Properly Align Loans and Debt Payment Ratio: What Steps Should I Take to Renegotiate/Restructure My Practice Loans?

As a dental practice owner, your practice and equipment loans are a vital component of your business plan. However, like everything else in life, the loan market is constantly changing.

Lenders sell money. The price they charge is their interest rate and loan terms. Just as you survey different dental supply vendors for the best deal, it is a good idea survey the loan market. So, what steps should you take to renegotiate or restructure your current practice debt?

1. Clearly identify what you want to do. For example, “I want to consolidate my outstanding practice and equipment loans with a monthly payment that is no more 80 percent of my current loan payments and with a term of less than X years.”

2. Select at least two but no more than four lenders (be sure to include your current lenders on this list). Check with local dentists in your study club to find out who they work with.

3. Provide each lender with your current loan information, as well as an idea of what you want to do (i.e., consolidate your current loans). Give them a deadline of two to three weeks to come up with a new loan offer.

4. Lenders will typically request the following additional information:

  • Most recent practice profit and loss statement.
  • A current personal financial statement (showing your personal assets and personal loans).
  • Two to three years of your personal and practice tax returns.
  • Permission to access your credit report.

5. Most lenders will be very interested in this type of opportunity. When you receive each proposal, avoid the following loan “features”:

  • Commitment, origination and other loan fees: The best lenders minimize these fees.
  • Prepayment penalties: Most lenders will charge a prepayment penalty based on the interest income they lose for the remaining term of the loan. It is reasonable for a lender to expect you to commit to a loan arrangement for two or three years. Again, the best lenders minimize prepayment penalties.
  • Required business checking and/or charge card clearing services: It is no secret that the more relationships you have with a lender, the more difficult it is to leave that particular lender. Once again, the best lenders will not require add-on services.

6. Negotiate! Do not be afraid to push for the best terms. However, there are some reasonable lender requirements:

  • Required personal guarantee: Lenders may require that you personally guarantee their loans. This is a common requirement and understandable in that, essentially, in many cases the dentist and the practice are one and the same.
  • Consolidation of all loans: Even if you are requesting only one loan, lenders typically will require a loan refinance or consolidation for all your outstanding practice debt. In case of loan default, lenders want to be the sole creditor so that they have access to all a practice’s assets.

This commentary originally appeared April 11 on DentalTown.com

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The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2018, Buckingham Strategic Wealth®

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Michael T. McAninch, CPA, CFP®

As a practice integration advisor with Buckingham Strategic Wealth, Mike helps clients develop a plan, which he sees as a roadmap to financial goals and objectives. Mike specializes in the implementation of strategies for business and personal cash flow tax efficient saving, income and estate tax planning, personal and professional debt review, and business transition planning and execution.

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