The Business of Practice: How To Use a Line of Credit

In this episode, Jennifer M. Braid, CPA, EA, shares insights about using a line of credit and how this can be beneficial to a veterinary practice if handled correctly.

2021 AAEP Convention trade show

In this episode of “The Business of Practice” podcast, we talk to Jennifer M. Braid, CPA, EA, of Marsha L. Heinke, CPA, Inc., about business lines of credit for equine veterinarians.

“The best way to use a line of credit is to not use it,” said Jennifer M. Braid, CPA, EA, of Marsha L. Heinke, CPA, Inc.

She said a line of credit is for short-term financing and should not be maintained as a long-term loan. “You should pay it back in a 12-month time span,” she advised.

However, a line of credit is very useful to purchase something now with the plan to pay that loan off with income from the purchase or by transitioning the loan over to one with more favorable long-term rates.

The AAEP Convention is coming up soon, and that is not only the largest offering of equine veterinary CE in the world, but it offers a great trade show where many veterinarians are purchasing big-ticket items. So ahead of that potential purchasing prospect, Braid talked about what a line of credit is and how it can work for and against veterinarians.

What Is a Line of Credit?

A line of credit is a flexible loan from your bank, said Braid. “It offers limited funds with a cap” on how much money is available to you, she said. It might be $10,000 or $100,000 that “sits there” just waiting for you to use it. The only cost if you don’t use it is possibly an annual fee to keep the line of credit open.

Lines of credit often are renewable on an annual basis, and they sometimes have variable interest rates.

A veterinarian can talk to his or her bank about a line of credit. There often is a fee to open the line of credit, but there are usually no charges unless you borrow against the line of credit.

Interest fees are generally lower than credit cards, so lines of credit are good to have for emergencies, said Braid. The line of credit can “sit there” until it is needed. It is easily accessed, but is not meant to be a long-term loan arrangement.

This is an open loan that Braid said she hopes veterinarians never have to use, “but it’s good to have when it is needed.” She again advised veterinarians to always plan on paying back any line of credit borrowing within 12 months, or to change the loan over to a longer-term loan with better interest rates.

Braid said the start of the pandemic shook up the business world. A line of credit helped some veterinarians meet payroll when practices were closed or severely restricted.

She advised veterinarians and practice managers to discuss the ramifications of opening a line of credit with their tax advisor.

Topics discussed in this podcast:

  • What is a line of credit?
  • What are the benefits?
  • What are the potential downfalls?
  • Tax ramifications
  • What is the best way to use a line of credit when purchasing equipment or other large-ticket items?
  • Some veterinarians use their line of credit to make up payroll during the “lean” months of the equine service season, is that a good or bad idea?

About Jennnifer M. Braid, CPA, EA

Jen is a lead tax accountant and senior data analyst at Marsha L. Heinke, CPA, Inc. She earned her Associates Degree in Applied Business in Accounting and her Bachelor of Business Administration in Accounting. In 2012, Jen passed all parts of the extremely challenging Certified Public Accountants examination, and in 2016, she furthered her credentialing in federal tax expertise by passing the Federal Enrolled Agent’s Exam (her EA designation). Jen has developed a high level of expertise in financial and tax aspects of veterinary business. She is a trusted advisor to many practice owners, bookkeepers and practice managers.

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