How to get a bank loan to buy a business
If you have a medical license you are in luck. Banks are aggressively pursuing this portfolio and will compete to get your business.
- Wells fargo’s practice finance division in Emeryville CA (was matsco years ago)
- Bank of America has a practice solutions division
- Both of those banks loan on the current cash flow of the business you are looking at; so if it doesn’t have cash flow you aren’t going to get a loan
- Good credit scores are a must 700+
- They offer start up financing of around $600,000 if you want to start from scratch
- Check with the bank that currently handles the practice’s deposits
I tend to stay away from banks that have what I call “branch authority”. Sometimes branches of large banks have the ability to loan at the branch level, the problem with this is that the manager also approves loans for sandwich shops, and car washes. So this loan officer won’t have a streamlined process to get you in and out of the system (you are treated like anyone else). Here is this conversation in a video that I just shot.
Bad Credit, but you have a medical license:
Be prepared to hear no a lot. You will be forced into 3 options if you have bad credit:
- Find a bank broker (I know a few people who shop loans to various banks)
- SBA (under 7.5M in revenue for Dentists and Optometrists)
- Seller Financing
No medical Degree:
SBA has a huge book called the sop, in it they have a table of what it takes to remain small:
Law office under $11M in revenue
CPA firms under $20.5M in revenue
New car dealers under 200 employees
Used car dealers revenue under $25M
Supermarkets under $32.5M
Liquor stores, drinking places, full service restaurants, barber shops, beauty salons under $7.5M
Let’s talk about the SBA 7(a)
Run and backed by the government. So the bank that loans you the money gets to transfer the risk of the loan to the government. The govt takes the loan the bank gets credit for “selling it” and they will collect the payments. For the government to take this deal the bank needs to jump through all of the hoops in the SOP book.
Is it over $250,000 in value (not including real estate)? You need an appraisal
Are family members involved? If yes you need an appraisal
The appraiser must be hired directly by the lender, and the report prepared specifically for the lender.
Who can appraise the business for an SBA loan?
A broker did an appraisal surely that’s good enough right? NOPE SORRY!
The government only accepts qualified appraisers so:
Accredited Senior Appraisers (ASA) from the American Society of appraisers (I have this designation)
Certified Business appraiser (CBA) from Institute of business appraisers
Accredited business valuation (ABV) from AICPA (this also requires a CPA)
Certified valuation analysts (CVA) national association of CVA’s
If this part wasn’t clear, you need to pay for an additional appraisal to use SBA financing. Even if you had a qualified appraiser prepare the valuation you used to negotiate the purchase, the bank needs a separate one for their paperwork. As an appraiser, I’m not allowed to just change the name of the client from you to the bank. I don’t need to start from scratch, but I need to start a new file and work through it as if the bank was a brand new client. Fortunately when it comes time to crunch the numbers, well that parts already done.