As a dental student, you may already be carrying significant student loan debt. Paying down that debt requires income — cash flow that may best be generated by opening or buying into your own practice upon graduation. New dentists and those about to graduate often feel caught in a vicious circle when they perceive that debt may deny them a practice loan and prevent them from moving forward in their career.
But don’t focus solely on the dollar sign on your loan. Other factors, such as understanding the credit process, can make the difference between successful debt management and scrambling to pay bills.
Sabrina Morrow, MBA, is a business development manager who specializes in helping small business health care clients with practice startup, acquisition, expansion and transition. In the article, “Does student loan debt preclude practice ownership?” she explains how it’s important to understand the credit system and loan process so you can approach debt with clear eyes and an intelligent approach.
“Student loan debt in and of itself does not prohibit you from owning a practice or being in private practice,” she notes. She suggests that you ask yourself two questions:
- Is my credit strong enough to allow me to get the financing I need for my practice?
- What does my credit history tell a lender?
In the “Demystifying the Practice Loan Process” webinar, Morrow explains the five factors reporting agencies generally use to calculate credit scores, along with their relative importance:
- Payment history (Have you made your payments on time?): 35 percent
- Outstanding debt (How much do you owe?): 30 percent
- Credit history (Length of time you’ve had credit): 15 percent
- Pursuit of new credit (Are you looking for new debt, and how might it affect your total amount of debt?): 10 percent
- Types of credit in use (e.g. mortgage, installment loans, revolving credit): 10 percent
Most financial institutions consider student loan debt to be different from consumer debt, such as a car or a home loan, because a practice will generate income, while a car depreciates in value over time. Major banks have found the failure rate in dental loans to be less than 1 percent, which makes them a positive investment from the lender’s point of view.
Morrow notes the importance of developing and maintaining your credit profile, understanding how an application becomes a loan and assembling a team of financial advisers to ensure success. She also advises taking steps to protect against identity theft, identifying prepayment penalties in advance and being prepared to work with the lender if issues arrive during loan repayment.
Of course, managing a successful practice requires continued effort and a sound business plan, and obtaining a practice loan doesn’t guarantee success. Understanding your loan options and managing your credit history is simply the first step in a successful career.
~ADA Center for Professional Success
This content is sponsored and does not necessarily reflect the views of ASDA.