Financing is the topic of conversation for this episode of the Veterinary Start-Up Practice Podcast in which Rob is joined by Doug Dries, a Senior Business Development Lending Consultant with Wells Fargo Healthcare Industries Group.

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Rob and Doug discuss the timing of when a veterinarian should establish a relationship with a lender during the start-up process, what lenders typically consider when evaluating a veterinarian for a practice loan, how lenders decide on loan amounts, and whether a veterinarian with student debt can expect to qualify for financing.

Over the past 22 years, Doug has been helping doctors start, grow and transition their practices.  With Wells Fargo, he specializes in lending to healthcare providers for practice start-ups, practice acquisitions, refinancing existing practice debt, expansions/relocations, and also offers equipment financing.

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See the full transcription below:
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Bumper  0:00  

Welcome to the veterinary startup practice podcast with Attorney Rob Montgomery, where Rob and his veterinary industry guests seek to demystify the process of starting up a veterinary practice. Since Rob is a lawyer, we need to tell you that this podcast is for informational purposes only, and shouldn't be considered legal advice. listening to this podcast does not and will not create an attorney client relationship. As is always the case, you should formally consult with legal counsel before proceeding with any legal matter. And now, here's Rob Montgomery.

Rob Montgomery  0:34  

Hello, everyone. I'm Rob Montgomery and welcome to the veterinary startup practice podcast where as we like to say we are seeking to demystify the process of starting a vet practice by bringing in experts and thought leaders from the veterinary world to talk about the startup process and what to do and sometimes even more importantly, what not to do. So today we are joined by a special guest, Doug Drees from Wells Fargo Bank. Doug is a Senior Business Development lending consultant with Wells Fargo healthcare industries group who covers the Pennsylvania New Jersey Delaware territory for the bank. And over the past 22 years, Doug has helped doctors start grow and transition their professional practices and with Wells Fargo. Doug specializes in lending to health care providers for practice startups, practice acquisitions, refinancing, existing practice debt, expansions, relocations, and also equipment financing. And Doug and his team really looked to get involved with the practice as a long term partner with their customers by offering product support and resources throughout the doctor's career. And I've had the pleasure of working with Doug on a number of deals with our mutual veterinary clients. Doug is really a great resource for those clients. And I'm excited to have him here today and really share his knowledge and expertise about what the lending world looks like when it comes time to get financing for the startup. So, without further ado, here's Doug Drees. Welcome, Doug, thanks for being on the show.

Doug Dries  2:17  

Thanks, Rob. I'm really excited about this and looking forward to trying to help.

Rob Montgomery  2:21  

Yeah, thanks. Thanks. Yeah, you know, we're really passionate, as you know about helping Doc's transition into practice ownership. And, of course, in the vet world and with other healthcare industries, you know, you have the option of doing an acquisition, or you're buying an existing practice, or, you know, these days, it's becoming more and more viable to essentially hang out a shingle, as you used to call it, and start up your own practice. So, obviously, folks, for most of you, most of us, it's very hard to start a business without a business loan. These are not inexpensive projects. So one of the important relationships that you need to have is with a banker, like Doug, and Wells Fargo, and so, Doug, when should vets who are thinking about startups engage with you?

Doug Dries  3:18  

Well, they should definitely get engaged with this early in the process, you want to make sure that you can qualify for a loan. And you know, that's the biggest piece of this, you know, unless you're independently wealthy, you're going to need the money from the bank.

Rob Montgomery  3:31  

Right? Yeah, absolutely. And few people are independently wealthy enough for that, for this kind of endeavor. And so, you know, when you say, right off the bat, are we are we saying? No, you know, there's several stages and several steps, you know, we were talking to, to equipment, salespeople, and consultants and realtors on the show. Are you thinking that people would be best served by reaching out to you before they've found a location for their practice? Or is it too late to reach out to you after they found their location?

Doug Dries  4:07  

Well, I would always suggest that they reach out to the bank prior to finding a location, a lot of times, landlords aren't going to want to negotiate a lease with somebody who's not pre qualified or qualified for the loan already. So I think it's really important to to get get the bank involved really early in the process, probably one of the first people you would want to reach out to, is the

Rob Montgomery  4:26  

bank. Yeah, I tend to agree with that, too. You know, for a number of factors. I mean, one, it also becomes a threshold issue. If for some reason, you can't get financing. It's good to know that at the outset before you spend a lot of time hiring professionals and working with realtors to help you find a space if you're not going to be able to to do the to do the project. So you know with that, you know there are several different ways that you can approach a start up and you can purchase As the real estate, and then build it out for your for your vet hospital, or you could lease an existing space or lease a retail space or an office space or a building, and then build it out. Also tell people a little bit about those different paths. And what that looks like from a financing standpoint talk.

Doug Dries  5:24  

Yeah, from a bank standpoint, it doesn't matter to us, we could help finance, real estate, if you choose to purchase the real estate, we can fit out on an existing space, you know, leased space, it really doesn't matter to us. I mean, we do need to know prior to us funding the loan. But we can do either one, I would say, most doctors have, I would say 80% or 85% of doctors that look to start a practice or leasing a space. But doesn't, doesn't say you can't can't purchase your own building and start from scratch in your own building.

Rob Montgomery  5:56  

Yeah. And I think that's kind of been a trend that's changed over the years, Doug, when I first started representing veterinarians, I felt like there was a little bit more of an aversion to leasing space than there is now I feel like a lot more practice owners felt like they had to buy the building and own the building, and then fit it out. Have you seen that over over your 22 years dug that trend?

Doug Dries  6:24  

Yeah, I would agree with that. Definitely. Yeah. You know, doctors, sometimes they don't want to invest into somebody else's building. Right. And I completely understand that. I mean, the cost of the leasehold improvements, and getting that space ready is rather expensive, you know. So that's why a lot of doctors are looking to purchase their own building, you know, and get started in their own building now.

Rob Montgomery  6:47  

Yeah, and I see that too. I am a big proponent, though, of finding the right real estate that optimizes your chances for success. So I feel like a lot of times people kind of over overthink and and give a little bit too much priority towards owning the real estate. To me, the most important thing is having your your your vet clinic in a place that is has the best demographics, it's the best location, it's the easiest place for for your clients and patients to get in and out of. There are a lot of other intangibles that I think where the real estate can really be optimal to help optimize your revenue. And sometimes that's a piece of property that isn't for sale or can't be purchased. If it's in a retail environment, or in some sort of office park that doesn't have that opportunity to purchase. I feel like you know, the every concession that you make on location and demographics to have the opportunity to own it could possibly cost you dollars down the road.

Doug Dries  8:05  

Yes, I would definitely agree with that.

Rob Montgomery  8:08  

You know, and just kind of go back, you know, we were talking about whether or not when people could get financing, or when they should start to talk to you and really have a sense of whether or not they're bankable. You know, what we oftentimes hear people talk about young veterinarians, is that oh, wow, you know, I can never get a loan, because I have so much student loan debt. Now, no bank wants to lend to me because of, you know, I owe $350,000 in student loans or whatever number Take Take your pick, depending on how much school and where you've gone, right that how enormous that number can be. But talk to our listeners, Doug, about what how the bank looks at just debt overall, when they're determining whether or not to approve somebody for financing?

Doug Dries  9:00  

Yeah, it's a great question. You know, I speak to students all the time. And young, young doctors, and I do hear that a lot. You know, they think that they can't get a loan because the amount of student loan debt they have here at Wells Fargo, we have a special division within the bank that just deals with doctors, and that's the healthcare industry group. And we're very familiar with that. I mean, we're, we're used to it, we see it all the time. And we take everything into consideration. The other thing that we do is, you know, there's the misconception that doctors can't start a practice because they don't have enough downpayment, right. We're doing practice loans all the time. 100% financing. So it's really, it's really easy to get a loan for, for a start up loan, how we do it, we make make sure that there's enough income coming in and this is projected income from a new practice, plus associating income. So a lot most of the time we're going to need some sort of associating income. We take both of those numbers together. And we use that to cashflow the deal. What that means is, is that enough income for you to pay both your business, your new business debt and your personal debts. And as long as everything cash flows, then we can get an approval.

Rob Montgomery  10:15  

Right? I think, as you said that that's, you know, a misconception a lot of people have, and I see that too. And I'm not even in. I'm not even a lender, you know. And so in my world, you know that that misconception pops up a lot. Let's just kind of step back and talk about some of those details. And I think this is important for people to know that the bank is looking for associate income in a startup. And so what I'm understanding you to say there is, you're going to start up a practice, that doesn't mean that you quit your job necessarily, and you don't work, you have zero associated income, and that you're sitting in your in your new that hospital waiting for waiting for the phone to ring, right. I mean, there's an expectation that while the practice is ramping up, you're going to continue to work part time someplace else and earn income, is that correct?

Doug Dries  11:09  

Yes, that's correct. You know, when you give up that income, or step back from your associate position is really up to you. Once your practice can support itself, you know, you phase out that associating position, but we are going to require that you have some sort of associated income to get started.

Rob Montgomery  11:26  

Great. Yeah. And that's important. I mean, look, folks, that's important for a loan approval standpoint. And it's also important for a, we need to live in eat standpoint, right, that, you know, I think, if you need to get income from somewhere, and I kind of feel like Doug, like having that out there, you know, kind of, let's demystify the startup process a little bit, knowing that you have that safety net, that you have other income, hopefully, would make people a little more comfortable with the decision, like, you don't have to look at this, you know, listeners, as Wow, I'm taking this giant leap, I'm quitting my job, I'm putting all my eggs in my bet with this one basket and hope that my startup is successful. Not only do you not have to do that, you shouldn't do that. For for a loan approval standpoint. And then for your own sort of survival standpoint, it doesn't have to be that way. I mean, you do have a safety net, you do have a cushion in that other associated income. And, you know, as Doug said, as At what time do you stop? At what point do you stop working in that other job? Well, when you don't have time for that job anymore, when you're so busy with your own practice, that, you know, you need to dedicate a full time to that, but that's an important thing for people to understand at several levels. And I think, you know, to me, that's, that's, that's another misconception that I see that you know, that you can only, you know, expect to earn 100% of your income in a startup.

Doug Dries  13:02  

Yeah, we never want to put you in a position where you can't pay your bills.

Rob Montgomery  13:07  

Yeah, right. And that's, that's the bank being somewhat paternalistic. But this is one of those things where the bank's interest and, you know, our vet startup clients interest completely converge. In that, you know, you need to earn a living, and they need you to be able to earn a living to be able to repay the loan. So that's good advice for everybody involved, because we're not looking to help people fail with their startups, but to do well, and to, to thrive. So, Doug, you know, that that is a misconception. I think that, you know, as we talked about, a lot of people have, what is what are some mistakes that you see veterinarians make when they're doing a startup?

Doug Dries  13:53  

Oh, I would say probably the biggest mistake I see is not having a team of experts around you, you know, to start off that practice. And when I say industry experts, you know, I mean, people that are familiar with the vet industry, you know, you want to make sure that you have a lawyer, banker, real estate agents, CPA, you know, all these people, contractors that are familiar with the dead industry and not us, you know, your brother in law, who happens to be maybe a real estate agent or something like that. Because it can really come back to bite you in the end, you know, I think it's really important to, to have those industry expert professionals surround you.

Rob Montgomery  14:33  

Yeah. And, and I have to, you know, full you have to tell our listeners here, this is you've now heard this from several different guests. I am not telling people to say that we all we all work in this in this world, helping vets with their startups and transitions. This is really meaningful advice. I think with what Doug is saying and I I totally agree, you know, I think and there's you can't really bag on it. Any one of those team members or work with somebody that's deficient in any way, I mean, if you say, Okay, I'm just gonna go to my local bank for a loan and hope that they give me $600,000 For my startup, well, you know, that may not work, you know, they may not want to do that. And what I see a lot of times, especially when people are looking to get startup loans from, from lenders who are not in this world, the bank will lend them, not enough money. And, and that can be a really the key thing, I think, you know, and that it's important to get enough money to do the project, right, you know, not just to Bayville borrow enough money to do the project, and just barely get by just have enough money to build out not have enough money to have sufficient equipment, hire sufficient people who are working capital, do the right marketing, like, you know, if you're working with somebody who's not a vet focused lender doesn't understand this world, then you may not get sufficient funds to allow you to do what you need to do to really set yourself up for success. And I'm not saying hey, go out and just borrow money, like like a drunken sailor, you know, you still have to be careful, you need to have a budget, but there's a return on this investment. And you need to work with somebody who knows how much money you need, and understands what the needs are for a startup practice. So that you get what you need to be able to succeed. You know, agree more. Yeah, and you know, and same thing comes up, you know, in the realtor world, you know, where we see realtors who are not that specific, they're not asking for the right things from the landlord, they're not getting enough build out time was free rent. Or even worse, a lot of times, they don't know how good of a tenant of that is. So that they're not able to advocate and really sell the landlord on what a great opportunity is for the landlord. Because obviously, the better the the landlord, the more the landlord perceives how good their tenant is, the better terms they're willing to give. And then, you know, obviously, shameless plug here for the, for the lawyers that know this, this world, too, there's just so many little twists and turns when it comes to the, to the lease or the even the real estate purchase, especially in the vet world, where you're looking at zoning and knowing that, what you want the type of practice that you want to do that you're going to be able to do it in that location. That's a little different than other healthcare industries, that there are some zoning requirements that may not be applicable to other healthcare that are relevant to that, you know, as to whether or not you can do overnight boarding, how that impacts with your surgery patients. There's lots of other issues that you can overlook. And that's why you need to work with people that know what questions to to ask. So when we talk about this, like, you know, and I want to get into the, to the actual dollars, Doug, but you know, how does the bank look at a loan amount? How they did it? Do they determine how much money somebody needs to borrow? And then I guess, similar question is, like, when is too much? When is it too much? And when does the bank say you know, what, no, that's not a project that we can be involved in, we, you know, you can't expect to borrow that much money.

Doug Dries  18:30  

Well, what we really want to do is understand the project itself, and we want to be able to give you enough money to complete that project. So, but a lot of times, you know, doctors come to us, and they really don't know what that budget is going to be in the beginning. So, you know, we'll try to target a number, you know, an average number, and then try to get them approved there in, you know, with the understanding that it can go up or down from from there. As far as $1 amount that's too high. I don't know it really, like every every, every deal is a little different, you know, there'll be needs a little different, whether you're doing ground up construction, whether you're leasing a space, you know, but we would definitely take a look at each individual opportunity and make sure that we can give enough money because like you said earlier, you know, if you don't have enough to complete the project, then then what happens, right, you're in the middle of a project. And you can't finish it if you don't have the funds to complete it and the banks not gonna give you more money. So it's really important that we understand the project from the beginning and make sure that we get approval to meet that budget.

Rob Montgomery  19:40  

And that's, that kind of takes us back to what what you said a few minutes ago, which is this is why it's important listeners to reach out to Doug early in the process. So that when you're talking to to designers and architects and contractors, everybody understands kind of what we're doing here. What are you proposing to do? What is it gonna cost? Can you get enough money for that? No, you can't? Well, then what do we need to do to scale back a little bit or to make it something that's manageable, or, you know, for talking about equipment financing, and some of the build out stuff, you know, you know, that you can build out, you know, serve so many treatment rooms now, but you know, you're gonna plumb them, and maybe you're not buying all the equipment. Now, all this is kind of a, you know, it all kind of goes together. And you can't just do one and say, Okay, I got my loan for x. And now I'm gonna go out and try to buy equipment for y. And now I'm gonna go try to find a builder, who's going to build this for z, like this is all all this stuff is interrelated. And you really need to be doing them in connection with each other. Because they all they all do overlap. Doug, you know, when you're talking about, I just want to walk the listeners a little bit through the sort of the differences and what loans look like, if you're buying real estate that's not presently set up or fit out for that practice. What do those loans look like? You know, it's really my understanding of my, what I've observed, in my experience is that you're looking at basically two loans more or less in the bank, where there's kind of an acquisition loan for the real estate, and then a similar loan where you're, you're actually financing what we call the fit out, which would be the same type of loan, if you were fitting out a lease base to is that is that kind of a true characterization.

Doug Dries  21:36  

Yeah, that's, that's actually accurate, it's accurate. So if a new doctor doctor that hasn't had a practice, before, no brand new startup wants to purchase a building and start a practice, then it would be two separate loans, the real estate loan would be an SBA loan, in that case, and then you'd have a practice loan for the fit out the equipment and the working capital. So two separate loans. If it's an existing doctor, that wants to buy real estate and open up maybe a second location or movies location, then we have options there, it could be an SBA loan, or he or she could go into a conventional loan. So an existing doctor has a little bit more options. But in either case, it'll be two separate loans for the real ones, one for the real estate, and then the other for the Fed out working capital and equipment,

Rob Montgomery  22:23  

right. So people shouldn't really probably over focus on the overall loan amount of those two loans, you know, so if you're buying, for example, a piece of real estate for $800,000, and you're going to put $700,000 of fit out into it, that's a total of $1.5 million, which sounds like a lot of might well, it is a lot of money. But that's a very different loan than trying to get approved for a million and a half dollars to fit out a leased space, which is probably most people wouldn't be able to pull off. Correct, right. So you're really, when you're looking at those loans, you're looking at the certainly the real estate acquisition portion of it is, what is this real estate worth? You're gonna get an appraisal and do all that stuff. And then that's going to determine that loan amount. And then somewhat separately, you're looking at, okay, what's it going to cost? Now to take this empty space? There's a space that used to be karate gym, or whatever. And now turn it into a into of that practice.

Doug Dries  23:27  

Correct? Yep.

Rob Montgomery  23:30  

So, you know, again, we're talking about how much people can can borrow. And we were talking about debt. I guess, what is what are some good things that you see vets do when they're when they're planning their their startup?

Doug Dries  23:48  

Well, I mean, I think the best thing that they can do, and some of the good things that I see is, you know, really understanding what the project is going to cost. Having a business plan, or at least a vision. We don't require a business plan. So you know, if it's something that you're stuck on, we can help you with that. We don't require projections. I know a lot of times doctors get hung up on the projections of a business plan. But you know, have that vision really understand what you want. And we can try to figure out how to get there. But you have to know what you want. I think going into that,

Rob Montgomery  24:21  

yeah, and this is another another word that, you know, we have several guests now as I've used that word, and I like to use it too. In the in the startup world, especially. And I think this, this really goes again, to the importance of planning. You know, you can't just call up dog and say, I want to start up a vet practice. Great. What's it going to look like? Where's it going to be? How big is it? You know, how did what type of practice will it be? What how do you want what type of patients do you want to treat? Like you need to have an understanding of what it is that you want and one of the great things about? Starting a practice is allows this sort of cost summarization and, and allows you to set your own vision. And, and really, and then pursue it and start from scratch in the way that you want it. But you can't expect to pick up the phone and talk to Doug Drees or Matt Fletcher, or rob Montgomery, or does marrow or, you know, any of our, you know, guests here and say, you know, tell me what I need to do. And because it's not, it's not something, somebody else can't tell you what your vision is. So you really need to understand what it is that you want, before you go out there and start assembling the team that Doug was talking about earlier. So, Doug, I guess, you know, what's one piece of advice that you would give to a veterinarian? That's considering a startup?

Doug Dries  25:59  

I think, yeah, I would tell them not to put their dream on hold, you know, go out, did practice ownership is your goal, you know, reach out and see if we can put that together for you. I mean, like I said, reach out to the bank, and we can help put all those professionals in place if you don't have them. But not delay, don't delay, I guess, would be my advice.

Rob Montgomery  26:20  

Yeah. And this is really what's driving us and, you know, are interested in really trying to get the word out for why startup is a viable option is, I think a lot of their associates kind of feel stuck or feel like they don't have options that, you know, basically, with the the increased proliferation of corporate ownership, that it's, it's harder for them to acquire practices, and, you know, if they can't compete with some of this corporate ownership, and the prices that they're paying for these practice acquisitions, that, well, you know, the only other option is to continue, continue to be an associate. And, you know, that's not the case. I mean, there is another option, and it's, you know, a very good option if it's done properly, which is considered doing a start up. And, you know, as Doug, you're saying, you know, don't wait, and I think that that is an important thing, that you have the ability as a professional to get out there, and, and develop and build a practice of your dreams, in the way that you want it with the vision that you want it. And that really the first step, I feel like, for everybody who's listening here who might be thinking about this is just start asking to start learning more about the process. You know, you you can you could talk to, to to Doug Drees tell me what this loan looks like, you know, what, you know, how, how many years? Is this going to be financed? For? How does it work with the with a construction construction loan? You know, you can talk to Peter McCann, and now tell me about the the opportunity, you know, what does it look like to find space? And, you know, what kind of spaces are available? And what does the rent cost? You, you could talk to Matt Fletcher and say, Matt, you know, tell me how people fit out these offices? And what kind of equipment do I really need? And what can I get by with now, you know, as a minimum that I could add later, but, you know, the big thing is, you know, don't wait, now you, you don't have to rush into this and say, Hey, I'm going to hang out a shingle in three months, that would, frankly, be impossible, or scenarios. But what you shouldn't delay on is starting the process, start the education process, start talking to the people that you need to talk to the team, as Doug said, and start to assemble that team, and start to really avail yourself of the knowledge and the expertise that you have and start to think about what is your vision? What do you want in your practice, and you don't have to sit and wait and continue to be an associate indefinitely. You have the tools, the financing is readily available to get out there and and take a crack at doing something on your own. Well, Doug, thank you so much for for coming in today. It was great chatting with you. I always enjoy working, working with you on on deals, if people have questions or want to connect with you and learn more about what the what the lending process looks like, how would they do that?

Doug Dries  29:33  

Best way to do that is reach me on my cell phone and that is 610-663-5632. And we can schedule a time to talk. I'm available in the evenings and weekends as well.

Rob Montgomery  29:46  

Okay, and email good for you to duck.

Doug Dries  29:49  

Yeah, emails, good. Duck dress, do you g dot d r i e s@wellsfargo.com.

Rob Montgomery  29:58  

Okay, and that'll be Up in our show notes, as well. And you know, again, it's it's important when you're assembling this team really need to work with somebody that understands all the things that Doug is talking about because they matter in your startup project and having the right loan and the sufficient loan to from your startup can be the difference of succeeding and not succeeding. So, thanks again for joining us, Doug can look forward to continuing to work with you. Thanks.

Bumper  30:30  

Thanks for listening to another great podcast with Attorney Rob Montgomery. And don't forget to tune in next time to have the process of starting up a veterinary practice demystified. For more information about today's podcast, or to contact Rob's firm, go to www dot your vet lawyer.com

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