Conventional Loan or Other for Dental Practice Financing?

Ok. So this is for my wife. She is looking at a couple of loans to do a buyout of a practice. We could do a conventional loan at roughly 8.25 percent or there is a variable one at 5.5 percent. We were also offered a loan which is locked for 6.1 percent for 5 years or 6.5percent for 7 years and renewed then.

First question is: do you think interest rates will increase 3 percentage points in the next 7 years?

Which one would you go with? I honestly don’t know too much of the details. I think the 5.5% is a SBA loan and the other is a loan 6.1 or 6.5 that is privately financed for professionals. The 8.25 percent is across the board with conventional loans.

This is for an ortho practice and price is roughly 900k

It depends on the specific situation and your ability to pay off in five or seven years. I prefer fixed rates for longer terms (10-15 years), and variable is fine for shorter terms (2-3 years). A 5-7 year term is a toss-up.

If the practice is priced right, you should be able to pay it off in 5-7 years. Therefore, I’d review my cash flow analysis for the 5-7 year fixed rate loans and see if it works, and if it does, go with either of them as my first choice.

I assume the 8.25% is a 10-year term and the 5.5% variable is tough to overlook even though it is variable. Yes, I think the variable rate could climb by 3 points in 7 years; however, the interest savings you’ll achieve over those 7 years will likely more than offset any interest cost at a higher rate in the last 3 years. Remember: the rate may be higher than 8.25 in 7 years; however, the balance is MUCH smaller.

I’ve gone through this once before with my practice. The loan term is for 10 years on the 6 percent ones. It’ll be paid by then, hopefully sooner. We are going to shoot for 7 years. I’m just wondering if interest rates will jump 3 percent in the next 5 years. That’s the big question for us. We are trying to figure out if we should get the fixed rate of 6.5 for 7 years or 6.1 for 5 years If we refinance after the 5 or 7 years on a 10 year note will interest rates be high enough that we did not benefit from the lower interest rates. The 5.5 is at a variable from day one. This one can be scary. I don’t know too much about interest rates but I know they will need to go higher in the future to offset inflation. I was hoping to get some help with this.


This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

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