The American Dental Education Association reported that the typical dental school grad in 2019 had about $292,169 in student loan debt. How can you obtain such finance with so much dentistry school debt? Starting a private practice could help you pay off your student loans faster.
Although dentistry has several business financing options, understanding the available financing options will help you choose the one that best suits your situation. This guide covers all the information you need to find the right dental practice financing for your business.
Is There Any Business Financing Specifically for Dental Practices?
There’s no business financing exclusively designed for dental practices. Still, small business owners can tap into various types of business financing to start or buy a dental office, purchase a new piece of expensive equipment, or expand operations.
How to Use the Loan Funds for a Dental Practice
There are several reasons why dentists need funding for a dental practice. The most common ones include:
Buy a Business
Purchasing an existing dental practice isn’t easy as it requires a considerable amount of money. In addition, the process has benefits and drawbacks. If clients remain, you’ll probably have instant cash flow; otherwise, you’ll need to market your brand. However, existence doesn’t guarantee success. Therefore, evaluate the practice’s business plan, tax filings, and goodwill before making the purchase.
Setting Up a New Dental Practice
Do you want to build your dental practice from scratch? Dental practice financing is your go-to loan option to cover construction costs and equipment purchases and keep enough working capital to get your business up and running.
Building a new dental practice is more expensive than purchasing an existing one. The Bank of America estimates that starting a dental practice costs about $500,000, including $75,000 in working capital. Therefore, going this route without a clear business plan might lead to overspending.
Opening a New Location
If you already run a dental office and are looking to expand your operations, a small business loan will go a long way in helping you open a new location. Dental practice financing will give you quick access to cash to purchase the necessary equipment, hire staff, purchase inventory, and cover other expenses.
Renovating Your Current Dental Office
Like any other business, renovations are bound to be done at one point in the operation. As you may expect, building more rooms, adding a story, and making repairs will be expensive. Seeking a dental practice loan for renovations and other dental office improvements will help give your current practice a new look. As a dental office, it is important to maintain a pristine space in order to give your clients a good impression of your practice.
Purchasing Dental Equipment and Supplies
Buying dental equipment is expensive, so seeking financing is the best option. Since you can use the new equipment as collateral, equipment financing loans are easier to obtain. In addition, equipment loans aren’t amortized, so the loan amount includes the final cost. In some cases, early loan repayment won’t save money because interest isn’t accruing, but some lenders offer a discount.
Leasing or borrowing the equipment is preferable unless it can directly increase your practice’s long-term profitability and efficiency. Several lenders finance dental chairs, X-ray machines, and computers. When upgrading office supplies like PCs and printers, you have more loan options than medical equipment.
Hiring More Staff
A new or growing dental practice requires more staff to meet the client’s demands. Hiring dental professionals comes at an extra cost for a small business. With a practice loan, you can hire the number of staff you want to meet the needs of your growing business.
What are Your Options for Dental Practice Financing?
There are several dental practice financing options to consider. Knowing how each works will help you choose the right loan option for your dental practice needs.
SBA Loan
The U.S. Small Business Administration guarantees loans to small businesses. Borrowers can utilize the funds for commercial real estate purchases or practice expansions. SBA loans often require a lower down payment than traditional loans, and interest rates are low. Despite flexible terms, the application process may take months. Large construction projects or practice acquisitions may have affordable fixed-term payments with an SBA loan program.
Equipment Financing
Equipment financing loans are easier to qualify for than general practice loans since you utilize the new equipment as collateral. Equipment loans aren’t amortized like small company loans; thus, the loan amount includes the finance fee.
Term Loans
Term loans are agreements between a lender and a borrower in which the lender advances funds to the borrower and is repaid for a certain period in monthly installments. The borrower must pay interest to the lender as an incentive for lending money.
Term loans might help with basic business funding, but terms differ among lenders. For this reason, it’s a good idea to shop around for favorable-term loans.
Working-Capital Loans
These are funds used for everyday business operations. The lender will examine your requests for working capital loans and how you intend to spend the money. Lenders can give working capital as a loan, line of credit, or both.
If less working capital is needed and building material costs rise, the loan can be transferred. If funds remain after the project is finished, the borrower might accept the remainder as working capital or reduce the loan amount.
Commercial Real Estate Loan
Commercial property includes offices, malls, mixed-use buildings, warehouses, and more. Commercial lenders want more detailed business plans from small business borrowers due to the higher risk. Commercial real estate loans have shorter repayment terms than conventional mortgages, of between five and 20 years versus 30.
Where Can You Get Dental Practice Financing?
Finding the right place to get a practice loan can feel like an intimidating venture. Make sure you’re dealing with a lender who is willing to lend money to physicians and doesn’t consider student loan debt bad or needs assets or other services to secure the loan. Below are some options to consider:
Small Business Administration
The SBA isn’t a bank, but their loans have a guarantee, making them ideal if you have less-than-stellar credit scores. The SBA might make dental office funding easier, but you must also fulfill its eligibility requirements.
SBA loans are more flexible than traditional loans, which may need a 10% to 20% down payment. Plus, they have longer repayment schedules and greater funding for large projects requiring real estate financing.
Traditional Banks and Credit Unions
Before looking elsewhere, dentists should check their local banking institutions and credit unions for dental practice loans. Traditional bank loans for small enterprises are readily available but have strict lending requirements. Conventional lenders provide fixed interest rates and low closing costs for dental start-up and practice purchase loans.
Online Lenders
Online lenders may be easier to qualify with than banks. These online-only lenders have few or no physical locations. In most cases, they have quick application and approval processes, which might take a few hours or days.
