Can the lender allow a flexible repayment structure that increases payments over time as your practice grows?
• Does the lender offer practical and valuable incentives for building an ongoing relationship, or are they interested only in an independent project transaction?
To ensure you have a financing partner who understands your needs and can act as your advocate through the life of your loan, work with a direct lender rather than a financing broker. While financing brokers can shop a good “deal,” they are not necessarily in a position to evaluate and support the full scope of your financing needs and can ultimately cost additional time and money.
Different Approaches to Lending Decisions
There are real differences in the approach lenders take in developing their credit decisions. The two key differences are between collateral-based lending and cash-flow lending.
• Collateral-based lenders typically make credit decisions based on the value of your personal assets and use personal items such as your home, money market accounts, and Certificates of Deposit as collateral. Your local bank is most likely a collateral-based lender.
• Cash flow lenders use the historical performance of a practice — or, in the case of start-ups, projected revenue and cash flow — to make credit decisions and use the practice as collateral, not your personal assets. Cash flow lenders are usually specialty lenders that specialize in a particular business or industry.
If you are concerned about using your personal assets as collateral for your business, look for a cash-flow lender. This will protect your personal assets while providing a realistic basis for obtaining funding.
Once you have determined the type of lender you prefer, consider asking the following questions of potential lenders to gain an understanding of the type and quality of service they can provide for your project.
• Which specific markets do you serve? Does the lender understand the unique financing needs of dental practices?
• May I speak with your current dental customers? Speaking to references will help you determine whether this lender can support your specific needs. If a lender does not have or will not offer the names of dental customers, move on.
• How does the approval and funding process work? A streamlined process, usually for smaller loan amounts that require only an application, should provide approvals within one to two days. Approvals for larger or complex loan requests involve a more in-depth analysis and should take approximately five to seven days once the required information is received. In all cases, the documentation and funding process varies depending on how quickly required documents are received (e.g., invoices, contractor budgets, copies of lease agreements, etc.) and the overall progress of your project. Funding can occur anywhere from a couple of weeks to several months post-approval.
• What is your prepayment policy?
° Ensure there are no prepayment penalties, and avoid balloon payments if possible.
• Who will fund and service my loan?
° You want to work with a reliable financing team throughout your project that is available to answer questions, provide useful resources, and help you solve any funding issues. Make sure your loan is not packaged and sold to a third party.
• Who do I call if I have questions or need help?
° Make sure your lender can provide a name, not just a department.
• How can you help if I experience problems in my practice?
° You want to know your lender is part of your team and available to help you overcome challenges.
Getting Prequalified
Talk to your lender about your project to determine if it is financially feasible, and ask to be prequalified for a specified amount. In today’s lending environment you will likely need to provide a good deal of documentation, including the following:
FIGURE 2.6: TYPICAL LOAN DOCUMENTATION
Once you have selected your lender, celebrate! You have just added a critical member to your project team.
Take Advantage of Cost-Saving Opportunities
With various tax incentives available for small businesses, there are a number of ways you can maximize the investment in your practice design through tax deduction and depreciation strategies. In addition to straight line depreciation, here are two valuable tax programs that can help leverage the design investment in your practice. Talk to your financial advisor to find out what additional incentives are available.
Use Cost Segregation to Reduce Building Costs
For businesses that own their building, cost segregation is an IRS-approved method of shifting a significant portion of the depreciable basis of your building from 39-year life property, to five-, seven-and 15-year life property. By reducing the depreciable life of your property, you can greatly accelerate your annual depreciation and reduce your tax liability, generating immediate cash flow. In addition, cost segregation allows easier write-offs when an asset becomes obsolete, broken or destroyed.
The key to cost segregation is viewing a real estate acquisition as consisting not only of land and buildings, but also tangible personal property and land improvements. The process of cost segregation begins with a formal engineering report at the time of property purchase that segregates assets into four categories, identifying any assets that qualify for a shorter depreciable life:
• Personal property. This category typically includes non-structural elements such as furniture, wall coverings, fixtures and window treatments, and can be depreciated over five, seven or 15 years.
• Land improvements. Typically including items such as sidewalks, fences and significant landscaping, this category is subject to accelerated depreciation over 15 years, generating useful tax savings.
• The building. The engineering report will assign separate values to various components of the building so that if a component (such as the roof) subsequently becomes worthless, you can write it off immediately.
• Land. Whatever amount of the purchase price is not accounted for in the first three categories is allocated to land, which generally has a low or insignificant value and therefore will not generate significant tax savings.
With various tax incentives available for small businesses, there are a number of ways you can maximize the investment in your practice design through tax deduction and depreciation strategies.
A taxpayer can use cost segregation when constructing a new building or buying an existing one. In addition, even if you have owned your building for several years, you may be able to “catch-up” during the current year all of the depreciation you could have taken in prior years.
One of the trickier aspects of cost segregation is the actual categorization of property
