1. "Can I still sell my practice?" My standard answer to that question is "I don’t know" as there are many questions that need to be answered before an accurate answer can be given. I will say this: you are as likely to be able to sell your practice today as you were a year or two ago. Quality practices in good locations with good profitability will always be marketable. Price, days on market and terms may vary with the economy but the practice will sell.  

2. "Can a buyer still get the money to buy my practice?" The short answer is "yes, but…" Lenders are being a little more demanding about liquidity requirements which translate to mean that they don’t want buyers to be without any savings or outside credit source. Credit scores have always been very important in this process and probably more so today. Our closing agent, Jeff Wolff, will expand upon credit ratings and their effect on lender decisions in our next article.  

3. "Have the foreclosures in the real estate market had any effect on lending policies for dental practices?" I think I can say with some authority that the answer is "NO!" According to Joe DeNicola, the CEO of Bank of America’s Practice Solutions division, dental practice loans continue to have a default rate of less than 1%. And even those failures are usually attributable to major life issues or substance abuse. In our office, we have noticed a little more reluctance for practice acquisition lenders to get involved in the real estate portion of our deals, especially with young buyers. Refinancing a couple of years after the practice has changed hands appears to be less of a problem. Capital lenders who understand the practice acquisition market still consider their money to be relatively safe.  

4. "Have interest rates gone through the roof as a result of all of the bad economic news?" Money seems to still be a bargain at around 8%. Coming from a guy who paid 21% during the time a man named Jimmy was President, 8% seems pretty reasonable. Credit scores, buyer liquidity and the profile of the target practice will cause some variation in quoted rates.  

5. "As a buyer, is it risky getting into the market right now?" There is ALWAYS risk. As mentioned earlier, however, there are very few failures of dental practices and then usually for the reasons we discussed. There is risk of owning a practice, there are risks of being an associate, there are risks of starting a practice and there are risks of being out of the market altogether. I don’t believe there are any significantly greater risks today as practices in our market seem, in general, to be performing reasonably well.  

6. "Since my portfolio has taken a pretty good hit lately, is now a good time to sell my practice?" I have no way of knowing the answer to that question for any one in particular. There are reasons we offer pre-sale consultations and this is one of them. The marketability of a practice should always be the subject of careful analysis along with the expectation and post sale needs of the owner. I don’t believe that all of the current economic gyrations have made that any less necessary and common sense would suggest it may be even more critical.

I would summarize this issue with the following observations.

1.    Buyers are going to need some liquidity and a good credit score.

2.    Increased liquidity requirements may reduce the amount a buyer can borrow.

3.    Practice sale prices may drop as buyers’ access to credit is reduced.

4.    Sellers may have to carry a small percentage of the financing for larger practice sales.

5.    Sellers will need detailed prospectuses to present to Buyers and their lenders as those lenders want to keep their default rates low.  Along with that, underwriting will be very thorough.

6.    Practice profitability will be closely examined and smaller practices (revenues less than $350-400K) will be increasingly difficult to sell.  These practices may make great merger candidates, however.

7.    Rural practices will continue to be great economic opportunities.

8.    I know this sounds self-serving, but start-ups now represent the highest risk category and in most cases offer the slowest return on investment.  We will discuss this issue in considerable detail in a future article.

9.    Local lenders are generally not going to be able to help with a practice acquisition.  Many are leaving the marketplace. Bank regulators and underwriting guidelines have made it too difficult for them to include these specialty loans in their portfolios.