Phil Cole 0:21
hello, everyone, Phil Cole here with class solutions along with my co host, Chris Webb, who is a transition consultant for us at class solutions. And we have the privilege today to have Jeff Cornell, who was the vice president of healthcare lending for Bank of America. Jeff has been with the Bank of America for 22 years. And Jeff, I think that you and I have known each other for 1015 years, we, you lose count, right? After so many years. We're getting too old to worry about that. So. But today, we wanted to just kind of discuss lending and the new market that's going on with with things in the in the lending world. But I think also important to know, what is a good lender versus what I always say a banker and stuff. So we'll start off. I know, Chris, you had the first question that you that you wanted to discuss with with Jeff. And so we'll just start with you.
Chris Webb 1:31
Yeah, awesome, Jeff, thanks for coming on, of course. So one of the one of the very first things that I want to ask you about is just tell us a little bit about what the healthcare lending market looks like right now. And then, after you kind of get into that, can you talk to us a little bit about what is the bank looking for in a borrower? Or what kind of things should a borrower be doing to make sure they're ready for a loan?
Jeff Cormell 1:57
That's good question. Yeah, from the healthcare lending space, it's, it's very strong. You know, from the doctor's perspective, there's plenty of options that are out there available to them to find money for their practice, if it's to start their first practice. By practice, if they want to buy real estate, if they're already established and want to expand and relocate or get a second practice, there's plenty of money available, plenty of lenders available. As Phil had mentioned, I've been around a while and I think what I'd started, there were three national players in that space, and the healthcare lending space, and there's probably 10 to 15 that really do a good job with it nationally. And, you know, within each doctor's local market, there's a handful that are very active in each area, but it's very strong. So it's unique in that aspect that doctors can get capital for pretty much anything that they needed anytime. The beauty is to with that increased competition, the opportunity for loans that really fit their needs are available as well, you've got doctors that can get loans from 1015 20 years for their project loans, you can get real estate from 15 to 25 years for real estate loans. Fixed rates 100% financing, so there's a lot of great options available out there for the doctors to to tap into for whatever they need within their practice. With respect to the interest rates right now, obviously, you know, everybody's been watching the news, the rates are starting to increase. As the Prime rates go up, the bank's rates are obviously going to increase at that point, we're in a inflationary environment from costs all across the board. So that's starting to, to change. But what I would tell you is where we are today is probably a bit of more of the norm than what we've experienced over the last five or six years when when we were interest rates in the low two percents in some cases, and we had promotionals, under 2%. That's not a normal lending situation. It was fantastic for everybody involved for all the doctors involved for for even consumers being able to buy home mortgages and things like that allowing them to tap into the capital at a extremely low interest rate was very useful for everybody and allowed businesses to not only healthcare but business to is to invest in to grow their businesses as well. But that's just we're in an environment now where that's starting to change and people have to start to see how that impacts them. From a cash flow standpoint, you know what that interest rate does now? A quarter percent interest rate change on a loan You know, a half 1,000,600 700,000 Our loan, it's about 70 or $80 a month. So if it went up a full percent, you're talking about three or $400 a month, in difference from what you may have had a year ago, from a healthcare practice doing 567 100 A million dollars a year is that that impactful? Probably not. But it does make a difference over a period of time. So it's just something to be aware of, for the doctors, there's still I would tell you, a fixed rates available, there's no need for a health care provider to get a variable rate or one that's not fixed for the entire term. Those are still out there and readily available by most of the lenders. So
Chris Webb 5:42
as we as we start to, like, level out and normalize here, that kind of sounds like we're kind of getting back to like what normal lending looks. Yeah, normal environment. So then what what kinds of things should a doctor be looking to do to make sure they set themselves up for success? So they can kind of take advantage of, you know, the best situation for themselves? Yeah, great. So much like in with that, it maybe you have, maybe you have in your 22 years, like one really good horror story that you can talk about where a doctor was in a perfect situation, and did something kind of foolish personally financially that kind of pushed themselves out of the ability to get a loan?
Jeff Cormell 6:22
Yeah, it's a great question. So what banks want to see most of the healthcare lenders, they want to see a couple of things, they want to see a doctor that if you're new to have at least a year underneath your belt associating, so they can see that you've gotten the hand speed, you've got your chairside manner taken care of you, you've gotten that experience, where you're ready to step out into ownership. Now specialists, those are a little bit different scenario where the most of the healthcare lenders will account for the residency program. From a specialty standpoint, they wouldn't have to wait. But they want to see that. So experience, they want to see that the doctor has started to save some capital for themselves, if they started to make money as an associate that they've started to save that they've not went out and spent it on something that's a bit aggressive at that point, maybe the house, it's a little bit too big, or the car, that's, that's pretty expensive, they want to see that they're starting to save some capital. Now the beauty is, they're not necessarily looking for that doctor to put that capital into the loan. But they want to see that they've got that they started to build that, that rainy day fund, if needed as they become a business owner. I'd mentioned a second ago, maintaining your personal expenses, that you're not going out and spending a lot on credit cards, that you're managing that and paying those off every month. The thing that the healthcare lenders understand, which might be a little bit different than your, your local banks, when you go talk to them, if you're looking for a loan, is that they understand that you have to have that most of the doctors have student loans. So a lot of the doctors think that, hey, I've got to stay, I've got to pay down my home mortgage, and I got to pay down my student loans, or I'll never get money. And that's, that's really not the case, we understand to be to get those letters in front of your name, or behind your name and your your title, however you look at that. You've got to go to medical school. And there's a cost for doing that. And we understand that that's part of their personal financial statement. You know, as far as preparing otherwise, as an associate understanding, if you're going to become a business owner, at some point, understanding what your non compete looks like, what is your time and radius? What is your transition time, if you're going to leave it up? Leave a job? Have you signed a contract? Is there a timeframe that that wind down needs to happen in 3060 90 days? Those are the things that I would start to look at sooner than later. If you haven't signed an associate contract, making sure you understand what you're about to get into for those those types of things. But also, when you look to potentially buy a practice, most of the banks will want to understand what your production capabilities are. What can you produce in a given month. So understanding if you have access to those reports that you can potentially provide to a bank down the road because what they're going to do is they're going to look at you as a borrower to see how your financial situation looks. Are you are you living within your means? Are you building capital? And then they're also going to look at what you're doing today? How much you're producing, how many days a week you're associating, they want to see that you're working full time. And then what are you looking to potentially buy as a practice and do all those mesh together? Can you do the production? Do you have? Yeah, can you sustain it? Do you have the the personal financial statement to warrant you're getting that loan and then also do you have the experience in production levels to be able to handle that part? I guess so. So Jeff, just
Phil Cole 10:02
to go back to what we said in the beginning to when it was, you know that the lending is good right now, we don't have to worry. One of the things that we run across all the time is, and I know you do too, in and so maybe you have a better answer for us, besides just telling them that lending is good. The sellers, though, of course, always hear the bad news. And that's the debt that these guys are holding. Sure. But it's it's so hard to convince them to say that lending is not a problem. I mean, is there anything that you would for any seller out there to be able to, to give them an understanding of to emphasize that these kids can get loans?
Jeff Cormell 10:49
Yeah, absolutely. I mean, from the seller standpoint, the dynamic has changed, you know, over their tenure of being a business owner on how it was to get capital, probably in the start of their career versus now. And that's where I emphasized earlier on that there's 10, to 15, if not more healthcare lenders in the country, that doctor will get approved for a loan one way or the other, if it's going to be a conventional loan, or an SBA loan, there's plenty of different options for the doctor to get the capital that they need. The beauty of that seller working with somebody like yourselves is that you've got experience dealing with lenders, you can educate them on, hey, there's multiple banks within the marketplace, there's a few that we work with, but there's multiple in the marketplaces this doctor can work with, and they want to see production and collection reports for that buyer to make sure that before they even talk to you, that they're pre qualified for that loan, and that they would fit the needs of a borrower for your practice. So letting them know that who you work with as a broke practice broker, and what you do to vet, the doctors that are coming in, and what the banks do to vet pre approval should help a little bit. But also to it's, it's a matter of that doctor understanding that what the banks are looking for, you know, they're looking for a doctor to seller to provide two to three years of financials, if they have a normalized margin within their practice, if the equipment is not falling apart, you know, and, and those types of things, that they have a sellable asset that's making a normal margin within the dental, you know, dental space. And that borrower has good liquidity has student loans, pays off their credit cards can validate that they can do the production, it's pretty tough not to put that deal together from that standpoint. So.
Phil Cole 12:42
So with with the interest rates, and the rise, of course, we're running across the buyers that are, you know, getting nervous and stuff like that, but just talk quickly about the what the rates could go up to, I guess, versus historical because us old timers like you and I been around so long. I don't think I don't think these kids understand that probably has it and tell me if I'm wrong. But historical rates have been in double digits or close to double digits. And we're still looking at, you know, what, four or 5%? Yeah,
Jeff Cormell 13:19
yeah, that's a good point it again, you know, we've had such a great run of low interest rates. It's just something that not a lot of people have thought about. And it certainly gets a lot of news on the rising rate and the inflation in those things as it should. But yeah, it's, I've not, I can't give you a crystal ball on how high it's gonna go. That'd be crazy for me to do that. But, you know, again, in that, if it got to the five or 6% range, again, it's not at such $1 amount, where it's going to be impossible to be able to be a business owner, that's certainly not going to be the case. And here's the other thing, the beauty of where you're at that you have access to capital to get it to get the business to get it started. That doesn't mean that you're locked into that rate forever. If you were to take our industry, right interest rate that you feel might be a little bit higher right now. So you can achieve your dreams, the opportunity to refinance that down the road. If it's if it's any indication of the past, it's going to be available. When I couldn't tell you what that rate is going to be, I certainly couldn't tell you, but there's, there's going to be an opportunity to get that revisited at some point down the road. And we've done a lot of that in our business after you know, 2008 nine when the interest rates did go up, and they started to rise for a period of time. We spent several years and doing a lot of refinances from from those times. So it's something that happens quite a bit in the industry. What I will tell you though, there's One of the things that doctors have to look at the interest rate is one of them. But also the term of the loan is another one. So you may get a little bit higher interest rate. But that doesn't mean that it's going to negatively impact your cash flow. You know, somebody like Bank of America, we can offer 1015 or 20 year terms on practice loans. Now, 20 to term may not feel great at this moment, but it may suit your, when I say feel great for a long period of time, that you may never keep that loan for that term. But it allows you to have a cash flow that is substantially lower than what it would be on a 10 year term or even a 15 year term. So if you're concerned about the monthly payment, you have the ability to extend the term to be able to counteract that. And I would, I would reference a doctor to the home mortgage space, right? There's 15 year mortgages out there, but the majority of the country takes a 30 year. Why? Because it's a more palatable payment for them on a home mortgage that they're gonna buy. But they also know they could have gotten a better interest rate on a 15 year term. So at a certain point, the paradigm of interest rate versus term and cash flow starts to impact the borrowers decision. And that's what the doctor has to take a look at is what is the appropriate situation at that time? Do I take a little bit higher interest rate in the longer term? Or do I hold steady, and I want the short term with the best interest rate? That's a deal by deal decision.
Phil Cole 16:28
I totally agree with you, 100%. And I know that for us when we're talking with buyers, unfortunately, nine times out of 10, it's the interest rate, right? Like which bank should i which bank should I go with? And I know that for us when we're dealing with that, and the transition side of things, we try to get them to understand that the interest rate should not be the end all be all. And that's not how you pick a bank. So for those who are listening, explain to them then what should they be looking for? In what I consider a good lender? And and how does how does your bank Bank of America distinguish itself from another lender? per se to?
Jeff Cormell 17:14
Yeah, certainly. I think as Americans, the one thing that we do in our world is we look at cost, how much does something cost? What's the payment? And and what's the rate on a loan? And that's the only thing that we kind of focus on, it's just how we are, you know, you look at a pair of shoes, how much does it cost? And that's the deciding factor, you're not really looking necessarily into how long are they going to last or, or whatnot. So it's, it's one of those things where, when you're looking at banking, and you have a lot of different options, the one thing that the banks provide is the loan clearly, and then to, they should provide, if you're, you're with a full suite lender, all of the banking products you need, you know, it's the merchant services, the credit cards, the Depository relationship. All of those products are something that every business owner is going to need. And it's something that they don't think about that often. But it's something that they use on a daily basis, and how that how that impacts their, their cash flow. And their, their cost of doing business is something that most of the doctors haven't thought much about. And I think part of that is because we were in such a low rate environment, there was such a desire to use that cheap money to get in and to go and own a business or expand or do whatever they're gonna do that they kind of forgot about what the the bigger piece where the bank actually makes money is all of those business products. And if you go look at any bank during the 2020 timeframe, when they a lot of them didn't lend and we were one of them didn't lend through the back part of 2020. But just take a look at I would challenge anybody just to take a look at what the profits are on those banks, even though they didn't lend. They're pretty, pretty substantial. Where does that come from? It's all that other stuff that we talked about where the bank makes money that the doctor doesn't really think too much about. And again, it's the the checking account, the merchant services, the credit cards, those depository accounts that they have, that's where there's cost to the doctor that they don't think about very often.
Chris Webb 19:30
But it'd be would it be accurate to say that if if a bank is strictly trying to compete for business on interest rates, but you don't talk about some of those things, you could end up with the same overall cost with a bank with a little bit higher interest rate that maybe has focused on those those other business aspects?
Jeff Cormell 19:49
Yeah, one of the things that is really important that I try to educate my clients on is the total cost of doing business with that bank. And this thing you have to look at is the entire loan approval and all of its conditions, and then that tire entire banking relationship, because I'll give you a quick example, just, it'll, it'll kind of illustrate what I'm talking about. If you've got one bank that has a loan for, let's just use $500,000, and it's 10 years, and it's 4% interest, then you've got another bank with that exact same approval, but is 3.75, a lot of the lot of the consumers may lean to that bank at 3.75, it's a lower interest rate, it seems like it's the right one. In that scenario, as I talked about earlier, 60 to $70 a month equates to about a quarter percent interest rate. So if you look at that bank that has the lower interest rate, but they have conditions on the loan, that the other one doesn't, for example, life insurance, disability malpractice, and they're required to give it to that bank as their collateral, then that's a cost that the doctor is incurring each month, that they are not getting any benefit for, because they're giving it to the bank as collateral. So when you take a look at those, and you say, okay, disability is seven $80 A month life insurance is 100 $150, a month, malpractice is 200 $300 a month, and you factor in all of that. And you compare that on a monthly basis versus one bank that doesn't have it, there's a there's a cost of doing business with the bank on the right versus the bank on the
Chris Webb 21:30
left. So it's like, it's like a business version of a PMI, when you don't have enough down on a house?
Jeff Cormell 21:36
Well, a little bit, it's, I would say, it's more of a true cost of doing business with that bank, right? I'll do it this way. Take a look at a car, if you had a car that you were going to buy, and they were the exact same amount, but one car needed an oil change every month, and needed new tires every two months, right. And an oil change is 100 bucks and tires are a grant, and you're like man to own this car, it's gonna cost me five or six extra grand a year versus this car on the left. That's what I'm trying to say to you with the bank, you've got to understand that that's how it works. When there's loan conditions, one may have that cost you money that you don't get any benefit for, but you have to pay for that's a cost on the right, that you don't have on the left when you're comparing those banks. And then you would couple that in with how to what is the merchant service? What does the credit card program look like? If this bank on the left gave you five grand a year back in credit card, cash back on the things that you buy every day versus the one on the right is unable to do that. And they've got all those other costs? Well, what is the cheaper bank to work with? This one might be a quarter percent higher on that loan. But I get five grand a month
Chris Webb 22:49
back, and that's a $2,000 benefit. Yeah,
Jeff Cormell 22:52
I mean, so that's the thing that when I talk to doctors about the true cost of doing business with the bank, that's what they need to understand. That's where they need to be educated themselves on, what is this? How does this really impact me. And I will tell you, if your banker doesn't understand that aspect, or doesn't talk to you about that aspect, that's something that when you're looking for where you should park, your business, those are things that matter. And if they don't know that, or they don't bring that up, or they don't understand that that's important to your business, then that's something that maybe you maybe helps you make a decision one way or the other.
Chris Webb 23:33
So when, as we get towards the end of some sort of transaction, whether it's you know, signing a lease and doing build out for for a new space, whether you're relocating or starting a new business, if you're doing a startup if you're purchasing a practice buying into a practice. So as you kind of get into those situations, you need to find a lender to fund it. We've talked about interest rates, we've talked about some of the other things, but what sort of support and help from your lender should you also be looking for how do they kind of fit into your team of support people around you?
Jeff Cormell 24:09
Yeah, I mean, that's a great question as well. And it I think, for me being in the industry and, and kind of seeing it from afar. I've also owned some businesses myself, and when you own those businesses and you're trying to grow those businesses, you what you don't want to do is do it on your own. So building a team around you have professionals that can support you from various different aspects if it's practice brokerage, if it's real estate, support, if it's accounting, if it's legal, if it's marketing, the beauty of what the dental industry has in every major market that the doctor is located if it's Michigan, it's Grand Rapids and, and Detroit if it's Ohio, where I live, it's Cleveland, Columbus, Cincinnati every One of those major markets has a entire network of healthcare professionals that can help your clients. And it's in its the range of what I just mentioned. And so when talking to that banker, if they don't have those relationships, to be able to provide those connections to the doctor, that can be a decisioning factor for the doctor, because the reality of it is, it's all integrated together to get that transaction from start to finish, regardless of what you're doing, buying a building, or starting or buying a practice. If your team is not connected and integrated, it's going to slow the process down. And when you think about what does it really matter, if you believe that it could slow the process down, and I'm buying a practice that's doing a million dollars, it's 100, or 1,000,002, it's 100 grand a month, and I'm making 40%, out of that making $40,000 that I'm taking home, and you delay by one month, is it not is it worth not having the right team when you just lost $40,000 Because you closed a month later than you should have, because your team wasn't cohesive and working well together. And now, I'm not blaming that on a bank that doesn't have those connections. But my point of the matter is, having a team that has all worked together before that no one and other know how each other work is absolutely going to allow the process to be more streamlined, more fluid, and just make it a better experience for everybody involved. And so having a banker that can help you with those connections is key, having a banker that has stability within their bank is key, you know, it's I believe being at one place for a period of time has helped me understand the entire process of my bank, and in how the business programs work and how our loan programs work. And that's just not the case. In some parts of lending. In the marketplace right now, there's been a lot of movement back and forth, doesn't necessarily mean it's a bad person or a bad bank that they're moving to. But that's that's stability and familiarity with the bank. And knowing where your banker is going to be in three to five years is important. Because, you know, it's it makes a difference when you need when you have a question on your loan down the road, who do you call if you've got you want to add to that loan? Who do you call if you want to pay off that loan? Who do you call, and having that relationship with somebody that you know is going to be there for for the long haul is, I think important.
Phil Cole 27:39
I just 100% cannot say enough about what you just said it for us as transition Consultants is so important for us to have a good team put together for us when we do our transitions going from A to Z and our real estate going from A to Z with our customers is vitally important. That's why we emphasize that we're not brokers, we're consultants, because that is the biggest thing for us is making sure that the that our customers are getting this information. And all this information that you gave us today, through our our partners, and I will tell you, Jeff, you're 100% Correct. Because when it comes to having the right people on your side, there, it is very hard for us to want to go work with somebody that you know, has gone to six different banks, you know, in the last, you know, four years. And that happens out there. And I and I think that the problem with that is is that really for us is something that is a distraction, because we now once again have to relearn the team, we have to relearn the process and stuff. And so your I just once again, cannot say enough about what you're saying is is that is been one of the reasons why you've been one of our best team members for as long as we've been working together, because it's one of those things for us, as a company to have somebody you know, you can count on. Yeah. And not only that, but I do think it's important. What you mentioned, too, is understanding the company. Because when we come to you, we don't have to say we don't hear the words. Let me check in on that. And let me get back with you. You know exactly what Bank of America does and what we need and goes through the whole process. And I can't thank you enough with that. And I guess just to end things off here, being with Bank of America 22 years, you know, give us a quick you know, 32nd commercial or Bank of America? Why why do people want to use you and Bank of America?
Jeff Cormell 30:05
All right, that's fine. Yeah, I mean, I think from the, from the standpoint of stability, I mean, we're, we're the largest healthcare lender in the country. We've got folks like myself, all throughout the country that only specializes in healthcare lending we do, we do dental, clearly we do that we do medical lending. The beauty is everybody that you're going to work with when our shop is all related to health care. So from me to my support team, to the underwriter to the funders, all they do every day is work with healthcare providers. So that makes a difference when we're talking to somebody and somebody wants to buy a Sirak. You know, we know what that is, the credit officer knows what that is, the funding group knows what that is. And it those are the things that I think make a difference. And again, it's it's making it efficient process to get get through. And it's with us knowing the industry. It allows us to adapt with the industry as well, right. And it's something where, hey, the the landscapes changed, we've got to get faster on approvals. You know, now we're down to seven to 10 days. To get approvals and funding loans, you can fund loans and 30 and 45 days, it's because we know the marketplace. So we know the sources that we're dealing with, and we know who's involved. But you know, from a product standpoint, we do everything we do real estate startups, acquisitions, equipment, loans, refinances. As I mentioned earlier, we do loans from 10 to 20 years for projects, interest rates are extremely competitive right now. So I would say if you're seeing rising rate environments, give me a call, you might be pleasantly surprised on on what we're capable of doing right now on those. So, you know, from that, in a nutshell, I think it's just a matter of, it's a bank that's been around, we've been a leader in the marketplace for a long period of time. You're dealing with people that are experts and have staying power with their bank. And, you know, I think you're gonna be, you know, pretty happy with the process.
Chris Webb 32:25
kind of throw in a bonus plug. So jet. So Jeff was Jeff was pretty generous a little while ago, and he was talking about, you know, people not being coordinated and not knowing what they're doing. It might delay you a month, and you might lose out on $40,000 of profit or income. But one month is really generous. I've, I've had deals where when the support team, whether it's from the lending or whatever, going through approvals, just it takes so much longer. I've been on deals where it's three to six months. And so you're looking at, you know, 120, to, you know, 20 or $40,000, that you're missing out on, because the team that you assembled wasn't prepared for what you were trying to do. So I think I think that's another big thing to think about. He was right on right on with delays cost you money, even though you don't see it that way. But when you really look at the business, it costs you money, and how much is it going to cost you with the wrong team members?
Jeff Cormell 33:18
Yep, I would agree. I mean, it that is something that I think a lot of people miss, from that standpoint is that, you know, it's when you're when you jump on the conveyor of, hey, I'm going to become a business owner, I'm going to buy this practice, it needs to happen quickly, because for every day that that it's delayed, the seller is still you know, an acquisition standpoint, the seller is still reaping the benefits of ownership of that practice. And so it's a matter of doing it quickly, doing it efficiently, making sure that all the i's are dotted and T's are crossed, but doing it as efficiently as possible. So you're stepping into that businesses when it's, you know, available and taking it over and starting to become that business owner reaping the rewards of it. So
Phil Cole 34:05
now totally 100% agree. It's and So, Jeff, thank you so much for being on our podcasts and given us this great information. Without a doubt, those who are listening. Jeff is one of the most educated and I feel most thorough bankers that you're going to ever run across. So if you're in the Midwest area with Jeff, make sure that you reach out to us or to Jeff himself, to help you out with any questions, any loans, but we really appreciate it Jeff and then it and from my standpoint, also, class solutions wants thank you for being the ultimate team member for us. So thanks so much.
Jeff Cormell 34:51
Thank you guys. I appreciate it. All right. Thanks, Jeff.
