Bank Approvals

Everything you should know about bank approvals for dental practice purchases.

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Listen. You’re going to buy an awesome practice when the time comes, right? 

The problem is if the practice is awesome…you’re probably not the only interested buyer. Awesome practices are typically being looked at by more buyers than just little old you. 

You’ll have some competition. 

You need to stand out. And one way to stand out is to look ready to buy now

Looking ready and looking prepared to the seller and/or broker is key. This article will give you one tool in your toolbelt to maximize the chances that you look the best of all the buyers – a pre-approval letter from a bank.

I’ve talked elsewhere about 3 tips to effectively submit a letter of intent. I’ve seen those three tips work time and time again. They’re quick, easy, relatively subtle, and don’t take a ton of work. 

But having a pre-approval letter from a bank may be the extra little push at the finish line that makes your offer really stand out and be the one accepted by the seller.

Background on How Bank Pre-Approvals Work

The first thing to know about pre-approvals is that technically they don’t really exist. Not in a meaningful, legal way like they do with a home loan. 

When you get a pre-approval to buy a house, you go to a mortgage lender and they look at your financial situation and give you a letter that says “Brian is approved to buy a house with a loan up to $400,000.” You can then take that letter around and use it on any home purchase.

Business loans are different. 

Only 40% of a bank’s decision to lend money on a specific practice has to do with you specifically (your credit, your cash, production history, etc). The other 60% of the decision comes down to the practice itself. 

That means that there’s no generic letter that you can take around and use to buy any practice on the market. 

Each loan will be looked at individually and each practice could get different loan terms from a bank.

So What’s the Deal Then?

A pre-approval letter from a bank is actually just an email from a banker saying they’ve talked with you and don’t have big reservations.

A pre-approval letter from a bank is really no more than an email that says: “Hey broker & seller, I’m a real dental lender and I’ve talked with Dr. Hanks. He seemed like a normal dentist and human being and nothing he told me over the phone made me think he’d have any trouble getting a practice loan, as long as the practice is decent.”

That’s pretty much it.

There’s nothing really formal to it.

So Why Would I Want One, Then?

Why you’d want a pre-approval letter from a bank then, is that it:

  1. Shows you understand the process of buying a practice
  2. Have a good enough network of people to find a reputable name in lending
  3. Impressed the banker, who probably golfs with the broker anyway, enough to send an email on your behalf

The pre-approval letter is really a signal to a seller and broker that you’re a good buyer.

When I coach my clients, I tell them to reach out to one of the bigger name banks instead of a local bank for the pre-approval letter since it’s more likely that bank has a dental-only underwriting team and will be taken more seriously. Getting the best name in your market should be a piece of cake if you’re working with a dental-only accountant or dental-only attorney.

My last tip with these letters is to get one the same week that you submit the LOI. You don’t want a generic email from a big-name bank from 5 months ago since that defeats the purpose of the signal.

Use my 3 tips to effectively submit an LOI, include the pre-approval letter/email from a big-name dental-specific bank, and watch as all the other buyers jealously wonder why your offer was the one accepted!

Read More:

Should You Use a National or Local Bank in a Dental Transition?

This is How Many Banks You Should Shop for When Getting Your Dental Practice Loan

Identifying Habits of Successful Dental Practices | Negotiating a Dental Practice Purchase

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