Financing with the Bank – Starting from Scratch
Shayan Rashid: Hi, I’m Shayan Rashid, a partner at SRJ Chartered Accountants. I’m joined by colleague Craig Gibson from Scotiabank Healthcare Banking. A lot of our clients ask us how to build a new practice or how to finance their practice. So, we brought Craig here today to discuss some of the options and how exactly it works with the bank. So, Craig, for the new associates, new doctors and dentists, when they’re looking to transition towards their own practice, they usually ask us in terms of, “How can I structure this deal?” or, “How does it work with the banks?” Maybe we can start off with some of the more basic questions. In terms of financing practice, how much would the bank cover?
Craig Gibson: So, if you’re going to start a practice from scratch as a new doctor or a new dentist, we can do up to 100% financing of anything related to the leaseholds and equipment on the practice. You provide us with budgets beforehand of how much you’re going to spend for equipment, how much for the premises and we can finance up to 100% of that including all the taxes.
Financing with the Bank – Existing Practice
Shayan Rashid: And how about for an existing practice that they’re looking to purchase from someone who is retiring?
Craig Gibson: That’s a very common scenario we get too. That would be usually done on an appraisal basis and there are quite a few large appraisal companies in Canada that provide appraisals to the bank and to the person buying the office. They would give us that along with a cash flow forecast, which they could talk with their accountant about putting together because the information we have in that appraisal is going to be mostly historical. So, we take those numbers plus the numbers that you as a new practitioner would add to that office and that’s how we can put together the loan approval for you based on the cash flow of what you’re going to add to this new dental office.
Shayan Rashid: Are there any specific terms with respect to the interest or any benefits in terms of the first couple of years that the bank can help with?
Craig Gibson: Yeah, with a new startup practice you can go up to two years of interest-only payments. So, you don’t make any principal payments towards your loan for the first two years and then you pay the loan over eight years thereafter. Even with somebody buying an existing office we can provide them up to a year’s interest-only financing on that too, to get used to how the cash flow from the practice works. The rates are as low as prime and all of our loans for purchases or for startups are based over ten years and they are all open loans. You can pay them as fast as you would like to.
Documentation for the Bank
Shayan Rashid: With respect to the documentation that is required by the physician or by the dentist, what specifically is the bank going to look for for a loan application?
Craig Gibson: So, for a brand-new startup practice, we always want a cash flow projection for at least two years, which the accountant can help put together with them, as well as a budget. We would also need information about the client, so their Fidelity personal network statement, two years’ tax returns. And that’s all you submit. If they’re purchasing a practice, it’s the same information along with the appraisal. We wouldn’t need a business plan because the appraisal would outline what the practice does. But, we would still need two years of accountant-prepared, forecasted statements to see what kind of income the practice would generate with a new owner in there.
Shayan Rashid: At what point would you recommend the physician or the dentist obtain other advisors, let’s say legal or real estate agents. At what point in the game would you expect them to obtain these advisors?
Craig Gibson: We would usually say from the get-go. They would be sometimes introduced to us from an accountant or we would introduce them to an accountant, and usually at that time they’re thinking about legal matters so get in touch with a good lawyer who’s experienced with dental or medical. Meet with a broker of selling practices, a supply rep who works in the industry to supply them with the equipment they would need, a leasing representative, a real estate person. I would say they would usually do it all within the same time span, but the earlier the better for the advice.
Shayan Rashid: That sounds good. Alright, I think that’s good in terms of the initial discussion when it comes to purchasing a new practice. If you have any questions for Craig, you can reach out to him directly about financing the practice. If you want to discuss setting up the corporation or even how the structure will be maintained, you can give us a shout at SRJ Chartered Accountants. Stay tuned for our next video which is going to discuss how to acquire property for your practice and a lot of useful tips from Craig in there as well.