Working capital for a dental practice

Three problems that are not the same problem

1. A cash reserve

A cushion held against the ordinary variability of a practice: a slow month, an equipment failure, a team member on leave, a transition period after a purchase. This is a one-off need for a stock of cash. A term loan or a facility put in place before it is needed both suit it.

2. A recurring operating loss

The practice spends more than it collects, month after month. Borrowing does not fix this: it funds it for a while, and then there is the same shortfall plus a loan payment. The thing to find out is why: fee schedules, payer mix, staffing cost as a share of collections, unfilled chair time, collections not being collected, or a debt load taken on when the practice was busier. Financing can buy time to fix a diagnosed problem. It cannot substitute for the diagnosis.

3. A timing difference

The work has been done and the money has not arrived yet. Insurance claims sit in accounts receivable; payroll does not. This is a genuine financing need and a revolving facility fits it precisely: draw when the gap opens, repay when the claims are paid, and pay interest only on what was drawn.

Structural changes in receivables are not a timing difference: claims being denied, aging past ninety days, a new payer paying slowly. They are an operations problem wearing a timing problem's clothes.

A cash cushion figure is a rough cushion, not a forecast

The usual method is to take a few months of actual cash outgoings and call that the reserve. It is a reasonable place to start, and it is worth being clear about what it is not. It is not a receivables forecast, not a cash flow projection, not a statement of what the practice will actually need, and certainly not an indication of what a lender would advance. Multiplying monthly spending by three is arithmetic, not analysis.

The reserve helper inside the acquisition calculator does exactly this calculation, labels it a rough cushion, and only changes the reserve figure when you click the button. Use it as a starting point and then think about your own practice: how long claims actually take to pay, what your fixed costs really are in a quiet month, and what would happen if your highest-producing month were replaced by your lowest.

A term loan and a line of credit repay differently

Two structures, two mechanics

	Term loan	Revolving line
Money arrives	Once, in full, at closing	When you draw, up to a limit
Interest	On the whole balance from day one	On the drawn balance, plus any unused-line fee
Repayment	Fixed monthly payments that amortize to zero	Flexible; a minimum payment may not reduce the balance
Availability	Fixed at the start; gone once repaid	Repaid amounts become available again during the draw period
Can it be withdrawn?	No, subject to the loan terms	Often reviewed annually and can be reduced or cancelled

The last row matters more than it looks. A line of credit is the right instrument for a timing gap and an uncomfortable one to depend on, because the facility you are relying on is frequently the facility a lender reviews when the practice looks weakest.

The loan calculator on this site models fixed-rate term loans only. It does not model a credit line: there is no draw schedule, no fluctuating balance, no interest on a variable drawn amount and no unused-line fee. If you want to see what a drawn amount costs as a term loan, the loan calculator will do that honestly. It will not tell you what a line of credit costs in use.

Before borrowing for working capital

• Which of the three problems is this? Write the answer down before choosing a structure.
• What does the practice actually collect, and how long do claims take from submission to payment?
• What is unbilled, unsubmitted or sitting denied right now? That is often the cheapest source of cash available.
• If this is a loss, what specifically changes to make it stop, and by when?
• What does the new payment do to the coverage a future acquisition or project lender will calculate?