Dentist Should Distinguish Between Needs and Wants for Bank Loan

I am in the process of refinancing my practice loan. I have $180K left on the loan at 6.25% and a credit line of 30K with a variable interest rate. I have an offer to consolidate the loan and the credit line for a total loan amount of $210K at 3.99% in a SBA 5 year loan. Rate would be lower if paid off faster.

My financial advisor loves the cheap money and wants me to take more “working capital” money out to either buy equipment or pay other higher interest loans. The practice revenue is $840K gross collections.

The practice was purchased in 2008 and is in need of new dental chairs/delivery systems for the two restorative ops and leasehold improvements like new flooring, re-staining of cabinets, new lighting, and updated sinks. I am also considering Cerec technology.

The banker tells me the cash flow can support a larger loan amount up to about 300k at the fixed rate but they want specifics as to what would be purchased and a 90 day timeline.

 I am feeling pressured as I had not planned to do the improvements now. The banker also says that I could take out a separate loan when I have a better plan for the renovations/purchases, but my financial advisor doesn’t like this option due to the interest rate risk.

Please advise on what steps you would take in this situation.

Jason P Wood

3.99% fixed? That’s unheard of so take it.

Yes, of course I’ll take it, but I need to figure out what to do about the extra 90K? I have no current business plan for the equipment.

Tim Lott

What are the other “high interest rate loans”?

You say you need new things, but just not now. When?

I agree, 3.99% is cheap, cheap, cheap. If I had a NEED for the $90k in the next 12-18 months I’d have to grab it and park it until I NEEDED it. If these purchases are 24+ months away, the longer in the future the “need” is, I wouldn’t take the extra $90k.

Just make sure you know the difference between “needs” vs. “wants”.
I am looking to replace my 2 1978 Pelton Crane restorative chairs with new chairs and delivery systems. I’m looking into ADEC and Belmont and do not have quotes yet as I’m waiting for the CDA convention Sept. 10th to test out all of the chairs. I feel I NEED the new chairs for ergonomics as I currently am using rear delivery and it is killing my back. The new chair purchase, though, brings up other redecorating items in the office.

One thing leads to another and another. I am absolutely ready to get the chairs and delivery systems, especially at this low rate, but I’m not sure I’m ready to re-stain cabinetry, do new flooring, repaint the office and do the new light fixtures just yet. It would involve closing the practice for a period and we did that already this year for some other renovations. So, I could try to replace the chairs and delivery systems now and do the rest later.

Obviously it is good to have a master plan and timeline for the renovations which I do not have right now. I need to get a decorator and contractor out to my office first.

The other loans at a higher interest rate are personal loans- mortgage and line of credit on my home. We are trying to re-finance the house at a lower rate and need to put more principle toward the home for the lender to re-finance.

So, this extra cash from the business loan after doing the chairs would allow me to transfer some of the money from my current business savings account to a personal use and save me about 12K per year after the mortgage is refinanced. The refi of the dental practice is going to save me 4K on the year, so between the two, a total of 16K per year savings.

But, the bank will only lend for equipment and improvements that are actually done. My financial advisor is trying to find a way around this and just have the bank categorize it as “working capital”, but I doubt it will happen.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

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