Like most other businesses, dental practices go through extremely busy periods followed by relatively slow periods, making your income irregular.  The busy periods are associated with higher collections, but also higher expenses, especially from lab fees for all the porcelain work you just cemented.  When your practice (and collections) starts to slow down, and a high lab bill lands on your desk, along with your employees’ time sheets for all the OT hours they worked in the last few weeks, AND there is an estimated tax payment coming due, you’re thinking… FML, amirite?  More articulately, you might be thinking “do I have enough cash in my bank account right now???”.  If this has ever happened to you, then what you need is a revolving line of credit.

A revolving line of credit is a flexible, open-ended loan that allows you to borrow up to a preset limit, pay it back, and be able to borrow up to that limit again during the time of the line of credit.  You only pay interest on the money you’ve borrowed, not the entire amount available to you (AKA your credit limit).  For small businesses, like dental practices, it can be a lifesaver when you’re low on cash due to the fluctuating nature of our business.

You have a credit card, why do you need a line of credit?

It’s true that your credit card is another form of revolving credit, but the interest rates on credit cards are astronomical.  If you have a good credit score, and are able to you use your practice as collateral, you can get what is called a ‘secured’ line of credit with a much better interest rate, saving you lots of money.

Why don’t you just budget better, so that you don’t need to borrow money?

Like I said at the top, dental business income is irregular so it’s not always possible to budget appropriately.  As a recent example, when our office shut down for 2 months as part of the shelter-in-place orders earlier this year, we were thankful to be able to draw from our line of credit until we received the funds from the PPP loan.  In other years, we have used the line of credit to bridge the income gap the occurs every December when we close for 2 weeks during the holidays.

Where should I look for a line of credit?

Start with where you do your business banking.  You already have a relationship with them, and banks are motivated to tie you to more “products” because after a certain number (I think 7?), consumers find it too much of a hassle to switch to another bank and basically stay as a client forever.  Once you get a quote, don’t stop there (unless they offer you 0% interest, with $0 maintenance fees) and shop it around to other banks to see if they have a better offer.  If you get a better offer, bring it back to your bank to see if they can do any better.  Alternatively, you can start with other banks before you bring it back to your bank.  Remember, dentists are highly desirable banking clients because we have very low default rates on our loans (2nd only to chicken farmers, so I’m told).  The ideal situation would be having both the line of credit and your bank account at the same bank, which would make using the line of credit much more seamless in a cinch.

You might be thinking, “I’m fine, I never run into these issues”, but the point of having a revolving line of credit is not to need to draw from it regularly.  In fact, I would implore you to review your spending habits if you needed it regularly.  Having a line of credit is a safety net for unexpected expenses or to bridge a gap in income, and the best time to sign up for one is when you DON’T need the money so that you can take your time to shop around for the best rate.

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