful. Remember that cash flow forecast that the bank requires? The bank is unlikely to look at this unless they see signs where there is a huge deviation from the original forecast.
Let’s say the bank notices that the operating line of credit is maxed out, the bank will want to know why. Your line of credit should be revolving, and if it’s not that’s a problem.
So, the bank will go back and reference your forecast where the original projections are to try and identify the deviation. They’ll further want to know what the plan is to deal with this new reality, and might also ask for an updated forecast.
As market conditions get tighter banks will likely require more frequent in-house statements. For example, some banks may want to see the clinic performance on a quarterly basis rather than annual. This allows the banks to ensure that they don’t have a surprise at the end of the year when they go and revisit the financials just to make sure everything is OK.
How do you make sure you don’t get into problems with your lender?
Managing your finances is one thing, but you’ll want to take special care to ensure that you don’t get into problems with your bank or lender. Besides making sure you make all of the payments you’re supposed to, there are a few other things you can do to ensure you’re on the up-and-up with the lender.
Make sure your estimates are realistic
As we said in the beginning, you want to make sure that your estimates are realistic and reflect the plan you have. That will ensure both you and the bank are on the same page and there aren’t any surprises on either end.
Pay attention to your finances
You should have your eyes on your finances at all times. This means having monthly visibility on what’s going on in your cash flow and expenses. Staying on top of it will make your life and finances easier.
One of the warning signs for a lender is your operating line of credit getting close to 80 percent full and no coming down like a revolving line of credit should be. This will put them on alert that something is going wrong. So, you’ll want to make sure you’re cash-flow positive.
Use a top-notch accounting system
You need an accounting system. We don’t say that simply because we love accounting, but because it’s much-needed to manage your finances. A robust bookkeeping system will help you keep on top of your financial visibility on a timely basis.
Not only will your bank want to see this information from time-to-time, as the dentist and practise owner, but you’ll also want to know and see this before anyone else can. This way if there’s a big deviation from your plan, you’ll see what’s going on as soon as it happens.
Ask for help when and if you need it
Update your bank on your plans as they happen and alert them to any issues that arise. Keeping your lender in the know not only means that they know what’s happening, but they can also provide guidance along the way.
Avoid selling valuable equipment
Believe it or not, selling your clinic’s equipment (especially expensive stuff) can be a red flag to the bank because your assets are collateral for your loan.
So, if you sell a piece of equipment that’s has a significant value, it could put you offside with your bank. If there comes a reason to sell a valuable piece of equipment, it’s recommended that you notify the bank ahead of time.
Avoid getting into other agreements
Another red flag to the bank is getting into other agreements, like other leases or loans. You don’t want to be offside with your debt servicing ratio, the bank will look at this on an annual basis so you have to make sure that you’re not taking on more debt.
Managing your relationship with your lender
Managing your relationship with your lender is incredibly important. It’s one of the premier relationships that you’ll have as long as you have a loan.
Need help preparing your loan documents like your budget and forecast, or need someone to stay on top of your day-to-day finances? Find out how our Management package can help you and your clinic reach your goals and scale your business, book a meeting with us today!