This episode addresses how dental practice owners can navigate the financial challenge of a lack of cash flow associated with the ADA recommendation for dental offices to shut down. How can offices proceed as the end of the month nears, and bills such as rent are due? Banker Ryan Parker from Midfirst Bank discusses your various options such as borrowing, pulling from savings or using assets from the practice.
Various types of loans and sources of lending are discussed in depth as we review the difference between signature loans, secure loans, lines of credit and loans backed by real estate. Furthermore we discuss the SBA disaster loans for small businesses and the pros and cons of such a loan. With the uncertainty of when the market will normalize, the biggest advice is to be proactive. Open up communication with your banker. See about your option to get a partial or full deferment of payment on existing lines of credit. Talk to your landlord.
In this episode you will find solutions and suggestions on how to buy time by securing a few months of coverage should your practice need it. In this time of uncertainty, we understand how helpless you might feel, and our hope is that in this discussion we can give you some tools to actively plan for and protect your practice.
Full Transcript Below
Hey guys, this is Shawn and Allison here with the authentic dentist. And you know, we’ve been doing kind of a series on, you know, what to do with this COVID-19 crisis. You know, it’s impacting every industry, but we’re talking about how it’s affecting dentistry and what you can do. So in our previous episodes, if you miss those, we interviewed a labor law expert on kind of how, what your different options are for paying your team. And then in the other one we went over kind of like emotionally what you know, the mindset is to have during these times. And then the most recent one, it was about how these times are actually setting it up perfect for those that really have that desire to lead or be a hero like the stage is set for now. So if you haven’t heard any of those, go back and check them out. But today we have a special one where we have a banker expert Ryan Parker with mid first bank with us just to kind of answer some questions about finances and how we proceed forward. So welcome Ryan. Good to good to have you here.
Thank you Shawn. I appreciate the opportunity and for you taking the time to try to help out cause all of our customers.
Yeah, we really appreciate this Ryan. So this is Dr. House and I wanted to start off with just telling you a little bit about what’s happening. We, most dental offices are shut down with the exception of emergencies. So Sean was asking me does that mean I’m making like 10% of what I used to make? No. I billed $200 today, which is not enough to pay anyone. So it’s, it’s really stressful for all of us. And I’m wondering as the end of the month comes along and I have rent due, do you have any suggestions for how I should deal with that?
Sure. So that’s, that’s really the million dollar question for everyone right now. And it’s obviously hitting the dental industry very hard because you are by law, well not by law but by direction shut down. So it is top, there aren’t a lot of options outside of, and this is really what my guidance has been to any of my customers that I work with. I’ve been doing it for 20 years with small businesses. A lot of dental clients is to be proactive. So rent’s coming to talk to your landlord and see if he or she has gotten any deferment on their loan payment. Cause the landlord looking at you at the same way you’re looking at your customers saying, well I’ve got bills due. So the sooner you can coordinate with them and say, okay, have you gotten the deferment on your bills? Maybe I can get a deferment on my bill.
Cause the banks are working with customers, at least with their borrowings to try to help them through this time where the income, whether it’s the landlord or the dentist is either tightened or gone away. So be proactive and not that communication. And then it gets down. Then you can really outline what you really have to pay and then you can determine what you need. And once you know what you need, then you can start figuring out, okay, how am I going to get that money? Do I borrow it? But we can get into that later about some borrowing options or do I use my savings if I have that? Or other assets from the practice to cover those short term needs.
So I’m just going to ask specific questions about my situation because I think a lot of dentists are where I am. I have a line of credit that is about 8% right now. And I, I’m worried about making a payment on that. It’s not a whole lot of money, but it’s certainly money out that I feel like I don’t have, if I called my bank and asked for a deferment, would they at least discuss it with me?
I think they would. So I know mid first we are, we’re talking to every, every one of our customers that has a question or an issue where we’re definitely talking to them. The, the federal government, which ensures all of your FDAC insured banks. And then you have NCUA which covers your credit union. They have come out and given us the ability to defer, to defer payments for our customers without having to downgrade them. And that’s more of an internal term, but it gives us a little more flexibility while still maintaining good standing with, with our advisor, which is the FTSE or NCUA. So yes, the banks are open to talking about it now. However that is, it’s on a case by case basis. So just to make a phone call doesn’t mean it’s going to get approved. But yes, call your bank and look at options of either getting a partial deferment or a full deferment on those payments.
If you can get a deferment, great. That gives you some time. If you can’t get a deferment, your next option then is suddenly, like we talked about with rent and so forth, then you have to determine how am I going to cover this? And one of the options to cover it, there’s the SBA, which is a federal week sort of backed lending system. Small business administration is providing disaster relief loans up to $2 million for small businesses. So again, that is also on a case by case, and that is at a lower rate. So if you’re at 8% their rates are at 3.75. So that is quite a bit better. So in that situation, if you can’t get a deferment on your payments, you might look to say, Hey, why don’t I get a small business and SBA loan and that’s directly to sba.gov forward slash disaster. You can apply right there and just determine about what you need and they will process it and you should hear back within a few weeks.
Okay, well, so that’s my, every time I’ve ever dealt with the small business administration, it’s taken forever for ever to get anything done. Is that really a realistic option? If I have rent due next week?
So, and I don’t want to be biased, but I would go to the bank first because I’ve had the same experience. I know all the banks that I’ve worked for in the past have all been approved SBA lenders. But that doesn’t mean that anything happens fast and the SBA is overloaded. They’re not using their correspondent banks to help manage this process. So every one of these requests is all going to the same shop in Washington, which means they are way backed up. So normally when you apply for an SBA loan, you can apply through your bank and the bank can process it. Well the government has it open that up at this point in time. So they’re all going through Washington.
It seems like they’re creating a bottleneck on this.
They are. So I, I, I hate to say it, I have no idea when you’re going to hear back you can throw your application in any, by the time you hear back, it might be, you know, month, I don’t know. It may be a few days. I don’t know what they’re doing. So in that case, I would go to the, I go to your bank and maybe even try a couple other banks. Just say, Hey, what are my options? The longer you’ve been in business, the more history you have, the better your credit score, the easier it’s going to be for banks to, you know, put something in place. If you’re newer and shorter term and just getting out of school and just started your practice, obviously you’re going to have fewer options because you’re already going to have a pretty heavy load that you’re carrying.
You know, Ann and Alison and I, we talked about the uncertainty of people keep throwing around dates of like, you know, June. Some people are saying September, like they don’t really know when the market will normalize, you know, so even if if the ADA says, Hey, it’s fine now for you know, offices to open again because, you know, PPE, personal protective equipment is no longer in short supply. Well, it doesn’t mean that even the public is going to have money depending on what neighborhood you are in to be able to go to the dentist. Let’s say if it was just a routine cleaning, they may not see that as a priority if they’ve been out of a job for weeks or months. So just with the uncertainty of it, you know, starting the process maybe on an SBA loan, regardless of how long it might take, might not be a bad idea. Just to get that in play to see where it could hen just because of the uncertainty of the timeframe in front of people. You know? I would agree.
Ball rolling. Okay.
Yeah, that’s, I think, I think somebody could point. It’s not, there’s no, the only time when I would ever tell someone that hesitate on borrowing and when there’s an upfront fee for the application, if there’s no upfront fee, it doesn’t hurt you at all to go on there, fill out the form, take 20 minutes and at the end if the, if it comes back and you’re approved, but you found another route and you don’t need it, you don’t have to take the money.
So every time I’ve ever applied for a loan, they want to know my tax return for the last year. I haven’t filed my tax return. It doesn’t look like I’m going to be tiling I tax return for 2019 is that going to create problems for me?
Probably not. I mean we’re in a, we’re in March, so the attack, your tax return wouldn’t have been doing until April 15th anyway. Or, you know, on a different date depending on what type of LLC or corporation you are. So, but no, the bank would take what you have. So they probably take the previous two years or three years of tax returns and that your internally prepared company prepared financial statements for 2019 so that would be just your QuickBooks or whatever system you’re using to track your information and then come straight to the balance sheet. And that’s what they do.
So it might sound like common sense, but is the kind of line of thinking here that whatever wherever you can borrow with the lowest interest rate is a good idea. So if you’re having a lot of debt on a credit card right now at 16 or 18%, it’d be better to have it on a line of credit at 8% or even better on a loan at three, you know, 3.75% right. Like is the point to try and borrow wherever you can at the lowest interest rate? Like again, I know that may sound like common sense, but
No, that’s a great question. I think the hardest decision that most you know, are the good people in our country that are business owners are trying to make is can I afford to pay my people? And once you’ve decided whether you can or you can’t, then the decision is what do I need to maintain my business at the level I’ve chosen to maintain it. And then that then it becomes a question of yeah, get the cheapest money you can try to find it the cheapest way you can. Even if, you know, options are always better than no options. So I would say even if you’ve got family members that maybe could possibly help and you’d say, Hey look, can I borrow a little bit of money from me from the short term? And they get you paid back, give yourself options. Cause if you don’t hear from the SBA for a while or a few, it’s taking your bank longer and you need to keep your business open, give yourself options so you can choose rather than not have a choice.
So just even in the banking kind of world right now, Ryan, are there any creative options that certain banks are kind of coming up with? And are there any cautions that you’d have about some stuff that you think maybe people need to steer clear from?
So always steer clear from the predatory lending and despite the rules and laws that have come out to try to protect the consumer from predatory lending, it still exists. You’ll see those, you’ll get a letter in the mail that says, Hey, come and borrow from us. We’ll give you up to a hundred thousand dollars on your signature. Read the spy, read the fine print. Those are usually the highest interest rate loans out there. So read the fine print, make sure you understand the rate. And the term number two banks not, aren’t necessarily getting creative cause there’s not a lot of creativity that they can throw at the problem, but they are trying to do whatever they can for their customer. So your current bank who you bank with is going to be most likely the best place to start because they know you, they have a checking account, they may already have some Wells with you so they have a vested interest in your success.
No bank, no bank ever wants to come and collect on debt that the could not repay. It is always better for the bank to work with the customer and find a way to get that money paid back even if it takes longer than originally anticipated. So let’s start with your bank first and then secondly, look at maybe some outside options and then determine where to go from there. But watch out for the predatory stuff. Anything that says, Hey, just your signature. Those are going to be high interest rate, very short term. And if you miss a payment, those are going to jump from 10 to maybe 2020 5% so be very careful with credit card and the signature loan. I’d always, I’d always recommend bank debt, family debt, or even SBA debt over something like that.
So can you tell me what a high interest rate is versus a low interest rate? I mean, obviously 20% sounds ridiculous, but I don’t really know where eight and three I don’t know where they lie and in today’s market.
Sure. So it depends on the product. So a credit card product is typically 15 to 30% those are very high interest rate loans, but because they’re unsecure, meaning there’s no collateral backing, then there’s no building, there’s no asset that backs them up. In the case that you can’t pay, they totally come to try to Sue you. So those are the higher interest rate loans. Those are also those signature loans I was talking about where you get a letter in the mail says, Hey, call us. You can get up to 30 50 a hundred thousand dollars just on your signature. Same type of product, unsecured, therefore higher rate, higher risk to the lender is going to equal to a higher rate for the borrower. The next level down is a secured loan and secured loans can be backed by the equipment in your office. That’s where you, those are the type of financing you receive on your, your chairs, your dental equipment, all of those types of things.
And those can range depending on your rates on those can be higher or lower depending on the loan to value on the collateral and then the risk of the bank perceived to be inherent in the loan or in you as the borrower. So those are, those are pretty, those are high in the range. Those are going to probably be anywhere from three to 4% up to you know, eight to 10%. You also have lines of credit, which are the interest only loans. Typically they’re one year. It’s a, it’s a, it’s an ability for you to go borrow money on a whim once you’re approved and then you pay interest only until the end of the year. And then you either renew the lineup for another year or you pay the balance off at the end of the year or when you come into some money. And those typically most banks float on an index and the most common index is the prime rate.
And you can look at the prime rate at any given time and just type in wall street journal prime into your Google search engine and it will pull up what the current prime rate is. Today I believe is 3.75% and banks on your line of credit are typically prime plus. So you’re gonna need to be prime plus a quarter point half a point or maybe prime plus two or 3% so prime is at 3.75 and you’ve got a rate of prime plus three your rate today is 6.752 you’re paying 6.75% interest. The nice news about those primary prime base loads is prime has dropped by a point and half in the last few weeks as the fed has taken. So quick measures to save some money and then your lowest typically lowest rates stuff is the stuff that’s backed by real estate. So if you have a line of credit against your real estate or a loan against your real estate, but the line of credit from a traditional bank line of credit is probably your lowest interest rate borrowings that you can have at this point in time. It’s going to take too long to do a real estate line of credit that’s going to connect to an appraisal and so forth. So those are going to take at least a few weeks. You’re probably your quickest option is the Atlanta credit from your existing bank probably going to be the lowest rate as well.
So Ryan, because of the prime rates dropping my neighbor’s wife she’s doing mortgages right now and I heard a lot of people are refinancing. Is there a chance that, because of equity, you know, they could find some, some money there just to kind of help them, you know, during this time.
Yeah. So if you have equity in your home and please note that, so residential term notes don’t follow directly with the primary prime rate. It’s a reflection of short term borrowing and we’re looking at on the longterm bar. So it’s going to be a little bit different. So make sure when you’re talking to someone, you talk about that. But yes, if you have good equity in your home, it would be pretty quick because some of those, I think less than a few hundred thousand dollars you can get what’s called a drive by appraisal. So they’re much quicker and they’re still compliant and you can get access to the equity in your home and those are pretty good rates. So talk to your bank. That’s going to be then real estate secured. So it’s going to be less risk for your bank. So you should get a better rate. So you should be in that lower range, that three to 5% range.
So Brian, but you’re talking about some mixing of my home things with my business, things that doesn’t sound like a good idea.
Great question. And something you ought to think about. So the way you would do it structurally, you could talk to your CPA. So I would encourage anyone to talk to their CPA or any legal counsel. They have to make sure that it’s done right. But in that sense as an individual, you could borrow against your home, you would then lend that money to your business and the business within repay you in the business. Cashflow gets gets back if it does. And then, but just make sure, yes, that there aren’t any consequences of cone, they call it commingling of funds and so forth. It’s done all the time. So for most probably 80 to 90% of businesses that’s okay. It’d be just basically an infusion of cash from the owner to the business, but you just want to make sure you structure it correctly so that and your CPA go to coach you on how to do that.
And I brought it up, not as like I’m good general wisdom, but more like, I don’t know, the emergency that some young dentists might be in where they, this, this isn’t like a, Oh, I think we’ll be able to get through this because I have a mature practice, I have lots of savings, I have investments. This is like a, this could tank my practice. And if I’m looking at emergency options to find financing or to find some money, you know, if someone owns a practice, maybe they haven’t looked to see if there’s equity in their practice, you know, then the actual building, not the, you know, in the real estate. I’m just trying to think of ways that they might not be thinking about to find some funds. Yeah, I’m just,
Great question. There are, there are banks out there that do equity financing on the practice value, so you can borrow money against the value of your practice. Most people that have already bought a practice know at that point because you needed to get a loan to buy the practice. But if you’ve had that practice for a few years, you can tap into the equity that you’ve now built up in the practice and get an equity loan. It’s not real estate back that’s backed by the equity in the practice. So that’s a little bit higher risk of the rate’s not going to be the lowest, but it will still be very competitive.
So I don’t know what you mean by equity in my practice. I’ve been practicing for 18 years. What is, what does the equity,
Sure. So your practice has value based upon the patients that you see, the consistency of the revenue, the name that you’ve built for yourself in the market. And there’s a value to that. And that’s called the value of your practice. So if you were to, you’ve owned it for 18 years, if you were to turn around and tell your practice today, you could get an actual valuation on the practice and determine what, what you should sell it for. So when I say equity, that’s the value you’ve created. So most likely after having owned your practice for 18 years, you would not have any traditional practice debt, which is good. So if you, when you need money, you could go and get a loan against the practice that equity and value you’ve created.
But again, someone’s going to have to come in and value with the practice. It’s not like they’re just give a number.
Yeah. You know that. Good point. You can’t just give a number, but most businesses are not, I don’t hate Kelly. I don’t want to be too optimistic. But I’m hoping the world, we’re looking for a few months of coverage here, meaning that there’s no way that you’re going to mean your most dental practices that have been around as long as yours are going to be alerts worth at least half a million dollars or more or significantly more. And so you’re looking at maybe you need 100,000 so you’re, you probably wouldn’t even need a practice valuation at that point. It’s low enough against the practice that you, you w they wouldn’t require evaluation to get you a line of credit or, or even a loan against the prac.
And this is a conversation that practice owners need to be having with their existing bankers that they hopefully are having have already had a good relationship with her. Correct?
Yeah. That’s why I started. Yes. Because those, those are the, those banks have a vested interest in the success of your practice.
But there are others out there. So the larger banks are the ones that typically have been in. I know, I don’t want to list off names here, but the, I know a number of the large banks do practice finance loans.
Okay. Ryan, do you know if there’s any legislation coming down the pipeline that is going to bring any sort of relief? [inaudible]
Boy, I wish I, I don’t know. I read the news just like everybody else does. I’m hoping that they can get through their challenges. I think right now the current stimulus is held up because a lot of congressmen on both sides are trying to throw in that projects to the stimulus view. The stimulus bill, which I, me as a traditional American really frustrates me. Let’s just take care of our people. So because of that, I don’t know when they’re going to agree, but that is coming down. They’ve already, you know, they’ve already made it possible for banks to adjust their loans without having to hurt our, our credit ratings with the federal agencies, which has given us flexibility. So that’s step one. The SBA has already, it’s already funded. They’ve already funded those disaster loans from what I understand. So that legislation is through. So now we’re just waiting on the actual stimulus that should go directly to individuals who’ve been laid off or they need the money as well as business owners. I’m watching very closely to see if they’ll get some money directly to business owners, which I think they should.
So just to kind of recap it sounds like you’re saying it’s good to be proactive and it doesn’t hurt to just contact your banker and say, Hey, what, what are my options? What can we do based off of our history based off of the value of my practice? Based off of the situation I’m in. And it sounds to me like you’re saying Pinker’s are trying to do their best to do this on a case by case basis just to, to be flexible. And while that’s not true of every institution, it is true of mid first bank. So Ryan, if someone wanted to get in contact with you what would it be the best way for them to do that?
Sure. I’d say the easiest way is just send me an email because we are, we’re a, we’re a necessary business or we’re all working, even though you don’t see us in our branches right now, we just, we have skeleton staff just for safety issues, but I’m working from home, so I send me an email. Ryan dot. Parker, so R, Y a N. Dot P a R K E R at [inaudible] dot com M I D F, I R S t.com. And yes, we are, we are us and I know all of my other friends who work at other banks. We are actively trying to do whatever we can to help our customers. And we are a little bit lighter on some of our work because our business owners are just trying to keep their business open. Most of them are talking about new loads at this point, so they should have time. Your bankers should be able to get back to you same day to say, Hey, let’s, let’s talk, let’s see what we can do and try to find a solution.
Okay. So the authentic Dennis, we’re here based in Phoenix. But our listeners are nationwide. Ryan, what is the reach of mid mid first.
So we’re primarily Western us where we’re, we’re based out of Oklahoma and we’re very heavy in the Midwest of Western us. We don’t have any East coast presence. But I’m happy to give whatever guidance I have. I’m happy to take five minutes to share what I can. I mean, the good thing that, the wonderful thing that I’ve seen through this, I think everyone in the community is trying to step up and help. It’s just not a good situation for anybody. So I’ll, I’m happy to get five or 10 minutes to anybody that needs it. Feel free to send me an email. We’ll find it. We’ll either I’ll call you right back or we’ll set up the time to talk.
That is so appreciated. We have a lot of listeners that are scared. I’m pretty scared, so we appreciate anything you can do any to make
This time a little bit easier on us. Thank you.
No, I get it. Absolutely. I, I’m, I, I’m, I have to admit I’m lucky. I’m grateful to have a role where I’m, I’m not as affected by it, so least I could do with help. So please let me know. Let me know what I can do.
Awesome. Well, Hey, thanks so much for your time today, Ryan. You’re very welcome. Thank you both. All right. You bet.
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