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Time To Reconsider Your Financing Options

March 28, 2012
Gorge Harrop explains why the right financing can be profitable to your dental practice.

by George Harrop

Even with the economy showing signs of recovery, dentists and other health-care professionals are generally averse to accumulating additional debt. This healthy reluctance, however, has prevented many dentists from realizing that the right financing can be profitable to their practices. In fact, all signs point to 2012 as a golden year for obtaining a professional loan. A combination of factors makes this an attractive option. Lower real estate values, historically low interest rates. and new financing products have created a perfect storm of opportunity for dentists to improve cash flow and secure long-term stability for their practices. Lenders also view dentists in a positive light because of their high customer retention rates and low liability risks compared to other medical professionals. Here are five things you can do to take advantage of these favorable conditions and improve your profitability:Refinance existing practice loans. If you obtained a loan to purchase a practice several years ago, consider refinancing it at a lower interest rate with a longer term. Amortizing the loan over more years will lower your monthly payments and directly improve your cash flow. For a number of our clients, this simple move has resulted in monthly savings of thousands of dollars.Many dentists have purchased various types of equipment with short-term financing, and some have used personal credit cards to keep up with practice growth. Refinancing enables you to roll disparate loans into one note and often obtain funds to upgrade your equipment or, in some cases, renovate or expand your offices. With the right loan product, monthly payments can be the same or even lower. Lock in rates. Because of today’s exceptionally low rates, dentists with established practices should look for fixed-rate products. A three-, five- or 10-year fixed rate loan provides security and stability at very small additional premium over a variable rate loan. While conventional loans typically offer a fixed rate and a balloon, or full repayment, at the end of the fixed rate term, today’s loan products also give you the opportunity to have the loan reset at the end of its term at a new, fixed interest rate. Stop renting and buy the building!There has never been a better time for dentists to buy real estate. In many markets, they can purchase an office condominium and pay the same or less for mortgage and taxes than what they currently pay for rent. Additional benefits include the stability of ownership, the long-term gains from appreciation, and the freedom to design the space to suit your practice’s needs.For these kinds of loans, lenders can offer 100 percent financing that covers all design, construction, and permit costs. Improvements such as new equipment also can be rolled into the loan. And, when it's time to sell the practice, you have the option of retaining the building and having a revenue stream from renting the space to the new practice owner. Take advantage of the high leverage available to launch or expand your practice. Several loan products enable dentists to finance the acquisition of an existing practice, or one with real estate, with a very low down payment. These are available even to recent dental school grads who typically have significant educational loans to repay, little real-world experience, and low cash reserves and savings. By taking advantage of government-guaranteed loan products, these borrowers have the opportunity to acquire their own practice with stable, long-term financing that requires minimal cash at closing.For example, CapitalSource helped a recent graduate acquire a thriving practice — including equipment and inventory — with just a 10 percent down payment. This individual was denied a loan by other lenders because of his inexperience, but this risk was mitigated by his good personal credit rating and the fact that his wife, a hygienist, would be working at his practice. Keep in mind that it is much more difficult to finance a start-up practice with a high-leverage loan than an established practice with demonstrable revenues and an established book of patients.Look outside the box for lending partners. Although the economic downturn has sidelined many non-bank lenders, others with the stability and liquidity to offer creative financing have found plentiful opportunities in the health-care field. In 2011, for example, the Small Business Administration dramatically streamlined and revamped its lending programs, enabling creative, committed lenders to offer very attractive options for practice expansion, acquisition, and refinancing. Make sure the lenders you approach for a loan have access to these programs or else they won’t be motivated to provide longer term, lower-interest loans. By taking advantage of today’s favorable market conditions — whether for expansion, acquisition, or refinancing — smart borrowers can lock in long-term savings and stability with a host of new lending products tailored to their needs. Don’t let this opportunity slip away!
George Harrop is managing director of the Small Business Lending division at CapitalSource, Inc. He directs the CapitalSource lending program that was formed to meet the specialized needs of small business borrowers, including providing conventional and SBA loans to clients in a wide variety of industries across the country. He can be reached by phone at (301) 272-3710 or via e-mail at [email protected].