1. The Dental Practice: Business Foundations
Debt Management
Dr. Dave Willis
Dental Simulations

2. Debt Rules of Thumb Type of Debt Rule of Thumb
Consumer Debt
20% or less of gross monthly income
Housing Costs
28% or less of gross monthly income
Total Debt Payment
35% or less of gross monthly income

3. Sources of Loans Banks (Private Banking)
Small Business Administration (SBA)
Owner Financing
Family Members
Mortgage Companies
Credit Unions
Credit Cards
Suppliers (Equipment Sales)

4. Types of Loans Signature Loan Secured Loan Installment Loan Mortgage
Note (Promissory Note)
Balloon Note
Line of Credit

5. Loan Security Collateral Co-Signer Lien Lien Holder
First / Second Position

6. What Determines the Payment?
Principal
Amount you borrow
Interest Rate
Rate you are charged to borrow
Term
Length of time to pay off (number of payments)
Special Considerations

7. Loan Terms – Principal Amount that you borrow
Subtractions from principal
Down payment
Additions to principal
Closing costs
Working capital
Not tax deductible
The value of any asset bought is depreciable
The value of supplies bought is deductible

8. Effect of Down Payment Qualifies you as the borrower
Makes you more interested in the success of the venture
Your own money is at stake
Helps protect the lender from your default
Changes your return on investment
Leverage
OPM (Other People’s Money)

9. Loan Terms – Interest Amount the lender charges you to borrow money
Simple / Compound Interest
Interest rate
Fixed Rate
Floating (Variable) Rate
Prime Rate
Annual Percentage Rate (APR)

10. Loan Terms – Term
Length of time for a normal complete pay-of of the loan (principal and interest)
Match the term to the useful lifetime of the asset purchased
Matching Term and Type of Loan
Type of Debt Term of Loan
Credit Card Immediate
Auto Purchase 5 year max
Dental Practice 5-7 years
Dental Building 20 years
Home Mortgage 30 years
Education Loans 30 years

11. Loan Terms – Special Considerations
Interest Only
Balloon Payment

12. Loan Terms – Amortization Schedule
PV= $100,000
N = 5yr
I = 9%
Year
Total Payment
Principal Portion
Interest Portion
Remaining Principal 1
25,709
16,709
9,000
83,291 2
18,213
7,496
65,078 3
19,852
5,857
45,225 4
21,639
4,070
23,586 5
2,123
(0)
$128,546
$100,000
$28,546

13. Loan Terms – Comparing Term and Rate
Annual Interest Rate
8 %
9 %
10 %
11 %
12%
5 yr Note
Annual
24,332
24,910
25,496
26,091
26,693
Monthly
2,028
2,076
2,125
2,174
2,224
7 yr Note
18,703
19,307
19,921
20,547
21,183
1,559
1,609
1,660
1,712
1,765
$100,000 compounded loan payment

14. Financial Planning - Life 101 Effect of Credit Rating on Loan
Princ = $150,000
Term = 30 yr
Type = Mortgage
FICO
Int Rate
PMT
720+
5.55
$856
6.21
$920
7.36
$1,034
Diff = $138,000
Source: Consumer’s Report

15. Non-Taxable (Tax Deductible) Interest Debt
Consumer
Home Mortgage
Mortgage on 2nd Home (eg: Vacation)
Home Equity Loan / Line of Credit
Student Loan Interest
Business
Business Debt Interest (Including Rental Property)
Business Credit Interest
Certain Investment Interest

17. Negotiating with Lenders
Be prepared
Pro Formas
Business Plan
Advisors
Have co-signers / collateral prepared
Check and repair your credit report
Negotiate conditions of the loan
Loan interest amount / type
Use multiple lenders

18. Monthly Payment on Each $1,000 Borrowed
Payment Calculator
Monthly Payment on Each $1,000 Borrowed
Years 4% 6% 8%
10%
12%
14%
16% 1
85.15
86.07
86.99
87.92
88.85
89.79
90.73 3
29.52
30.42
31.34
32.27
33.21
34.18
35.16 5
18.47
19.33
20.28
21.25
22.24
23.27
24.32 7
13.67
14.61
15.59
16.60
17.65
18.74
19.86 10
10.12
11.10
12.13
13.22
14.35
15.53
16.75 15
7.40
8.44
9.56
10.75
12.00
13.32
14.69 20
6.06
7.16
8.36
9.65
11.01
12.44
13.91 30
4.77
6.00
7.34
8.78
10.29
11.85
13.45

19. The Dental Practice: Business Foundations
Debt Management
Dr. Dave Willis
Dental Simulations