Dental Practice Loans

Dental Practice Loans

If the time has come to expand or improve your dentistry business, or if you are just starting out, securing the best financing option is pivotal to your success. Finding the right business loan option can meet the needs of your business without locking you into unsustainable monthly payments.

If you plan on making office renovations, expanding, relocating, or purchasing the latest equipment for improved patient care and comfort, you may need additional growth capital or working capital.

What Can a Dental Practice Loan Do For Your Business?

Improve Cash Flow

If you’ve operated a dental practice, you know that the high cost of managing your offices on a day-to-day basis can cause insufficient cash flow for your business. If you rely on insurance reimbursements or pay rental fees on your property, it’s possible that the revenue generated by your practice will not cover your operational costs on a weekly or monthly basis. Filing for a dental practice loan or other financing options can solve these worries by giving you additional working capital and improving your cash flow in the short term.

Finance New Dental Equipment

Another consequence of the high operating costs associated with running a dental practice is the difficulty of financing new equipment for your business. Covering the cost of a new piece of machinery can seriously disrupt your cash flows if you do not have access to sufficient capital. At the same time, adding to or improving your equipment can allow you to treat more patients and increase recurring revenue for your business. 

A dental equipment loan can provide you with the capital needed to upgrade your machinery without cutting into your present cash flows. By paying for the equipment over the course of the financing agreement, you’ll have access to the machinery you need without the large upfront costs. Ideally, you’ll be able to use the revenues gained from your new equipment to meet expenses, repay your lender, and remain profitable.

Expand Office Space

Just as adding new equipment can help your dental practice increase its revenues, expanding your office space can grow your practice by allowing you to serve more patients and exposing you to new customers. The costs of renovating your current office space or moving to a bigger office are, like dental equipment, usually pretty expensive. Growth capital and longer-term business expansion loans allow you to seize larger growth opportunities at affordable rates. If your dental practice is looking to expand through large scale initiatives like relocation or a large remodel, growth financing is typically your best option.

What Dental Practice Financing Options Are Available?

Before applying for financing for your dental practice, It is important to consider all available options and choose the best one for your particular practice. Different small business loans and financing options carry different terms, amounts, rates, and repayment schedules, and different lenders have different methods for underwriting and pricing your financing offers. This means that different lenders have different eligibility requirements.

While some lenders have specific eligibility requirements related to your business history, credit score, and use of capital, other lenders may not. Before settling on a specific lender or financing solution, make sure you thoroughly compare the options you qualify for and choose the best fit for your business.

1. Traditional Bank Loans

One common source of funding for dental practices is bank-issued loans. Traditional bank loans are often many owners’ first choice of financing when planning for long term growth for a number of reasons. 

First, bank loans come with low, fixed interest rates and longer repayment terms. Next, banks will likely offer you a predictable monthly repayment schedule that is not subject to change, and they are willing to issue loans for a broader range of purposes than some independent lenders. 

Receiving a bank loan typically requires good credit and a lengthier application process and time to funding, due to the strict qualifying requirements that most banks hold. So while there are many benefits to receiving a traditional bank loan, there are a number of hurdles to applying and it may not be the best option if you need the capital quickly.

Another issue is speed and flexibility. You may need a loan to replace broken or obsolete equipment quickly; speed is not something that occurs within a typical bank. If your revenue ebbs and flows throughout the year, flexibility in your repayment schedule is also important to best conform to your practice’s level of business each month.

If you are just starting out you may need to look elsewhere. Many banks turn away requests for a start-up loan because they require years of business financial data to be provided.

Medical and dental professionals are wise to carefully take stock of their individual borrowing needs; what is the purpose of the loan, which option covers your situation and still keeps your risks low, and how much flexibility does the loan product give you?

Things to Consider About Conventional Lenders

  • A conventional lender will probably require a personal guarantee for a small practice loan, so you need to think about the possible repercussions. You must protect your finances if the practice is restructured or one or more partners decides to leave.
  • Most bank loans have terms that include a “joint and several” clause, which holds each partner within the practice individually liable for the loan if it goes into default. So, never assume that leaving the practice releases you of that loan obligation and make certain you are not going to be liable if the practice defaults on a loan.
  • Banks require a lengthy application that takes at least 30 days to process.
  • You must have a very detailed business plan, which outlines your business, tax and bank records, and all the collateral you have, which they can take if you cannot repay the loan.

 

2. Small Business Administration (SBA) Loans For Dentists

The Small Business Administration (SBA), a government agency, offers several types of lending options to small businesses and dentistry practices. According to the SBA, borrowers need to look at the exact purpose of their funding needs.

If a dentist is looking to take out an SBA-guaranteed loan, he should be aware that the process is more document intensive than with other methods of funding.

Things to Consider for SBA Loans

  • Collateral and liability vary depending on which loan product you choose. It is vital that you read all the fine print regarding what you will be liable for if the loan goes into default.
  • You will be required to offer an extremely detailed business plan, which includes a current overview of your business and its projected future. For example, if you are borrowing money to purchase a new diagnostic or therapeutic device, you need to show the figures of exactly how much income it will generate and how this will affect your bottom line in the years to come.
  • Your resume, personal credit history, and ability to manage the practice may be scrutinized as part of the approval criteria.
  • It can take 90 days or longer to close on your loan.

SBA loan programs

3. Business Lines of Credit For Dentistry Businesses

If you’re looking for flexible financing options to fund your dentistry practice, a business line of credit can satisfy your short-term needs while providing access to additional capital on an as-needed basis. Setting up a business line of credit through a lender is fairly similar to setting up a business credit card. 

With a line of credit, your business can finance short-term improvements and needs, paying back the funds you spend plus interest to your lender at an agreed-upon rate. Once your line of credit has been repaid, you can typically draw from the line again, up to the amount specified in your credit limit.

Things to Consider About Credit Lines

A line of credit is a great option for any short-term financing needs and unexpected expenses, due to its flexibility. It can be used to purchase equipment as well as smaller ticket items, but remember that longer-term financing options will likely be a cheaper alternative for larger initiatives like buying out a dentistry business or acquiring real estate for your practice. 

While the interest rates can be favorable with business lines of credits, they are not the best fit for large purchases or significant investments in your business growth, as lenders typically issue withdrawal caps along with lines of credit. Before taking out a line of credit, carefully account for your looming expenses and planned initiatives, and be certain that the spending caps and interest rates will satisfy your current business needs. 

Additionally, like traditional bank loans, business lines of credit tend to be “credit-dependent”, meaning that your creditworthiness and business history will be examined during the application process.

  • Lines of credit should be paid off within a year.
  • They may offer good interest rates but are not for large purchases.

business line of credit

4. Equipment Financing for Dental Equipment

Equipment financing is a great option for many dental practices as it allows you to purchase much-needed dental equipment while paying for it over the course of its usage. By taking out a loan on a piece of equipment, you’re able to access the new machinery before bearing the full burden of its cost, and can then use the revenue generated from your equipment to pay for the loan. 

For dental practices, equipment financing is a particularly attractive option as an increase in your customer capacity can greatly increase your business’s revenue. Additionally, because of the high cost of most dental equipment, secured equipment financing drastically increases the affordability of machinery while allowing you to earn more revenue as you finance your purchase over the lifetime of the equipment.

Things to Consider About Equipment Financing

There are, however, a number of factors that you should be aware of before signing onto an equipment financing agreement. For one, when you sign a loan or leasing agreement for a piece of equipment, the equipment itself is typically secured as collateral by the lender, meaning that if you default you lose possession of the new equipment. Further, while equipment financing is a good deal for purchases of long-lasting equipment, you run the risk of amassing debt if your machinery needs to be replaced frequently. 

Generally speaking, equipment financing is a great way to access machinery and equipment you otherwise would not be able to afford at the moment. That does not mean, however, that it is less expensive than purchasing equipment outright. In fact, the latter is almost always cheaper over the long term. While buying your own machinery can disrupt cash flows, owning the equipment outright means that you will be spared the additional cost of interest payments.
Equipment financing

5. Online Lenders for Dental Practice Loans

In addition to traditional lenders, there are a number of online lending options that may be a perfect fit for your dental practice. Alternative lenders offer loans and other financing options on a more flexible basis than banks or the SBA and they typically have many funding options for you to choose from. Additionally, online lenders support your need to move quickly on a purchase or initiative as their online applications are short and simple and qualifying is typically much easier.

Online lending is a great place to turn if your prime concern is flexibility. These lenders offer a wider product suite and range of payment plans and rates than traditional financing sources. For example, some offer a payment plan that fluctuates with your sales volume, others offer flat rates, others cover specific purchases or initiatives. Alternative lenders also tend to look more at your business potential than your past credit history, so having less than perfect credit is not an issue when applying. If your business doesn’t meet the criteria to apply for traditional financing options or is looking for quick and frictionless access to capital, online lending is a great solution.

Things For Dentists to Consider About Alternative Lenders

Alternative lending presents a number of advantages for businesses with unfavorable credit histories, little experience in their field, or short term funding needs. However, it’s important to recognize that alternative lenders use a combination of algorithmic underwriting methods and human verification, and heavily automated lenders may not be able to provide you with the level of advice and support you desire. 

Further, alternative lenders typically issue loans very quickly and in relatively smaller amounts than traditional lenders. These financing options are typically higher risk and come with less attractive rates and shorter repayment periods. While alternative lenders can help jumpstart growth or stabilize cash flows, if you’re looking for longer-term, sustainable financing, traditional lenders may be the better option.

  • The approval process is typically quick and painless, supporting your need to move fast on a new opportunity or equipment for your practice.
  • Dentistry business loans provided by alternative lenders typically have simple applications that take less time, require less documentation, and may be easier to successfully navigate.
  • Alternative lenders tend to look more at your business potential than your past credit history, so having less than perfect credit is not an issue.
  • Payment schedules can be made to fit your business and limit risks.
  • The interest rate may be slightly higher than the bank or other lenders, but the tradeoff is you get a great loan product, quickly and easily, which conforms to you and your business needs.

small business loan options

6. Mortgage for Commercial Real Estate

Your dental practice needs a home. However, it can be difficult to determine whether you should purchase your own real estate or rent an existing space when starting your business. While not every operation can afford to assume ownership of their own property, if you are able to finance the purchase of your own space, you secure a major asset for the business and avoid potential inconveniences in the future. 

If you plan to purchase your space, it may be worth exploring real estate financing options, such as term loans, or commercial real estate loans. In addition to a number of private lenders, the SBA offers 504 loans, meant to finance commercial real estate and equipment purchases. 

A commercial real estate loan allows you to assume ownership of your property while paying back the cost over an extended period of time. For more information on the various choices for financing your purchase of commercial real estate, click here.

Things to Consider for Real Estate Loans

Before you pursue a real estate loan, however, you should know whether your business is better off renting your space. For example, property taxes and regulation requirements fall on your back if you own the property, though not as much if you rent. Additionally, you may be required to offer personal assets as security in addition to the property itself. 

Ultimately, the cost of financing your property is extremely variable depending on your chosen funding method. Purchasing a property outright will free you from rent payments and accountability to a landlord, though it will also require you to pay property taxes, purchase insurance coverage, and potentially engage in a long-term mortgage agreement. Renting or leasing your property prevents you from taking on such long term expenses, but can be a worse deal depending on the cost of rent and your planned exit strategy. Before deciding whether to buy or lease a space for your practice, consider your planned length of operation and ensure that your financing obligations won’t outlast your operating period. 

There are also a number of factors that could disqualify you from receiving a mortgage on your property, such as if you’ll split the space with another business or assume full ownership yourself. Read more on your eligibility for a mortgage on commercial property here.

 

Author Bio:

Jeffrey Bumbales
Director, Marketing & Strategic Partnerships