By Dave Miller, Vice President, Bank of America Practice Solutions
From the Summer 2019 Journal of the Colorado Dental Association
Did you know that when you borrow $500,000 on a 10-year loan, the difference between 5% and 5.25% is approximately $7,500? That’s a difference of only $63 a month. Now imagine your bank requires you to keep a checking account with them and charges you $30 a month ($3,600 over 10 years). And they require you to pay extra closing costs totaling $7,000. All of a sudden, the bank with the lower interest rate is actually costing you more money!
When borrowing money for your dental practice, you need to evaluate the total cost of the banking relationship. Ask your bank these five questions to ensure you’re borrowing money from the right bank.
- When I close the loan, will there be any other fees I have to pay that are not outlined on this proposal? This would include legal fees, document fees, etc. You’ll want to carefully consider all the costs involved before making a decision.
- Do you require me to obtain any insurances as collateral for the loan? Business property insurance is expected to insure your equipment. Additional coverage such as life insurance, disability insurance or business overhead insurance could be required. You definitely want to protect yourself in the event of a catastrophe, but you shouldn’t be required to obtain more insurance than you and your advisor believe is appropriate.
- Do I have to process my credit cards with you? This is an area where banks can charge high fees, which could offset any savings from the interest rate. That’s why you should shop your credit card processing to at least two companies to get the best rates. Check these annually, since companies are known to raise them over time.
- Do you have an effective online banking platform and other resources available to me? More and more banking is conducted in your office to avoid trips to the bank and save time for your staff. Mobile check deposits, integrations with major payroll software and additional tools should be available to help you manage your accounts easily. Also, as a business owner, you’ll need additional financing, investment guidance, payroll services, business credit cards, etc. Be certain you have access to all of these with your banking relationship.
- What reward programs are available for small business owners? Once you pick a bank, you’ll typically remain with them for a long period of time. As your business grows, you want to be sure that your needs will be met, and your loyalty will be rewarded. For instance, some banks offer rewards programs based on the size of your relationship with them.
After asking these questions, get the monthly costs and add them up:
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Banking Relationship Cost Worksheet |
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Total cost of interest over the life of the loan: |
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Closing fees: |
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Additional closing fees (attorney fees, doc fees): |
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Monthly insurance premiums required x 120 mos. (10-year loan): |
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Monthly business bank account fees x 120 mos. (10-year loan): |
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Monthly merchant services cost or savings x 120 mos. (10-year loan): |
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Total banking relationship costs (life of the loan): |
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The final number will give you an idea of the total cost of the banking relationship you’re considering so you can make your banking decision with 100% confidence.
This article is being provided to you by Bank of America, Inc. for your discussion purposes only. Consult your competent financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.
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