In the past when an owner sold a veterinary practice, it was customary for them to also finance the purchase. Today, obtaining financing for the practice purchase and real estate involved is generally not a problem because unlike 10-20 years ago, commercial lenders are eager to finance these deals.
Commercial lenders and specialty lenders view practices as very durable loans. The Small Business Administrator, an independent government agency, indicates that veterinary practice loans are at the “lowest risk” category when viewed against other businesses.
These commercial and specialty lenders are familiar with veterinary practice business models. They understand what can work to help veterinarians succeed financially. Many loans can be obtained for long-term financing up to 25 years.
Not all money is the same
There are two types of loans or financing: equity and debt financing. When looking for money, you must consider the practice debt-to-equity ratio, which is the relation between dollars you are going to borrow and dollars you are going to invest in the practice you are going to buy. If the practice has a high ratio of equity-to-debt, then the lending institutions look at these types of loans very favorably. The good news is that very few buyers have equity to invest in the practice themselves; thus, lenders are accustomed to lending or granting loans that are high debt-to-equity loans.
TPSG brokers work closely with these lenders that are comfortable with high debt-to-equity loans.
In fact, most of these loans fall into the category of cash flow lending. These lenders understand that the most valuable aspect of the practice is the cash flow that it generates, not the physical asset listed in the purchase agreement.