Some dental practice buyers may get a big head reading the stats that only 0.47% of dental loans go bad. They feel confident their loan is among the safest small business loans on the planet (true!).Maybe these same dentists have run the numbers and get cocky. They see the practice they’re buying will put hundreds of thousands of dollars a year in their pocket. It’s possible these dentists got some bad advice in a Facebook group and think the more banks at the table, the better.Whatever the reason, there are a lot of dental practice buyers who treat banks like contestants on the bachelor. They see themselves as the 28-year old supermodel with 30 good-looking, hunky banks all ready to do crazy things to earn their love and business. This mentality is a big mistake. Shopping more than two or three banks almost always leads to WORSE outcomes for the buyer. Higher rates. Higher fees. Worse terms. It’s counterintuitive, but you should only shop two banks for your dental practice loan. Maybe three banks in very special cases. Why?
Too Many Banks at the Table and No One Feels Special
Bankers know you’re probably going to shop your loan. They have to weigh the cost of trying to impress you and service your request against the cost of finding another dentist who needs a loan. One banker told me that on average, she and her team spend close to 10 hours with each prospective dental loan borrower. If the borrower goes with another bank, that’s time lost that could have been spent elsewhere. Bankers are always doing the mental calculation to figure out how likely they are to earn your business. If they know they’re being shopped against three, four, or an even higher number of banks, they know their chances of getting your business are low. As a result, none of the banks put their best foot forward. You get mediocre rate offers. You get middle-of-the-road fees and terms. You think you’re going to get the very best offer – then you end up worse off. But…If you have only two banks at the table, now it’s a race the banker can win. They’re highly incented to get you the best rate upfront, slash all the fees and throw in a few extra goodies like a few months of interest-only payments or waiving insurance requirements. On occasion, it can make sense to talk with a third bank. I wouldn’t do this unless you feel stuck with your first two banks or have an advisor telling you there are banks with better terms than you’re seeing with the first two.“But, Brian…I just won’t tell the other banks about each other,” you might say. To which I respond: “Ha.”
Assume the Bankers Know Everything and You’ll Be Right
Dental transitions is a small world. Dental lending is an even smaller world. The bankers, brokers, attorneys, and accountants all talk to each other. Chances are excellent that all the bankers you’re talking to know about each other. On top of it being a small world, credit inquiries show up on your credit report. The banks can see who else has pulled your credit. It’s not a secret. Just assume that the Bankers you’re talking with know about each other, and you’ll almost always be right.
There’s Real Value in Locking Down Financing Early
A hidden bonus to having fewer banks to choose between is that you’ll likely choose your lender earlier. Choosing your lender earlier in the process will bring you a great sense of relief. It can be stressful to talk to multiple banks and deal with multiple lenders and their credit teams. The dirty secret of dental practice financing is all of the niche lenders in the dental space have similar rates and terms. Choose a lender that works hard for you, is responsive, and provides you with an efficient and professional experience. Choosing your lender early in the process and will go a long way to ensuring a stress-free closing, something you won’t find to compare on a bank term sheet.
An Important Caveat to the Two-Banker Rule
This advice assumes you’ve done your homework and are talking with a reputable dental lender and the right banker at those banks. This means that you’ve asked around and have found two things:
A bank with a dedicated dental lending team with underwriters who only look at dental practices, and
The best banker for your area and that bank. The banker who has the most internal pull within their respective bureaucracy and can fast track your loan and get the very best pricing with the higher-ups.