Refinancing your dental practice

You have effectively worked to keep your costs as low as they can possibly be. Your ability to use home equity lines at cheap rates have allowed you to save substantial money when borrowing for your practice needs rather than using commercial bank rates and terms for the practice. The repayment schedule on the home equity line has afforded the practice the flexibility, along with the low interest rate, of maintaining the best cash flow available for the dental practice.  Your record keeping has had to be in good order to segregate these loans for the use by the dental practice, which is the way your record keeping should be anyway, the savings in interest costs, and lesser than commercial bank repayment terms, have assisted you greatly with your practice growth. After consulting with your advisors and because of today’s low interest rates, you have now determined that it is the time to refinance your entire practice, pay off your equity lines, and possibly use the commercial loan for the acquisition of another practice, to assist in your associate’s acquisition of your practice or for some other good economic reason. You are ready to apply to one of the dental specialty lenders for a refinance of your practice debt and a pay off of your equity line because of one of these circumstances. What do you think will occur when you begin the application process?

Discussions with the lender regarding the refinance  

Prior to preparing the application for the loan, it is a good idea to discuss the entire process with the lender. You and your financial advisors can meet with the lender to review the concepts that you have used to build your dental practice. You can have your financial data available such as tax returns, P&Ls and personal financial information that the lender will require. You can discuss the purpose of the loan and what will be done with the proceeds. The lender will want to make sure that your credit score is good and that you do not have any problems with any lenders or creditors. After all of the information has been exchanged, don’t be surprised if the lender begins a story of how you may not be assured of receiving the loan approval. This comment may seem inconceivable to you since you have always maintained the most cost effective approach that you possibly could to running the operational side of your practice. The lender will most likely state that it is their “policy” not to refinance a loan where funds can be withdrawn from the practice or even where they can be used for working capital.

Preserve your credit score

Before the formal application is presented, it is important to have the above discussions to make sure that you have a good chance to get the loan. Every application for a loan is a mark that could reduce your credit score. If you hear that it will be difficult to have the loan approved for reasons other than a payoff of an existing loan, think twice about the application. It may be smarter to present a “purpose” that will be accepted by the lender such as the direct payoff of the equity line, lease balances and other items where no funds are left in the practice for withdrawal or for working capital.

Are there lenders who will advance funds for withdrawal purposes from the practice?

There are some lenders available who will advance funds under the above scenario. They are typically those new to the dental field and those with strong capital ratios who have not had the large charge offs that banks have had in the last few years. . Many of the larger banks have policies whereby they will not lend if you need the money. You need not bother applying to these banks. You should definitely ascertain from your advisors where you should apply for the loan. Those dentists with advisors who are not frequently involved with loan applications may not know where to find the best sources for loans. Quiz your consultants on their knowledge of the lenders they work with to make sure that you are not wasting your time or adversely effecting your credit score. The credit markets have gotten much tighter in recent years and the banks seem afraid of any type of risk at all.

Which advisors know where the application process will be approved?

Because this is such a specialized field, advisors, such as CPA’s who work with specialty dental lenders, typically have the best knowledge and most experience in working with the type of lender who will advance funds to dental practices, especially when working capital is needed or when the loan funds are requested for withdrawal. Make sure that your advisor knows your financial package and can answer the financial and tax oriented questions that bankers will ask. Find out from your CPA who he or she has worked with and how successful they have been in having loan applications approved. Even with the expertise available to the “Dental CPA,” it is still not an easy process.  There are bank application forms, tax returns, financial statements, conference calls and due diligence performed by the lender that will make you feel like you are not going to get the loan approved. The process may take weeks to complete. You can not give up, even when the banker assigned to your case goes on vacation and someone else takes over your case. Applications to two lenders are usually a good idea in the event that one of the lenders takes too long or if you feel as if you are not going to get the loan approved. Your advisor will know who to approach and how to protect your credit score.

Bruce Bryen is managing partner for Bryen & Bryen LLP, Certified Public Accountants. Based in New Jersey, Mr. Bryen specializes in deferred compensation such as retirement plans, income and estate tax planning, the determination of the proper organizational format, asset protection and structuring loapn ackages for presentation to financial institutions. Bruce is also experienced in providing litigation support services and has testified on numerous occasions as an expert witness. Contact him at 800-988-5674, ext. 112.