Practice Credit Lines: When They Help, When They Kill Your Practice

The average general dentist cleared $215,320 in net income last year, according to the ADA Health Policy Institute. The average employed dentist, per the Bureau of Labor Statistics, made $191,750 on the mean wage. That makes the entire premium for owning the place $23,570 a year. Carry $150,000 on a practice line of credit at 10.5% and the interest alone is $15,750, which is two-thirds of the premium, gone before you pick up a handpiece.

Here's our position, and plenty of owners and their CPAs will fight it: a practice line of credit should never fund operations. It should fund only an asset you could sell or a cost you could stop, and if the balance doesn't touch zero at least once a quarter, the line has stopped being credit and started being a second mortgage on your career. A line of credit cannot make a practice profitable. It can only make an unprofitable practice quieter for a while.

Two Draws Worth Making, and Nothing Else

The first good draw is an asset with a resale market and a production number attached. A second hygiene chair, a mill, a scanner, a buildout that adds operatories. These share two features: they generate collections you can forecast, and if the plan fails, there's something a buyer or a lender can take back at a recoverable price. The ADA's Q4 2025 economic update found equipment and supply prices up 5% year to date as of September 2025, which is the one honest argument for borrowing rather than saving: the thing you're buying is getting more expensive faster than the money costs you.

The second good draw is a cost you can switch off. Buying out a software contract, paying off a high-rate equipment lease, settling a lab bill at a discount for cash. You're swapping an expensive obligation for a cheaper one, and the payback is arithmetic, not hope.

Everything else is a slow sale of your own equity. Payroll is not a good draw. Rent is not a good draw. Your own draw is not a good draw. We'd refuse every one of those, every time, because none of them produce a dollar of new collections and none of them leave an asset behind.

Most Owners Use the Line to Buy Silence

The specific mistake: owners treat the line as a fourth revenue stream alongside fee-for-service, PPO, and Medicaid, and they do it because the line is the only money in the practice that requires no conversation. Raising fees means explaining it. Renegotiating a PPO means a letter and a fight. Cutting a staff position means a Tuesday nobody enjoys. Clicking "transfer" on a $15,000 draw takes eleven seconds and nobody at the practice ever knows it happened.

The owners who do this most are three to eight years into ownership, carrying the student debt load the ADEA reports at an average $297,800 for indebted Class of 2025 graduates, plus an acquisition loan, plus the equipment they bought in year two. They are not reckless. They are the most conscientious people in the building, and that's the problem: they'll absorb the squeeze personally rather than make the practice absorb it. Against a backdrop where practice revenues rose 1.4% over five years while expenses rose 4.9%, per the ADA HPI, absorbing the squeeze personally means borrowing it.

The Dental Economics - Levin Group 2025 survey found 58% of practices reported higher overhead in 2025 than 2024, averaging a 4.5% increase, with 27% seeing overhead rise more than 10%, and 55% naming overhead their single biggest challenge. On $1.2 million in collections at 68% overhead, that's $816,000 of cost, and a 4.5% rise adds $36,720 a year of new expense with no new production attached. A line of credit does not solve that. It pays for it, at 11%, for as long as the bank allows.

A $90,000 Draw, Two Ways: +$114,256 or Owing $317,333

Same practice, same $90,000, same bank. Assume prime plus a couple of points, call it 10.5% if you term it out over five years and 11% if you leave it revolving. Termed over 60 months, $90,000 costs about $1,934 a month. That's $23,208 a year of debt service.

Plan A buys a second hygiene chair: $60,000 buildout, $20,000 of equipment, $10,000 of working capital. The chair runs four days a week, eight patients a day, at $185 average hygiene production, which is $5,920 a week. Across 46 working weeks that's $272,320 of annual capacity. Year one ramps at 60% of capacity, so $163,392 of production, collected at 93%, is $151,955. The hygienist costs $55 an hour for 32 hours across 46 weeks, or $80,960, and 18% for payroll taxes and benefits takes it to $95,533. Hygiene supplies at 8% of collections run $12,156. Contribution in year one is $44,266. After debt service, you're up $21,058 in the first twelve months.

Year two the chair runs full: $253,258 collected, $95,533 of labor, $20,261 of supplies, so $137,464 of contribution. After debt service, $114,256. That is a draw worth making, and the entire case rests on one condition: eight hygiene patients a day who already want to come. If the chair settles at half capacity, collections are $126,629, supplies $10,130, and after labor and debt service the chair loses $2,242 a year. With one-third of dentists telling the ADA in Q4 2025 they were "not busy enough," half capacity is not a remote scenario.

Plan B draws the same $90,000 to cover a $7,500 monthly gap between collections and obligations, spread across the year. The average balance is $45,000, interest at 11% is $4,950, and you end year one owing $94,950. Nothing in the practice changed, so year two the gap repeats. Average balance $139,950, interest $15,395, closing balance $200,345. Year three: average $245,345, interest $26,988, closing balance $317,333.

Three years of eleven-second transfers rebuilt your dental school debt, personally guaranteed, at a worse rate, with no degree at the end of it. The swing between the two plans on identical money is $431,589. Our view: the number on the draw tells you nothing. The sentence you'd write on the memo line tells you everything.

The Clause That Decides Whether It Helps or Kills

Most practice lines are demand facilities with annual renewal. That means the bank can reduce your limit, decline renewal, or call the balance, and the moment it will want to do any of those is the exact moment your collections dip, which is the exact moment you need the line. That asymmetry is the whole danger. A term loan cannot be revoked for having a bad quarter. A line can.

Before you sign, three things matter more than the rate. First, is the facility committed for a defined period, or revocable at the bank's discretion? Second, is it cross-defaulted or cross-collateralized with your acquisition and equipment loans, so one covenant trip puts everything in play? Third, is the spread over prime fixed for the term, or repriceable at renewal? We wouldn't take a revocable line that's cross-defaulted to an acquisition loan at any rate, and we'd pay 75 basis points more for a committed two-year facility with a fixed spread without blinking.

The Zero-Balance Test

Run this once a quarter and you'll never need an opinion from anybody, including us. Pull the line's statement history for the last twelve months and find the lowest balance in each quarter. If all four lows are zero, the line is doing its job: it's bridging timing, not funding losses. If one quarter's low is above zero, watch it. If the twelve-month low never drops below 20% of your limit, you don't have a credit problem, you have an overhead or a schedule problem that credit is concealing.

And the fix is almost always cheaper than the loan. On $1.2 million in collections, taking two points of overhead back is $24,000 a year, which exceeds the $23,208 of debt service on a $90,000 term loan and requires no bank, no guarantee, and no renewal. We'd do the two points first and then decide whether the draw is still necessary. Half the time it isn't.

Three Things to Do With Your Line This Week

Pull twelve months of line-of-credit statements and write down the lowest balance in each of the last four quarters, then put that number next to your limit. Open the loan agreement and find the words "demand," "renewal," and "cross-default," and if all three appear, call your banker this week and ask what a committed facility with a fixed spread would cost. For every draw in the last twelve months, write one sentence naming the asset bought or the cost stopped, and if you can't write that sentence, you've found your real problem. A credit line buys months; only a fixed practice buys years.

Two things we're watching. If the share of dentists reporting they're "not busy enough" climbs above the one-third the ADA recorded in Q4 2025, we expect renewal denials to start showing up in practices that have never missed a payment, and that changes how much limit is safe to rely on. And we'd revise our position on operating draws if lenders start offering committed multi-year facilities at close to term-loan pricing, because the thing that makes an operating draw lethal isn't the interest, it's the revocability. Tell us which clause your bank wouldn't move on. That's the data we want next.

Before you decide whether your line is bridging timing or hiding losses, get your overhead number honest. Our free overhead calculator breaks your costs into labor, supplies, lab, facility, and debt service so you can see which category actually moved and whether two points are recoverable without borrowing a dollar. Run your own numbers, then go back to that twelve-month statement history and see whether the story matches.