Does student loan debt preclude practice ownership?
One concern that I hear a lot from new dentists centers on their ability to buy or start a practice while carrying student loan debt. Sometimes they almost seem to be talking themselves out of the idea all together. This lack of confidence seems to be centered on the belief that student loan debt will preclude them from getting a practice loan. But if you think about it, you will realize that to pay off any debt you need money, and owning a practice may mean generating the kind of cash flow you need to get rid of that debt.
If I could ensure that the newer dentists I speak with understand one thing it would be that having high student loan debt does not make you unique; in fact it may make you typical of a first time practice owner. So where do you start? Working with a dental certified public accountant (CPA) and your lender will help you determine how much you can borrow. These professionals will help you understand the numbers, including how much cash flow you need to not only pay down the practice loan but also have enough to finance your student loan and living expenses.
Student loan debt is an investment in yourself and your future business
It is unlike a car loan or a home loan, which are considered consumer debt. For that reason, most financial institutions look at student loan debt differently. Simply stated, a practice will generate income, while a new car will not. And to give you an idea of how lenders see dental practice loans, major banks report that the failure rate in dental loans is less than 1 percent. This means that, according to the leading lenders in the industry, you have a 99 percent success rate. That makes you a pretty good bet.
Let’s drill down a little further. I’m often asked whether there is a magic number to keep in mind when considering your debt and judging the likelihood of getting approved for a practice loan. Although there is no “one size fits all” approach I can recommend, there are some things you might consider to enhance the way you look on paper.
Investigate your options for student loan refinancing and make sure that you are setting yourself up for success with whatever approach you decide to take. There are many resources out there to consider for student loan refinancing. The ADA’s recommended refinancing program, Laurel Road, shows the various rates and loan terms you have to choose from in the chart on this page. You can use these as examples to calculate the impact of the different decisions you might make and how that may have an impact on your business loan.
Of course, getting the practice loan doesn’t automatically guarantee success. Running and managing a successful practice is a lot of work. You will need a sound business plan that you can realistically execute. You will need a good team of advisors to help you through the acquisition or beginning phases of your practice. You’ll have to understand the basics of marketing your practice and managing your cash flow. You will have to hire and manage your staff. But there are resources and support to help you with these things.
There is a saying in dentistry, “You only have so many crown preps … .” How do you plan to use yours? If it is in your dream to do those preparations in the office that you created and own yourself, just know that it is possible.
This article, republished with permission, originally appeared in the spring 2018 issue of the ADA’s Dental Practice Success. It was written by Sabrina Morrow, business development manager for Wells Fargo Practice Finance, specializes in helping small business healthcare clients with start up or acquire a new practice, upgrade, renovate or expand an existing practice or prepare for a transition. Learn more at Wells Fargo Practice Finance. View her on demand webinar Demystifying the Practice Loan Process on the ADA Center for Professional Success.