If you need financing for your dental practice, you should consider an SBA loan. In 2011, more than 53,000 new SBA loans for approximately $19.6 billion were approved by the United States Small Business Administration (SBA). Although these loans require a little more paperwork than conventional loans, the benefit to a small business, which often comes in the form of a better interest rate, can be considerable.
Before applying for an SBA loan, it is important to understand that, in spite of their name, SBA loans are not, in fact, loans made by the SBA. Instead, they are loans that are partially guaranteed by the SBA. It is this guarantee that makes these loans attractive to both lenders and borrowers. Generally, speaking, the more certain a lender is of repayment, the better the terms on which a loan will be made. If repayment is very likely, the interest rate will usually be lower than if repayment is less certain. Consequently, if a lender knows that the SBA will repay part of your loan if you do not (because the SBA has guaranteed that it will do so) the lender will often make that loan to you on more favorable terms.
Of the many types of SBA loans, there are three that are particularly likely to benefit a dentist. The first type, known as a 7(a) loan, is a loan of up to $5,000,000 for a term of 5 to 10 years (if the loan is for working capital and/or machinery or equipment) and for a term of up to 25 years, if the loan is for real estate. The second type, an SBA Express loan, is a loan of up to $350,000, which may be either a revolving credit or a term loan, with a term of up to 7 years (if it is a revolving credit loan) and the same term as a 7(a) loan (if it is a term loan). The last type is a 504 loan which, for a dentist, could be in an amount of up to $5,000,000, with a term of up to 20 years (for that portion of the loan that is guaranteed by the SBA; the balance of the loan could be for a shorter term).
The interest rate on the guaranteed portion of a 504 loan (which can be up to 40% of the total project cost) is fixed for the term of the loan. The interest rate on the balance of a 504 loan, as well as the interest rate on a 7(a) or SBA Express loan, may be either fixed or variable.
Both 7(a) and SBA Express loans may be used for such purposes as acquiring or improving assets, such as real estate, equipment or even an operating business, for leasehold improvements, for working capital, for inventory, as a seasonal line of credit or to refinance debt for compelling reasons. 504 loans may only be used to acquire land and/or a building and for related development costs, to construct, expand and/or remodel a building, to purchase capital equipment and machinery, to refinance debt in connection with the expansion of a business through new or renovated facilities or equipment, and for professional fees and soft costs relating to these activities. Proceeds of 504 loans cannot be used for working capital, inventory or for consolidating, repaying or refinancing debt (except as described in the preceding sentence).
The SBA loan programs are constantly changing, so the terms and requirements that apply today may not be the terms and requirements that will apply in the future. While this article gives you a snapshot, as of this writing, of three of the current SBA programs, you should be sure to review all currently available SBA loan options with your lender, when you are ready to apply for financing.
This article was written by Janice L. Gauthier, Esq. Ms. Gauthier has an A.B. from Harvard University and a J.D. from Harvard Law School. She is the owner of The Gauthier Law Group, LLC, a boutique law firm that represents dentists, physicians, health care providers, professional service practices and other businesses and business owners in Wisconsin and Illinois. You can contact Ms. Gauthier at 414-270-3857 or by email. To learn more about Ms. Gauthier’s background and experience, visit her Google or LinkedIn profiles.
© 2012 The Gauthier Law Group, LLC