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- Business Loans – Provide a lump sum with fixed payments, ideal for large one-time expenses but lack flexibility and require new loans for additional funding.
- Business Lines of Credit – Offer ongoing access to funds with interest-only payments on what is used, allowing flexibility but with variable payments and lower borrowing limits.
- Best Option for Dentists – Lines of credit help manage cash flow, while loans are better for major investments; the right choice depends on specific practice needs.
When it comes to financing major purchases, equipment, expansion, or managing cash flow, dental practices have two main options - loans or business lines of credit. What are the differences and how do you choose?
Business Loans
Loans provide a lump sum upfront and are repaid in regular installments over a set term.
The pros of loans:
- Fixed regular payments - This helps with predictable budgeting.
- Can fund large expenses - Loans finance major one-time costs.
- May offer lower rates for qualified borrowers - Interest rates can be competitive.
The cons:
- Less flexibility - The funds are dispersed upfront and payments are fixed.
- New funding requires new loan - No ability to re-access repaid amounts if more funds are needed.
Business Lines of Credit
A line of credit provides access to a preset borrowing limit that can be tapped as needed. Only interest is paid on amounts used.
Benefits of lines of credit:
- Access funds anytime - Ongoing available capital for varying needs.
- Interest-only payments - Pay only for what you actually borrow.
- Revolving credit - As money is repaid, it can be borrowed again.
- Flexible spending - Funds are not restricted to one purpose.
Drawbacks include:
- Variable payments - Fluctuating interest expenses based on usage.
- Lower limits - Maximum borrowing caps may be under $250k.
For dentists, lines of credit tend to provide more convenient access to working capital that can smooth out cash flow timing issues. Loans may be better suited for large one-time investments. Assessing your practice's needs and financing options will determine the best funding structure.
