Written in collaboration with Head of Practice Solutions Brandon Finazzo and Healthcare Credit Manager Scott Aman

As a dentist and practice owner, managing your practice’s finances is as important as providing excellent patient care. If you have existing loans, refinancing may be a smart move to reduce costs, improve cash flow, and set your practice up for long-term success.

But is refinancing the right choice for you? Here’s what you need to know.

What is dental practice loan refinancing?

Dental practice loan refinancing involves replacing an existing practice loan with a new one, often to secure more favorable terms. Refinancing is especially beneficial for dentists who took out loans when interest rates were higher or for those who have improved their creditworthiness over time.

By securing a lower rate, you can save thousands of dollars in interest payments over the life of the loan. Additionally, refinancing can provide an opportunity to restructure debt in a way that aligns better with business growth plans.

Benefits of refinancing

Advantages of refinancing a dental practice loan include:

• Lower interest rates: A reduced rate can significantly decrease monthly payments and overall interest costs over the life of your loan. Even a small percentage decrease in interest rates can lead to substantial savings over time.
• Loan consolidation: Managing multiple loans can be cumbersome. Refinancing can consolidate multiple high-interest loans into a single, manageable payment and can be particularly useful for dentists who have taken out equipment loans, real estate loans, and working capital loans separately.
• Extended loan terms: Lengthening the loan term can lower monthly payments, freeing up cash flow for business investments or personal financial goals. However, it’s important to know that while monthly payments may be lower, a longer-term loan could mean paying more interest over time.
• Reinvestment in the practice: Refinancing can unlock additional funds, enabling dentists to upgrade equipment, expand their practice, hire additional staff, or invest in marketing efforts.

Potential risks of refinancing

While refinancing offers numerous advantages, there are some potential risks:

• Unfavorable loan terms: Some refinancing options may come with higher interest rates or shorter repayment periods, negating financial benefits. Carefully review all terms and conditions before committing to a new loan.
• Increased borrowing costs: Hidden fees, origination charges, and other refinancing expenses can sometimes make refinancing more costly than anticipated. Borrowers should request a breakdown of all fees and ensure they understand the total cost.

Making the decision to refinance

Before deciding to refinance, be sure to:

• Understand current terms: Review your existing loan agreements, identifying any prepayment penalties or balloon payments that could impact refinancing decisions. Some loans may have clauses that make refinancing less beneficial.
• Analyze proposed terms: Compare interest rates, loan durations, and potential savings to determine whether refinancing offers tangible financial benefits. Calculate the break-even point—how long it will take to recover refinancing costs through lower payments.
• Align with financial goals: Refinancing should support both the practice’s business strategy and personal financial aspirations. Ask yourself whether refinancing will help you achieve short- and long-term financial goals, such as reducing debt faster or freeing up funds for business growth.

Required documentation for refinancing

Lenders require specific financial documents to assess a borrower’s eligibility for refinancing, including:

• Three years of personal and business tax returns
• Current debt schedule
• Interim financial statements
• Current loan statements

Choosing the right lender

Different types of lenders offer refinancing for dental practice loans, including traditional banks, Small Business Administration (SBA) lenders, high-interest lenders, and fintech companies.

• Traditional banks: These lenders often offer competitive rates but may have strict eligibility requirements and long approval processes.
• SBA lenders: The Small Business Administration provides refinancing options with favorable terms, but the application process can be complex and time-consuming.
• High-interest lenders: While easier to qualify for, these lenders charge significantly higher interest rates, which can offset the benefits of refinancing.
• Non-traditional banks: Online lenders provide a convenient and fast way to refinance, often with competitive rates and streamlined application processes. However, borrowers should carefully review terms to ensure they are getting the best deal.

Time to refinance?

Refinancing a dental practice loan can be a smart financial move, but it requires careful evaluation of current and proposed loan terms. Before refinancing, consider your long-term goals, weigh the benefits against potential risks, and choose the right lender for your needs.

By understanding the refinancing process and being proactive about financial planning, you can enhance your practice’s financial health and set yourself up for long-term success. Explore dental practice loan refinancing with Panacea Financial.