by Mitch Jacobs
As every practice owner knows, both money-making opportunities and unexpected situations present themselves on a regular basis. Upgrading your computer system, hiring that hygienist for Saturday morning appointments, or forging ahead with the transition to digital X-rays are all ways to grow and develop your business. There also are times when your main chair breaks with no warning … and your business is hamstrung until it can be replaced or fixed.
Having access to cash is essential to keeping your business moving forward during both types of situations. However, being in the financial position to put capital towards these situations isn’t always feasible, and many practice owners are often left in a bind when the unexpected opportunities or emergencies arise.
Knowledge is powerTo be most effective as an owner of your practice, you should know the various
financing options best suits your needs, and if you are likely to qualify for them. It’s important to have a firm grasp of both your personal and business credit profiles before finding yourself in need of loan. With many lenders tightening their credit policies, more and more dentists are not qualifying for the financing they applied for. For example, a bank typically won’t make a loan if your personal credit score isn’t above a certain threshold (a ballpark figure of 680). What follos is a list of some of the financing options available based on certain qualifications and needs. For additional insight, check out On Deck’s website (
www.ondeckcapital.com), which features free tools you can use to gain further insight into both your credit profiles and lending options.
Short-term business loan: This means
real loans — not merchant cash advances — that enable you to extend payments over 6 to 18 months at total costs that are similar or less than long-term financing. The benefits of a short-term business loan are threefold: 1) it’s based on your business performance and not just personal credit, 2) it requires information that is readily available from your electronic records (bank account, credit card transactions, etc.), and 3) the term is designed to allow you to spread out repayment, as well as have the loan paid down before your next opportunity surfaces (you don’t want debt stacking up on your business). Furthermore, short-term business loans can build up your business credit, so you’re preparing for future loans down the road while simultaneously growing your business. Short-term business loans are typically less than $150,000, so buying a new practice or major “soup to nuts” renovations won’t fit the bill. These loans can typically be funded in as fast as seven business days, and the application process can be done entirely online.
Example: On Deck Using personal credit or assets: More often than not, most of your business credit is based on your personal credit. The benefit is that applying for a commercial card or line of credit is easy. However, there are two main drawbacks: 1) If you’ve already drawn on your personal credit, your score may have been impacted (this is not a reflection of you, but rather of the system), and 2) Loan programs based on personal credit are designed for household use. So, while your project or repair may require $50,000, you may only get $10,000. You could borrow against your home; however, this is a difficult and time-consuming option that poses potential risk to the household.
Examples: Credit cards, home equity, Lending Club, Prosper
Bank Financing: If your project is a full end-to-end renovation, or if you are starting a new practice, then a traditional
long-term loan is your best fit. The application process for a traditional bank loan takes a significant amount of time — anywhere from a few weeks to several months. You will need to present detailed financial records (balance sheet, cash flow, income statement), and tax forms for your household and business, along with other information.
Examples: Bank Loans, SBA Loans
Going forward, always remember that when tackling your next opportunity or emergency, preparation is half the battle. Knowing exactly where you stand credit-wise, as well as what your financing options are, will help your practice through its next transition.
