Your complete guide to dental practice financing and loans.
For owners and managers of a dental practice, successful financing can mean the difference between a growing practice and a failing one. When starting, expanding, or updating your dental practice, securing the best funding for your dental office is key. Read on to learn the different types of funding available, the top firms for dental practice financing, and the how-to of financing a dental practice
How do you finance a dental practice?
Just as with any application for a small business loan, financial firms are highly invested in making sure that you have a clear business plan and marketing strategies for growing your dental practice. You will need to be clear on questions like:
- How large is your physical space?
- What dental equipment will you need to purchase?
- How will you grow your dental practice?
- What is your plan for maintaining cash flow as you pay back your loan?
- How does your dental practice compare to others financially?
Asking yourself these questions will help you build a strong business plan that will increase your odds of successfully securing your dental practice loan.
Your credit score is also important when applying for dental loans. Banks and financial firms want to know that you will pay it off. A high credit score is evidence that you are a trustworthy borrower. Low credit scores, excessive consumer debt, or a history of late payments can negatively impact your ability to secure a dental practice loan.
Dentists starting a new practice should also consider business experience. When applying for a dental practice loan, it is highly beneficial for you to have at least a couple of years of experience under your belt. Working as an associate in a dental practice before venturing solo will build a stronger loan case for the lenders you approach.
What types of funding are available for dental practices?
Which type of funding to choose for your dental practice will depend on the specific needs of your practice. Options include:
Small business loans
Small business loans are a traditional option typically taken out at a bank. Small business loans offer higher loan amounts with lower interest rates than other funding types. A common choice for dentists is the SBA 7(a) loan. These loans can be taken out at amounts of $5,000-$5 million, with repayment terms of 5-25 years, and interest rates that start at 6.75%. Head’s up, an SBA 7(a) loan is more challenging to secure than a typical small business loan; lenders know it’s a good deal and have a scrupulous process for selection that requires extensive documentation about your business. While any SBA loan can take weeks to months to secure, an SBA 7(a) loan will likely take even more time. So if you go with this funding type, be prepared to proceed with patience and a generous timeline.
Conventional bank loans
Although securing a loan from a traditional bank can be difficult, the upside of dental practice financing is that banks generally consider dental practices to be a good investment. Dentists tend to generate incomes that are above average for small business owners, and dental offices are often resilient businesses even in economic downturns. Many banks such as US Bank and Wells Fargo have divisions dedicated to working with medical specialists, and are familiar with the particular financing needs of dental practices. At a bank, you can expect to take out a conventional term loan. These loans can be taken out at amounts of $30,000-$5 million, with repayment terms of 10-25 years, and interest rates that start at 7%. The wait time for approval usually takes 2-6 weeks.
For dentists seeking shorter wait times and a simpler application process, an online lender can be a good option for dental practice loans. While dentists who are starting or upgrading a practice may benefit from seeking out more traditional financing options, online lenders can come in handy for short-term or medium-term loans. Dental practice loans from online lenders can be taken out at amounts of $2,500-$250,000, with repayment terms of 3 months to 5 years, and interest rates start at 10%. While these loans are much more expensive than traditional loans and have shorter repayment terms, applicants can be approved in as little as one day and are more likely to be approved with a poor financial history than at a traditional lending institution.
Business lines of credit (LOC)
A business line of credit (or LOC) can be a good option for dentists who are concerned about unanticipated expenses that may arise while starting or updating their dental practice. With a business line of credit, dentists have pre-approved access to a set amount of loan money, but withdraw funds from their LOC only as they find it necessary. Interest is charged on actual funds withdrawn, regardless of the set maximum amount, so you only pay for what you use. Another benefit of an LOC is that once you repay what you’ve borrowed, you can keep borrowing from the same line of credit, up to the maximum amount, over and over again. (For example, if your LOC was taken out for $20,000 and you use up that entire amount, once it has been paid back in full, you have access to another $20,000 that you can take out in any amount, at any time.) These loans can be secured at amounts of $10,000-$1 million, with repayment terms of 6 months to 5 years, and interest rates that start at 7-25%. Applicants for a business line of credit can be approved as quickly as one day, and these loans can be taken out with a bank or an online lender.
Dental equipment financing is a way to secure funding without having to show proof of excellent credit, or putting your personal assets on the line. These dental loans are used to purchase equipment like X-Rays, basic instruments, office computers, etc. Equipment purchased with these funds are used as collateral to secure the loan, so it’s less likely that you’ll be asked to offer personal collateral. Set maximum amounts for these loans depends on what is being purchased. Repayment terms can be 6 months to 5 years, interest rates start at 6%, and the wait time for approval is usually one day. One thing to be aware of is that for some dental equipment loans, applicants are required to put a 10-20% down payment. It is also important to consider the length of your repayment term–if the equipment will be obsolete by the time you repay your loan, this may not be the best option for you.
Top firms for dental practice financing and loans.
According to the American Dental Education Association, the average 2019 dental school graduate owed $292,169 in student debt. Starting or upgrading a dental practice can cost upwards of hundreds of thousands of dollars. Given these numbers, it is not uncommon for dentists to seek financing when starting, expanding, or outfitting their dental practice. Here are some of the best places to start for financing your dental practice.
As mentioned above, many banks have divisions that specifically work with medical professionals. US Bank offers traditional loans for dentists, with competitive rates and longer loan terms than alternative lenders. They also offer equipment financing options.
US Bank primarily works with dentists looking to acquire, buy into, refinance, expand, or relocate a practice. They don’t offer funding for starting a new practice, so they are a great option for dentists seeking dental practice loans for an existing practice.
For dentists seeking more financing options and support, Wells Fargo can be a great choice. Wells Fargo hosts a marketplace for buyers and sellers of existing practices, so dentists can take out a loan and secure a practice all in one place! They also have an online library with resources to help dentists market, lead, and design their practice.
Wells Fargo’s easily navigable site offers an array of dental practice loan options, from starting a new practice to expanding an existing one to purchasing dental equipment. They also offer short-term coaching and support for dentists who start a new practice.
Online lender Kabbage is a popular option for dentists seeking quick access to capital. A small business loan from Kabbage can help cover equipment and software upgrades, cash flow gaps while you wait on insurance reimbursement, and more.
Kabbage provides up to $250,000 in funding, with shorter wait times for approval than traditional lenders. They also offer the option to take out a business line of credit for added flexibility.
SunTrust offers fixed-interest loans or lines of credit to medical students still in training. 4th year dental students can apply for loans up to $50,000, and practicing dentists are eligible for amounts up to $100,000. This is helpful for dentists looking to get a headstart on their dental practice.
Applicants for a SunTrust loan can go through the quick application process and receive a preliminary decision within 24 hours. Repayment terms can be as long as 10 years.
Conclusion: Attracting new patients to your dental practice.
In the United States, about 20% of small businesses fail within the first year, according to the U.S. Bureau of Labor Statistics. This failure rate continues to increase at the 5-year and 10-year marks. Although dental practices tend to be resilient small businesses, the possibility of having to close doors still remains. Luckily, there are strategies that dental practice owners and managers can use to keep doors open and business running.
Without question, the most important part of successfully running a dental practice is patient flow. In today’s economy of personalization and fast competition, dental practices are vying more than ever for a steady, loyal clientele. Podium offers custom solutions to dentists’ most pressing marketing and communication needs. Using Podium, dental practices can contact patients, process payments, collect reviews, and integrate with existing software–all from one inbox.
When dental practices use Podium, patients can text their dental office directly with questions, cutting down on phone time for receptionist staff and providing quicker responses for the patient. Dental offices can also invoice patients and invite them to leave a review through text, leading to more timely payments and making it more likely that a recent patient will leave a helpful review. Podium helps dental practices establish positive online reputations, attract new patients, and keep them coming back again and again.