How to finance a dental practice
Opening a new dental practice or making improvements to an existing one is an exciting adventure. Creating a vision on how to serve patients is how you differentiate yourself from your peers.
Depending on important factors such as the location or size of your practice, the cost of a new dental practice can ranging from $ 350,000 to $ 500,000. This type of investment covers the structural needs of a space, as well as equipment and inventory.
You might not be able to spend all that money on your own, especially at the start of your career. This is why one of the first steps in opening a dental office is to understand how to finance it. Here’s what to do when financing a dental practice.
Create a business plan
Starting your own dental practice makes you more than a dentist, it makes you a business owner. Therefore, you need a business plan. Your business plan should answer a few key questions that will help you decide if you need financing. How much space do you need? Are you going to hire associate dentists or work solo? What is your growth strategy and plan to maintain your cash flow while you pay for your investment? If you are new to all of this, the ADA Resource Center has dental business plan guidelines to guide you.
Explore your financing options
Lenders generally view dental office loans as low-risk investments since the industry is essentially recession-proof. In fact, some lending institutions, primarily traditional banks such as BB&T, Bank of America, and Citizens Bank, have special divisions that work specifically with dentists. via ADA to review the details of dental office loans. Whatever your personal or professional financial situation, there is probably a financing option for you.
Traditional bank loans
If you already use a trusted banking institution to manage your finances, this might be the place to start your search for a quality loan. While getting approved for a loan from a traditional bank is usually a difficult path for most people, lenders enjoy working with dentists. Student debt is generally not seen as a barrier to acceptance, and the regular deposits that come with the business are a good sign for lenders, who seek consistency. Best of all, several major US banks have relationships with the ADA which translate into lower fees, additional planning tools, and additional support.
Most banks will try to set up a conventional term loan for you to reduce your monthly payments. Typical term loans have the following conditions: loan amounts — $ 30,000 to $ 5 million; repayment term — up to 10 years; interest rate — from 7%; wait time for approval — two to six weeks. Talk to a bank’s finance specialist to find out more.
Small Business Administration (SBA) ready
The SBA offers traditional term loans which are the gold standard of small business loans. The SBA does not disperse the funds itself, rather it partners with intermediary lenders and guarantees up to 90% of the loan amount. As a result, the terms are generous and it is easier for some applicants to receive an SBA loan than a loan only through a traditional lender.
The popular SBA 7 (a) loan program is a good choice for dentists who want to start a practice, as these funds are widely used: for working capital, renovations, inventory purchases, etc. Typical 7 (a) loans have the following conditions: loan amounts — $ 5,000 to $ 5 million; repayment term — five to 25 years; interest rate — from 6.75%; wait time for approval — three weeks to several months. Keep in mind that the SBA loan application process is more arduous than for any other lender. The SBA requires the submission of complete documentation and approval of your application can take months.
If you are looking for a cash injection that doesn’t involve a long or difficult application process, an online alternative lender is the way to go. These lenders offer short and medium term loans which are generally more expensive than long term loans. On the other hand, you can get approved and have your cash on hand as quickly as a business day. You are unlikely to want to start a dental practice so quickly, but if you want to renovate your practice or need to replace equipment quickly, this could be a good option.
These loans generally look like this: loan amounts – $ 2,500 to $ 250,000; repayment term — three to 18 months; interest rate — from 10%; approval time — as quickly as a business day.
Commercial lines of credit (LOC)
A line of credit acts as a form of revolving credit. Once approved for a line, you can shoot, pay off, and draw again if needed. Lines of credit often have lower overall limits than loans, but they are ideal for dealing with unforeseen developments when starting or renovating a practice. One of the most common problems dentists face is bringing in the work of a contractor or other third party whose costs exceed their estimates. A line of credit can be a lifeline in this case.
Standard terms for a business line of credit are as follows: loan amounts — $ 10,000 to $ 1 million; repayment period: from six months to five years; interest rate — 7% to 25%; approval time — as quickly as a business day. Letters of credit are ideal to keep in your back pocket in an emergency, as they cost nothing until you use the funds you have.
From chairs to x-ray machines to desktop computers, your equipment investments can run into the hundreds of thousands of dollars. This is what makes equipment financing such an attractive option for dentists. Another reason: the main red flag that can derail a traditional dentist loan is lower than average personal credit or a demonstrated history of poor financial choices. Fortunately, equipment financing is great because the equipment itself is used as collateral for the loan. If you don’t pay, the gear can be seized, but you won’t have any personal assets involved.
Here are the standard numbers behind financing dental equipment: loan amounts — the cost of the equipment depends; repayment period: from six months to five years; interest rate — from 6%; approval time — as quickly as a business day. You can use equipment financing in conjunction with other forms of capital to complete the dental practice financing puzzle.
Compare your options
Now that you have an overview of your main standard financing options (I left out choices like asking your friends and family for financing, although that is also a possibility), it’s up to you. compare them and see what works best for you.
Remember, traditional term loans and SBA-administered loans are your best choices for starting or acquiring a dental practice, although they also have wide uses. If you’re renovating, expanding, or making quick fixes to the office, a loan or line of credit from an online lender or equipment financier may be the answer.
Jared hecht is the co-founder and CEO of Fundera, an online marketplace for financial solutions for small businesses, including business loans. Prior to Fundera, Hecht co-founded the group messaging app, GroupMe.