Agenda Live Oak Bank History – Why Lend to Dentists? Debunk “Student Debt Myth” – Brown down typical loan structure – Explain how we view your student debt – Student debt’s impact on ownership Discuss Practice Ownership – What will I need as I get closer to owning? – Practice Purchase or Start Up – Specific things any bank will ask of you Q&A
LOB History & Background Understanding Who We Are –Connotations of the word “bank” Live Oak Bank began lending in 2008 in Wilmington, NC –Right before the financial collapse Built to be a Niche Bank – unique concept – “Weird” –Only lend to 4 Industries –2nd largest originator of small business loans in the U.S. –We will do 100MM in dental loans in 2013 –LOB has lent over 1 billion to these industries in last 4 years Live Oak Bank Dental Portfolio –Originated 350MM in loans to dentists since 2010 –We get the awesome opportunity to finance the American Dream
Financing Requests We See Every Day Coast to coast we have seen all types of debt, practice structure, and nuances of the dental industry 4 different types of financing opportunities: 1.Practice Acquisition 2.Start Up 3.Expansion / Relocation 4.Refinance
Pick Industries With Low Defaults 7(a) and 504 Combined Loan Performance by NAICS PORTFOLIO PERFORMANCE DATA BY NAICS CODES is based on Loans Approved from 10-1-00 thru 9-30- 10 Which have a NAICS Code and which were Disbursed by 9-30-10, Redacted to 10 or More Disbursed Loans Disb#Disb$Failure%ChrgOff% 541940--Veterinary Services4,416$2,183,1224.80%0.59% 621210--Offices of Dentists10,412$3,661,0385.55%0.83% 621320--Offices of Optometrists2,259$480,5756.60%0.99% 721110--Hotels (except Casino Hotels) and Motels9,376$8,249,3387.02%0.61% 812210--Funeral Homes and Funeral Services1,437$588,5547.31%0.44% 621340--Offices of Physical, Occupational and Speech Therapists, and Audiologists 2,580$475,7417.36%1.49% 621111--Offices of Physicians (except Mental Health Specialists)9,343$2,844,1587.46%0.97% 446110--Pharmacies and Drug Stores1,942$573,4518.91%0.94% 541110--Offices of Lawyers6,246$1,058,87010.13%1.24% 541330--Engineering Services4,130$967,80310.63%2.02%
Why else? Historic Low Default Rate No Customer Concentration No Foreign Competition Barrier To Entry Stable Cash Flow
$250,000 of Student Debt - American Dream? One of the biggest myths we hear revolves around student debt: “I know you won’t finance me now because I have $250K in student debt……” “How much of my student debt to I have to pay off before you would finance me the money to buy a clinic.” “I know I’ve got to get really aggressive after school to pay off my student debt so I can own a practice.”
Lets Clarify Student Debt How do we view your student? What kind of effect does it have on practice ownership? What should be important to you now if you want to own? Let’s take a look at a couple typical loan requests that we see every day…
Sample Loan Request – Practice Purchase Male DDS, 29 years old, 3 years of experience as an associate dentist. He has $15,000 in cash, $180,000 of student debt, a negative net worth, and a 740 personal credit score. He is buying an existing practice for $510,000 – Adding into loan another 110K for working capital and closing costs (total project 620K) The practice generated $700,000 in revenue last year with $225,000 of pretax cash flow before owner’s compensation and debt payment. 11
Details of this Loan Structure 12 BANK LOAN $560,000 10 year SBA 7(a) Interest Rate of 6% $6,217 Monthly Payment $74,605 Yearly Payment
Details of this Loan Structure 13 Note To Seller Note To Seller $50,000 10-year Note Subordinated to Live Oak’s Note Interest Rate of 7.5% $593 Monthly Payment $7,122 Yearly Payment
Details of this Loan Structure 14 Borrower to inject $10,000 From: personal funds, friends, family etc.. **Little skin in the game
Details of this Loan Structure 15 Educational Debt Educational Debt $180,000 25-year Repayment Term Interest Rate of 6.8% $1,249 Monthly Payment $14,991 Yearly Payment
Sample Loan Request – Start Up Female DDS, 31 years old, 5 years of experience as an associate dentist. She has $19,000 in cash, $220,000 of student debt, a negative net worth, and a 723 personal credit score. She is starting a practice in a lease space She will need $150,000 Construction, $150,000 Equipment, and $75,000 Working Capital She will continue to associate 2-3 days per week as she starts up earning $500 per day ($1,500 per week) 17
Details of this Loan Structure 18 BANK LOAN $375,000 10 year SBA 7(a) Interest Rate of 6% $4,163 Monthly Payment $49,900 Yearly Payment
Details of this Loan Structure 19 Educational Debt Educational Debt $220,000 25-year Repayment Term Interest Rate of 6.8% $1,541 Monthly Payment $18,490 Yearly Payment
Not Complex - Cash Flow Lenders Boils down to 2 crucial factors: 1.Can you pay yourself a comfortable salary? 2.Can you pay your loan payments? -If so, and there’s a cushion left over. We will do that deal all day long!
What specific things will we need from you to evaluate a loan request? Remember the 4 types of loan requests we receive –Practice Acquisition –Start up –Expansion –Refinance Depending on what type of request, will determine what we would ask for Lets just use the example we used earlier of a practice acquisition. What would we need and why?
What the bank needs and WHY… Three years personal tax returns Personal Financial Statement Resume Three years business tax returns Interim P/L and Balance sheet on business Review Historical Income Evaluate personal assets/liabilities Understand experience/leadership Historical repayment ability Current operations of practice
You feel good about the numbers But what about….. The Transition? You see positive things, you like the location, but now its time to take a deeper look Demographics –What is happening in the neighborhood? –Competitors, who, how close, how aggressive? Existing Staff Operating Margins - Typically well managed practices run about 35% General Dentist - In other words – Efficiency of the practice. Existing Problems or benefits will become YOURS.
Be prepared to walk away You are buying, or starting your future and building an asset. You need to justify the price with numbers and be willing to walk away if it is too high. We see emotions – practices that dentists grew up in, but the selling dentist is asking too much. They buy the practice and fail because they have too much debt and not enough revenue no matter HOW hard they work. Location is great, but Lease terms are too expensive BE PATIENT. Sometimes the best deal is the one you didn’t do.
What will benefited the business from this point on… High visibility, physical and online. Positive energy, be a leader. Maximize the areas of revenue that generate the most profit. Understand your P/L and B/S. Find a financial coach. Don’t suggest, sell, if you believe in it! Locate in the best demographic areas: high income, low unemployment, rapid growth, and few competitors.
What should matter to you right now? Credit Score –Make your payments, that means more than the AMOUNT you owe Business Acumen –Educate yourself on the side, mentors, build management skills Build your people skills –You are in the people business OPTIMISM!!! YOU CAN OWN A BUSINESS!