If you are looking to purchase a chiropractic practice, undoubtedly you have seen classifieds advertising Chiropractic Practice For Sale with Owner Financing. Like many prospective buyers of a chiropractic office, this naturally catches your attention.
From a marketing or seller’s perspective, a “chiropractic practice for sale with owner financing” ad is designed to pique your interest in the business for sale. But beyond that what exactly does “Owner Financing” mean?
The challenge is that there can be different answers to that question depending on the perspective of the person asking it.
Perspectives on Chiropractic Practice for Sale With Owner Financing
Most Buyers believe (or are hoping) that Owner Financing means a zero down loan that is 100% financed by…the Owner.
Many Sellers think this is the case too. As a reaction, they will then say that they do not want to do ANY owner financing. Many chiropractors looking to sell their practice will state that Buyers must have “skin in the game” and that they do not want to be an Owner “carrying a note” or “carrying paper.”
As you can see, these two polar opposite perspectives can quickly emerge. The Buyer is hoping to get into the driver’s with no money down and have the Seller be the bank. The Owner of the practice for sale is hoping to get completely “cashed out” and not finance anything.
The Lender’s View on a Chiropractic Practice for Sale With Owner Financing
Interestingly enough, Banks have a slightly different variation on the “Owner Financing” theme. Certainly, they understand the above two extremes, but Lenders also recognize varying levels of owner financing as well – and they utilize different terms to describe it.
Unfortunately, most of these terms are either unknown or misunderstood by both buyers and sellers. Consequently, there are many sales that never happen because the parties involved did not understand all their options.
For example: In the Bank’s perspective, a “perfect” loan scenario is where the Buyer (with great credit, no debt, sufficient collateral and ample cash on hand) is able to make at least a 20% downpayment to purchase a business (which is fairly priced – or even undervalued) that has healthy cash flow, abundant tangible assets (either equipment or real estate or both), a stable track record of revenue, with a seasoned staff and flexible owner who is willing to help the transition.
It’s safe to say that, while the Bank’s “dream” scenario is desirable, it’s also not always easy to find. And the good news is that banks know that — thus, their willingness to discuss other options.
Variations on the Chiropractic Practice for Sale With Owner Financing Theme
The “Other Options” or variations on the Owner Financing theme (as recognized by banks) is often where we can strike a win-win deal between both the Buyer and the Seller. Here are a few examples of those variations:
If a strong Buyer has 10% down, the Bank may be willing to lend on the purchase with no Owner Financing required. So, even though the “perfect” purchase scenario may appear to be 20% down – the bank was willing to lend with only 10% down.
Let’s say a Buyer cannot come up with 10% down, but can contribute 5% of the purchase price towards the downpayment. Here, it is possible that a Bank will permit the Loan IF the Seller will agree to a “Carryback.” What exactly is a Carryback? Essentially, it is Partial Owner Financing!
Here’s how it would work: If the purchase price of the practice is $300,000 and the Buyer can only put 5% down ($15,000), the bank would ask the Seller to partially finance the Buyer by agreeing to a Seller Carryback of 5% ($15,000) in order to make the loan work. From the Bank’s perspective, they have reduced their loan amount by $30,000 (because they are not lending on the Buyer’s Downpayment or the Seller’s Carryback).
For the Buyer, this means that they can actually get a loan with a lower downpayment and/or purchase a larger practice than they previously thought. For the Seller, this means, upon closing, they would receive $285,000 (the Buyer’s $15k downpayment + a check for $270k from the bank loan) and they would receive the remainder of their sale price ($15,000) in payments over time from the Buyer.
**2023 UPDATE — with Seller financing, it is now possible to get an SBA loan to purchase with a downpayment as little as $0 — see our post here –> Zero Down Chiropractic Practices for Sale: How the New SBA Rules Can Go In Your Favor.**
Successfully Navigating the Chiropractic Practice For Sale With Owner Financing
Chiropractic practice sales fail for a number of reasons, but to succeed — especially with Owner Financing — here are a few vital points to remember:
Understanding Options is Key – When Sellers understand that there are variations of “Owner Financing” beyond the extreme zero down or 100% Owner Financed sales, this opens up more opportunities for interested buyers without increasing risk exponentially. When Buyers realize that these different varieties of Owner Financing are available, their ability to shop for many practices on the market also increases because they are not limited to 100% Owner Financed deals.
All Banks Are Not Created Equal: although the above scenarios with partial owner financing are certainly a possibility for lenders to consider, not all banks will propose or accept these solutions. It is a risk issue and at the heart of the matter is how each bank determines an “acceptible” level of risk. Furthermore, both Buyers and Sellers will find that some (or many) banks are somewhat biased against chiropractors and chiropractic loans for the same reason — risk. Many chiropractic buyers tend to have large student loans and the profit margins on the typical chiropractic practice may not be as attractive as other business ventures. This is where experience navigating the loan process becomes a critical factor in your purchase or sale success (if you need help in this area, we’d be happy to assist you – see below for more.)
Not All Owners Are Open to Owner Financing: Buyers also need to understand that not all Owners are open to Owner Financing — even partial. Some buyers get offended at this and take it personally; some cases are personal and some are not. More often, it may reflect the Owner’s needs for cash upon the sale. If an Owner is looking to retire, purchase a house, move or has some plans for the sale proceeds in the immediate future – the idea of Owner Financing even a small “Carryback” may not work with the numbers they need. Here, my best advice for Buyers is to seek out multiple banks. Often, we find that the same loan shopped at several banks produces different loan offers.
ONE BIG CHANGE TO OWNERS FINANCING
Not sure if you caught the potential impact of the new SBA loan criteria, but typically the #1 reason that a Buyer is interested in Owner Financing is the fact that they do not have the money for the downpayment to secure a loan. Rather than risk a 100% Owner Financed opportunity with no outside party involvement, this new SBA change would allow you to still pursue a practice with $0 downpayment. But the big difference is that the Seller gets 90% of their sale proceeds at closing. So this lowers the risk for the Seller (who fears they will not be paid and sometimes “puffs up” the price in the process) AND lowers the risk for you as Buyer (because now you have a third-party objective opinion on the value from the bank)!
This can be a definite “game changer” when it comes to considering Owner Financing – and a powerful tool in your toolbox to purchase an excellent practice.
Need to Learn More about Buying a Chiropractic Practice (& Loan Options)? Consider our FREE ON-DEMAND webinars and videos designed to help you learn more about buying or financing a chiropractic practice.
Need to FIND a Practice to Buy (Or an Associate Job or Ownership Opportunity)? Our FREE Practice Match service will help you do exactly that! Just fill out the form, tell us your interests and let us find you a great fit!
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