Many factors come into play when it comes to choosing a best small business loan for your dental practice. Begin with these basic guidelines, and you’ll find the right fit for you and your needs.
Dentistry is a noble but expensive profession. A new practice requires an average of $ 500,000 to outfit an office, purchase equipment, and stock up on supplies. That’s a pretty big chunk of change, and, given the American Dental Education Association (ADEA) puts the average dental student loan debt at $ 262,119, there’s a good chance you don’t have that cash on hand.
Enter small business financing. Not all loans are created equal, though, and the best course of action for you will vary depending on how much money you need, what your credit looks like, and how long you’re planning to repay.
Here’s how you can pick the best small business loan for your dental practice.
1. Determine how much cash you need
The cost of capital can vary, depending on whether you’re buying an existing practice or starting from scratch. In either case you’ll want to put together a strong business plan to get a solid idea of how much money you’ll actually need. At the very least, your business plan should include a cash-flow projection for the next one to two months, a description of what the business does, a list of potential loan collateral and, if the dental practice already exists, two or three years of financials.
Get estimates of your expenses and run them up against your projected revenue. (Per U.S. News & World Report, dentists made a median salary of $ 152,700 in 2015. There’s a good chance you won’t be able to pay yourself that much when you’re first starting out, but the number can at least provide a reference point.) Once you crunch the numbers, consider if there’s anywhere you can cut back before settling on a final amount.
2. Weigh the cost of each option
You’ll also want to comparison shop for the very best loan you can net. These days, small business owners have lots of options, from term loans and revolving credit, short- and long-term financing, start-up loans, micro-loans, equipment loans, real estate loans, and so on. Take your time when comparing costs, and be sure to check your credit score.
Most business loans, and particularly business credit cards, require a personal guarantee, meaning your consumer credit score will affect the rates you’ll be quoted. If your credit is not so hot, see if there’s anything you can do to improve your standing before taking on a loan. Good first steps include paying off credit card balances, disputing errors on your credit reports, and shoring up any delinquencies.
3. Carefully consider the loan term
A small business loan can take up to 25 years to pay off, and the longer the term of your loan, the more interest you’ll pay. On the flip side, short-term loans will carry a higher monthly payment that might be difficult to pay when you’re first starting out. Hitting the sweet spot goes back to having a solid business plan; you’ll want a solid estimate of how much money you’ll truly need so you don’t wind up borrowing more than you should and overextending yourself. Once you have an amount, you can settle on a loan term based on a monthly payment that will fit in your budget, and an interest rate that won’t bleed your business dry.
4. You’ll pay for fast cash
It may feel as if your practice should have opened yesterday, but beware of ads promising “instant approval” and “fast cash.” You’re likely to pay for super-speedy underwriting in interest and fees. Be sure to vet lenders carefully before filling out any applications. Read online reviews and check a company’s standing with the Better Business Bureau. Beyond that, you should closely read the fine print of every offer and ask plenty of questions about interest, fees, and any refinancing options that may be available down the line.
5. Think big picture
While you want to think about creating your dream practice, it’s important to know exactly what each dollar you’re borrowing is going to be used for. You’ll also want to consider your personal finances before diving into the small business loan pool. Consider consulting a small business attorney to incorporate your business as an LLC, S Corp., or C Corp. Otherwise, if you operate as a sole proprietor, your business and personal credit, and debts, will be one and the same.
Remember, when it comes to securing a solid business loan, patience can quite literally pay off. If you’re feeling overwhelmed, break down the financing hunt into three stages—decide what you need, learn about all your options, and shop around for the final product. That way you’ll feel a whole lot better when you finally do sign on the dotted line.
Jeanine Skowronski is the executive editor of Credit.com. Her work has been featured by The Wall Street Journal, American Banker, TheStreet, Newsweek, Business Insider, Yahoo Finance, MSN, Fox Business, Forbes, CNBC, and other online publications.