EP 70: Cash Flow Solutions with David Kirby from Zions Bancorp Practice Pathways Division

COVID-19 has many concerned about cash flow.

In this episode of the Double Your Production Podcast, Wendy is interviewing an executive from the banking industry to ask questions regarding the best options for surviving the COVID cash flow crunch.

For more updates from Wendy and Dr. John, follow The Team Training Institute on Facebook.

Welcome to the Double Your Production Podcast with the Team Training Institute. The one place designed for dentists and their staff who want to grow their practices by following in the footsteps of those that have done it or in the trenches, who know exactly what you're going through. And now your leaders, the stars of the podcast, Dr. John Meis and Wendy Briggs.

Hello, everybody. Welcome to this edition of the Double Your Production Podcast. I'm Wendy Briggs, and I am delighted today to have a really special guest with us on this podcast. I know you're going to be really excited as you listen as well because his breadth of knowledge about all things financial are really going to be of help to all dentists, really, and frankly, any business owners that are going through a tough time financially, given where we are in recent months with the whole post-- some people say post-COVID. We say perry-COVID. We're still in the thick of it with COVID-19 and some of the implications that that has had on dentistry and our society as a whole. So I'm delighted and I'm super grateful to David Kirby who is-- I guess I don't even know your official title, David. Are you the president of Zions Bank? So I don't know your official title, but we have David Kirby with Zions Bank here with us today.

Thank you. Yeah, I know, I hope I'm not the president. No, so I am-- I think my title is director of business banking, but I oversee the professional practice lending group, Practice Pathways.

Fantastic. And you and I have had the occasion to work together on a variety of projects over the years. And so I really appreciate your insights into the financial industry and lending, and all of the things that really are on the minds of a lot of the dentists and the members that we serve. So I sure appreciate you taking some time away from your busy schedule. I know with the PPP loans and everything that you all have dealt with, it's been a crazy time for you as well as it has for our dentists.

Yes, absolutely. It's the last recession and I think we could call this a recession even though the recovery has been quick?. The unemployment rate is still, I guess you could say, double what it was in 2008, '09, '10, '11. I think the recovery for most of the economy has been relatively quick, and we're seeing kind of record rebounds. I know that you mentioned record rebounds in dentistry. I think the difference with this recession versus the last time is the SBA tracks lent loan performance over periods of time, and they track by NAICS code or by industry type. They track 1,000 if you do 1,000 loans, then an industry type per year, they track that performance. And in 2008, '09, and '10, your best industries in the country were veterinary, dentistry, and optometry. Similar industries, obviously different patient types, but those were the best performing industries during the last recession. And I don't think that we can say that for dentistry during this recession because this was probably the first time where dentistry specifically was told to close and that you were non-essential medical services. And I think you and I could both argue that it is, should be essential. But when you're forced to close, it doesn't even give you a chance to be in the game, it doesn't give you a chance to even be part of that recovery. And I think that's the big difference that we're seeing this recessionary period versus last.

I would agree. We've got data from thousands of offices across the country, and there was a period of about six weeks where many of them if they were doing emergency care at all, were less than 10% of usual production and that makes it really difficult for those practices to survive. Right. So that leads me to the first question that I have for you today. And that is what have you seen in the dental practices that you serve? How are people handling this cash flow crunch? What are the tools and the products or financial tools out there that people are using to kind of help them get through even though the majority of doctors that we work with are now either open or have a date in the near future that they will be opening, which is a really positive change. Come March, we didn't know how long this would take. They're still struggling with cash flow, right, because they often don't get insurance monies for at least several weeks. So I know that we've been hearing a lot of dentists really concerned about cash flow. What are you seeing on the financial side?

Yeah, that's a great question. And I think what we see depends on the type of practice. We saw endodontists and oral surgeons do really well through this as they continue to perform emergency services. And again, I was one of those patients where I had a crown break and it was kind of an emergency root canal and I took advantage of that. And some of those specialties performed pretty well and a lot of them actually did better than they did prior because there was individuals out there that may be needed the service and had time to actually go to the specialist and get it done. I think where we saw the biggest impact was for general practitioners depending on your state. We loan everywhere throughout the country we have several clients in New York that was not a great state to be in. And so some things that individuals did that we saw were two things, and these options are still available.

One thing we talked about earlier, the PPP law. We processed and in two months just in the practice lending group, we processed for about 30 or 40% of our clients for 30 to $40 million in those two months. That was a great avenue just to get a quick cash injection. Now we're waiting on forgivable piece and the rules and regulations to the PPP loan seem to change weekly. That was a great option.

The other option that we provided was kind of a no questions asked 90-day payment deferral where if you're a client of ours-- and again, all the large banks like us provided PPP financing, credit unions. And then there were some other really good options as well like Lending Tree and Cabbage also did it. And again, that the PPP program ends at the end of this month, so there still are some funds available if you haven't already done it.

The other option was to ask your lender and all your banks for a payment deferral. It's better again, not trying to pull back the curtain on the Wizard of Oz too much but it's better to be a partner with your bank and show them and be transparent and go to them actually before it's a problem. As you mentioned in general, dentists generally collects 42 days is their the accounts receivables in the United States. A lot of them had good Marches, so that means their Aprils were okay as far as collections, but they were shut down in April, which means May was probably a terrible collections month. But the opened May 1st, so June, hopefully, they should be back to some type of standardized production collection timeframe. And that's really what the PPP loan did kick in. But if you didn't get a PPP loan, you should definitely be talking to your lenders, whether it's your mortgage, whether it's your equipment lender, your practice loan, your building. Whatever it is, you should be talking about a payment deferral. And if you haven't already done so, you still can do it.

That's one of the things that we mentioned early on. In our conversations with doctors, we did a Facebook live series and were doing a Facebook update every day for a little while. And that's one of the first things Dr. John is, "Get on the phone, see what you could do to defer" and of course, at that time, we didn't know how long things would be closed. So I know that there's a lot of people that have taken advantage of that. What are your thoughts, David, about a line of credit for practices that are needing working capital right now? Is that an option? I know a lot of banks have really tightened up their lending practices for the moment. How long do you perceive that that will happen? And do you consider a line of credit to be an acceptable avenue for those who need working capital?

I do think it's an acceptable avenue that there are some working capital lenders out there in the country that you could go to look at those products. Most lenders have tightened their app-only line of credit criteria. I do think it is a good option. And we see that sometimes when we do a practice acquisition that we will actually, instead of financing long-term working capital, we'll do it as a line of credit. The SBA, actually, has a really good product called an SBA express line of credit. And the way that that credit works is it can be up to 250 grand, it revolves for five years, and then it terms out for five. So it's a 10-year product that is a revolving line of credit prime plus one to two, three percent and prime is pretty low right now. And so it's just a line of credit that you can use. There's no cleanup provision, there's no rest period, it's just a five-year line of credit. And then it terms out to a five-year loan. So if you owed 100 grand, it would lock your rate in and that's what you're payment would be for the remainder of five years.

The reason that banks like those right now is we get a 50% guarantee from the SBA. So if a do a loan for 200,000 and whatever reason that the doctor, the dental practice defaults or closes and we have a write-down on that, the SBA will cover 50% of that. And so for banks that are looking to do lines of credits, we're doing a lot of those as an SBA express line. They're pretty low fees. You can go up to-- usually, they average 100 grand but you can go up to 250. I think the challenge is you want to find a product that's probably stated income because as we know our income just went down 10, 20 percent, whatever it was. There are some other lenders out there like a Kabbage or a Bankers Healthcare Group or a LendingTree. Some of these kind of [inaudible] lenders in a space that are willing to do some 50,000 or 100,000 dollar lines to help. The great thing about lines is they're interest only, the payment's generally lower, but if you miss a payment or if there's a cleanup provision and you don't pay it down to a certain percentage, they could term it out and that might end up hurting you in the long run.

Yeah. All really great things to know. I know a lot of our doctors right now especially in this crisis, they have opportunities that are arising. Other dentists that are older, they've determined they're not coming back. And so we have some of our doctors that are paying attention and actively growing their enterprise that are picking up some of these locations. But one of the biggest challenges is then finding the capital for that. So that's a great suggestion, and we've recommended to everybody, "If you haven't had a line of credit, probably a good time to think about getting one just to protect you from your cashflow crunches because we don't know what's around the corner." We have some other states that are now, sadly, having some of their hotspots flare up, and we're seeing some counties issue another round of stay-at-home orders that the details on that are not quite clear. So we don't know what's around the corner. I sincerely hope we are not looking at another round of shutdowns because I just don't know how many businesses or practices could literally survive that. But we're keeping your [inaudible] round the pulse of that very closely.

And I think that-- the saying with a line of credit, right, is when you need it, it's always hard to get. Right? Because there's a reason why you need it. When you don't need it, it is the reason that you should be looking at those capital options for when the next pandemic comes, obviously or the next recession. It's always great to have that ability to work in capital because when you need it, it's usually the hardest time to get it.

Right. Absolutely. So another question that we have for you, David, is what are the lending standards for something like that? Now, I know it's really difficult to really give a one-size-fits-all statement there, but have you seen a change in the lending standards post- or peri-COVID world that we're in now and for those that might be listening that are thinking, "Yeah, I don't know if I could qualify, given where I'm at my practice." Sadly, a couple people that we know of had just opened their doors. They were startups. They really don't have much of a history. So what could you say about lending standards for some of those programs?

Sure. Yeah, and that's a great question. And I would say every lender's a little bit different, but we do have some similarities. So in the United States, there's about 4,000 banks. That doesn't include credit unions. There's about 4,000 banks. Of those 4,000, there's only about 10 or 12 true practice lenders. And a lot of people know who they are whether it's Bank of America, Wells, TD Bank, [inaudible], Zions Bancorp, and Lendeavor and some of the others. There's probably 10. I've spoken to all of them, and we're all doing roughly about the same thing. And I think it's fair to say a lot of doctors, they see that quick rebound of production swing that's happening right now, and that could be a result of pent up demand of patients or just our ability to see as many patients. Maybe there are some COVID restrictions there in our throughput, but there's definitely a hit to practice value, right? Generally, banks that do practice lending look at the previous tax return year, so we're going to base practice value on what we're willing to loan on. Historically, we would do it on the prior year. So we would look at how did the practice do in 2019. Did the practice do $1 million? If it did, we're willing to lend anywhere from 750 to 950 grand depending on how profitable the practice is. But as a bank, how do you justify doing something based on 2019 when we just were all closed for six-day weeks? I mean, you just can't.

So I think what most of our us and practice lenders are doing is-- What we're looking now instead of the tax return year, we're looking at what we call a TTM, a trailing twelve months. So if the practice reopened May 1st, what most of us are doing is, we're saying, "Okay, doctor. Show us your May production. Show us your May financials when you were open for four weeks. And let us look at that and see what percentage are you of recovered? Is it 85%? Is it 90%? Is it 100%?" Some are higher than 100. And kind of what we're doing is, we want to see that rebound. And so the practices need to be open four to eight weeks so we can see a rebound, we can see a collection cycle. And then what we're going to do is, we're going to do a trailing twelve months to see how that impact was. And it's usually anywhere from 5 to 15% of a negative hit. And then what we want to do is we want to project out six months and see, "Okay. When are you going to be back to 100% capacity, understanding that your collection lag is 30 to 45 days?" Which really means that probably in June or July, maybe August is when we're going to see most practices start to normalize, as long as we don't see, as you mentioned earlier, which I think we're already seeing a wave-- But does that wave also include a stay-at-home provision or another kind of lockdown, shutdown provision? We don't know.

We don't know. Right. Well, that's such great information about how we've had to rethink the standards for a lot of things, right. For years, you've done it based off of historical productivity. But we know that for many practices, their numbers this year look dramatically different. And I agree. I see the practices that we are currently working with across the country and Canada-- I mentioned before. We taught a 100-day practice recovery plan. And those practices that downloaded the checklist, the eighth module was all about cash and finance. That was the entire topic of that module because of how critical this is for them going forward to have some of these programs in place, to know how to use the PPP loan to make sure the cash flow is ramping back up, to make sure that they have a slush fund, a liquid asset to carry them through the next phase, whether it's an economic down tune, whether it's somebody's employees that are furloughed that still have insurance today end up losing them as their companies close permanently. We don't know what is around the corner.

So this is why this is so important right now that people are thinking about it. And I know sometimes we see some practices that just hid and didn't really work on some of these things. And those are the practices that are really struggling right now. So we're happy to hear reports for the practices that did put in the time, that did think through some of these things and make plans to open strong are doing so. That's really rewarding, I think, for them as well. So I have another question about lending. For some of our practice groups that are looking at acquisitions during this time of opportunity, one of them had a question that I think would be a great question for you to answer, because certainly, I don't know the answer. But what size of a group does it take before personal guarantees are no longer necessary from your doctor?

That is a good question. So generally - that's a good question - it's going to depend a little bit on the bank size and the bank policy. But banks are regulated with the size of [inaudible]. So let's just say 50 billion and up, and so that were and that asset class what they would call too big to fail bank classified from the last recession. We're regulated by the Office of the Comptroller which we call the OCC. And the OCC regulates what they call enterprise value leveraged lending which then lending specifically grouped DSO lending falls in this category, and they're the ones that say, "Okay, well, you're funded at [inaudible] needs to be asked financial preparation and how we want to see your clients' financial [need to be why?]. And they're really regulating how we look at some of those larger DSOs and how much we're willing to advance and how much equity -they need, etc, etc. For non-recourse lending or non-guaranteed personal guaranteed launch generally in banking, the enterprise needs to be doing about 50 million in revenue, 50 million in collections, right? So there are some DSOs that do meet that criteria, and so it's not necessarily how many locations, what their reimbursement mixes, how strong the guarantors are, what the collateral type is. It's generally non-recourse lending or non-guarantor lending is generally 50 million dollars in annual collections or annual revenue or greater. Sometimes, though, we will build some metrics in there that say, "Okay, well, you're at 30 million in revenue, we'll do a 50% recourse or personal guarantor. And then as you grow, we can reduce that." So there are obviously exceptions to every rule but generally, it's 50 million dollars.

That's really good to know. And we have a couple guys that are getting up there, right? So it's great to know that a relationship with the bank matters, right? Because as you mentioned, there are options. It's not as black and white as we might think, so that's one of the reasons why I love [business?] with you guys and seeing the great work that you're doing on the practice side because there is a lot-- I think of people out there that don't really know dentistry as a business and some of the things that differentiate dentistry from other small businesses. And certainly, we've had many discussions about how important knowing the business that we're working on is for long-term success of what the practice and, of course, the finances that they choose to embrace.

Well, great David. This has been such a great conversation. I know our listeners are super grateful for all of your insights. I have one final question for you, and this may be a short one because it may be that designs doesn't have much in place, but I know we're always, always, always asked about patient financing. What do you see in practices doing that need to finance patients? We have a lot of dentists that do a high leveled implants, larger cases, but we also have a struggle sometimes finding plant financing for the Invisalign case or a $2,000 case where the patient may have limited cash for themselves. So what designs make [inaudible] have anything good in that category?

That's a really good question, and I wish I had a better answer. But unfortunately, we don't provide patient financing. I think probably the two best companies that-- most people know CareCredit. They control that market and they really set gold standard for patient financing. And then LendingTree also does it. I've heard Casper might get into that space and-- but again, those are probably your two best options. Wells Fargo Finance will do a little bit as well. I wish we could do it. But to be able to do it you have to be doing it at a level where you're approving and as fast as CareCredit where it's within seconds or minutes of them applying that the doctor, the dentist knows that they just got to prove their CareCredit. Let's go ahead and do the procedure that the individual's in the chair and ready to go to get their procedure done. We need financing now.

I would say that one-- the couple of positives that I've seen from the COVID pandemic is the innovation that practices have adopted in regards to payment and scheduling, right? I mean, as you know, Wendy, a lot of this technology's already been out there, just remote scheduling, remote payments. When I got my crown fixed I didn't even talk to the office manager or the receptionist to pay them. Everything was done on my cell phone. They sent me a link to pay. The scheduling was all done. And what we've seen is some of these larger DSOs and these practices that have seen that huge recovery, they've adopted these innovations and they're running leaner, right? They said, "Maybe I don't need to bring back that receptionist and the insurance associate that's handling all the insurance reimbursement and claims in the office. Maybe I just need one of those individuals. And then we just move to a completely digital platform which the technology is out there and they run leaner." And so they don't-- now maybe they're not seeing as many patients or they're not quite back to 100%. But their profitability is rebounding as quickly because they're running leaner. And that's one thing if we're looking for a silver lining. I know there's not a lot. But there are just those practices that have adopted that technology and have really listened to their coaches and consultants like you all. They're really doing well.

We have a great relationship with companies like that that help provide those seamless tools. And we've adopted that on our website of capability for people to chat, ask their questions, and get a more immediate answer any time of day. A good partner of ours is Podium. Their payments tool is incredible just like you mentioned. It's really helped practices boost collections without a lot of human working capital, right? And that's another talent. Sometimes it's not the doctor that's made the decision but it's team members that have-- that are in the high-risk category that have chosen they're not going to come back yet. So we have to get innovative, right, if we want to be able to continue to function as a practice. Well, gosh. I think we've covered a lot of ground. And I so appreciate your time today, David. How can people reach you if they're interested in the SBA Express line of credit if they want to discuss capital for acquisitional practices? What's the best way for them to reach out to your team in your Practice Pathways Department?

We'd love to provide that. You can go to practicepathways.com. You can go to Zions Bank or Zions Bancorp or any of our affiliate sister banks and get routed to us. It depends on where you are throughout the country. But my email is David-- I almost gave you my personal one, David.Kirby, K-I-R-B-Y, @zionsbank.com and I-- we've got 30 plus associates all throughout the country. And wherever you are we can route you to the right one. But again, we have some working capital loans and lines, credit cards, just-- we have an equipment product. We basically have all of the products that a practice would need post, during, and pre-COVID. And they change slightly but we can at least help. And so I appreciate that.

Well, thanks very much, David. I know there are always people looking for good options. And I certainly appreciate your team. I've met many of them personally through the years. And I think you guys are just doing a great job of helping dentists get what they need to continue to grow. So I appreciate your time today. It's always a pleasure to visit with you and catch up.


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