Navigating the First Steps: Securing a Bank Loan for Your Dental Startup
Starting a pediatric dental practice has been an exhilarating and occasionally nerve-wracking endeavor. One of the most crucial and intimidating steps in the early stages of this journey was securing a bank loan. While most dentists may think they know what to expect when applying for a business loan, there are some lesser-known yet highly important factors to consider. Today, I'm going to talk about three essential aspects that many might overlook.
1. Proof of Liquidity
Before a bank entrusts you with a significant sum, they want to be certain of your financial responsibility. They are not just looking at your credit score or your potential earnings; they want tangible proof that you aren't living paycheck to paycheck. This means that before you approach the bank, ensure you have a healthy amount of liquid funds in your bank account. During the loan application, the banks may request bank statements from recent months as proof of this liquidity.
It's worth noting that, irrespective of a startup venture, it's good practice to have an emergency fund covering 3 to 6 months' expenses in easily accessible funds (e.g. checking or savings account).
2. Life Insurance
Considering life insurance often brings a moment of pause, especially amidst the exhilaration of launching a fresh venture. However, a $1 million dollar life insurance policy isn't solely for your loved ones' security; it's a prerequisite for the bank as well. It's essential to recognize that the bank will require being named as a beneficiary on your policy, forming a financial safeguard for loan repayment. Thus, it's wise to act swiftly and secure a term life insurance policy while you're in good health. Delays might see future health concerns either disqualifying you from such policies or significantly inflating their costs. Making the move early can save potential future headaches and financial strain.
I personally got a 15-year term life insurance policy during residency in preparation for starting my practice.
3. Non-compete or Restrictive Covenant
If you are working for another practice, you might be bound by a non-compete or restrictive covenant clause in your employment contract. These clauses are designed to prevent employees from starting competing businesses within a certain radius for a specified period after leaving their job. The debate on the enforceability of non-compete clauses is ongoing. However, from my experience, if you're contemplating a startup, it's crucial to take these clauses seriously. When I was navigating my loan application, I was repeatedly asked to ensure that the area of interest and the intended lease location were outside of any non-compete radius from my previous employment. Banks are risk-averse, and potential legal entanglements only make your application less appealing.
If you have a specific location in mind for your dental startup, think twice before accepting an associate position in that same vicinity. Considering a slightly farther commute to a neighboring town might be a worthwhile trade-off when you eventually decide to launch your own practice.
