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.

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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.