So you’ve made the decision to move forward with purchasing a veterinary practice. What is the first thing the lender is going to do? Ask what type/size of practice you’re looking ot purchase? Ask what size loan you want to take? Nope. Their first action is to check out your credit report? Why, you ask?

Your credit report contains a myriad of information that tells the lender what type of debt you have, what does your payment history look like, and what are your approximate monthly debt obligations. This information will play a huge role when determining the types of practices you may be suited to purchase. 

As a general rule of thumb, veterinary lenders are looking for a debt-to-income ratio of 50% or lower. So, for example, let’s assume you have the following monthly debt payments:

In this example, your total monthly debt payments are $3,900. What this says to the lender is you need to purchase a practice that is going to provide owner’s compensation to you for a minimum of $7,800/month ($3900/50%). 

Interestingly, this means you may be qualified to purchase a higher priced practice and denied for a lower priced practice because the lower priced practice may not provide enough income to cover your monthly debts.

But the information on my credit report is extrapolated automatically, why do I need to review? Because according to the Federal Trade Commission, approximately 20% of credit reports contain errors. One way to avoid confusion & anguish when denied a loan because of false information is to annually review your credit report for inaccuracies, and work to get any corrected.

You can request free copies of your credit reports annually by visiting AnnualCreditReport.com. Be sure when requesting your report the URL specifically shows www.AnnualCreditReport.com as the name. It is advised to save these securely for your files.

If you’d like more information on how to prepare when considering veterinary practice ownership, we invite you to download our FREE e-book “The Veterinarian’s Guide to Personal Finance: 7 Actions to Take When You Want to Own Your Own Practice”.

You can also visit us at VetWorth or schedule a complimentary phone call to see how our services can benefit you.

Andrew Langdon is a CERTIFIED FINANCIAL PLANNER™ and the founder of VetWorth, a fiduciary fee-only financial planning firm dedicated to serving the unique needs of veterinarians and their families.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Andrew Langdon, and all rights are reserved. Read the full Disclaimer.