Dental Lending: Separating Fact from Fiction

May 4, 2023

At a glance

  • The main takeaway: Banks see dental practices as a safe investment. Attractive loan options, including 100% financing, are available for new and established dentists.
  • Impact on your practice: Acquire or expand your practice with experienced, specialized dental lenders who know your industry and can get you started on strong financial footing.
  • Next steps: Aprio’s National Dental Practice can provide the end-to-end guidance you need to secure lending and start, acquire or expand a dental practice.

Schedule a consultation with Aprio today

The full story:

Owning a dental practice can be incredibly rewarding and fulfilling. From professional autonomy to financial returns and personal growth, there’s a lot to be said for practice ownership. But to get there (and to expand your practice over time), you’ll likely need a loan.

Unfortunately, there are a lot of misconceptions out there about business lending for dentists. Misinformation, inaccurate assumptions or even poor advice from a generalized lender can keep some dentists from investing in themselves. And that can be a real loss.

If you’re in the dark about dental lending, we’ll help separate fact from fiction.

“I have too much student loan debt to get a business loan.” FICTION.

If you’re working with a specialized dental lender, student loan debt will have little bearing on your ability to get a practice loan. Historically, dental lending has shown itself to be extraordinarily low risk. It’s one of those professions with a fast return on investment, so lenders know you’re a good bet.

In fact, new dentists right out of school can often qualify for $550,000 to $750,000 for a startup loan (depending on location and real estate costs). Orthodontists, oral surgeons and niche-skill dentists can even qualify for more than a general practitioner.

“I’ll need a big down payment.” FICTION.

Believe it or not, dental lending is a no-money-down scenario — 100% financing is available, even for new doctors. You can’t get that for a house, but it’s the standard for dental practice loans.

You will, however, need to show some level of cash in hand. For example, you might need $25,000 to $50,000 saved to qualify for a $500,000 loan, or $50,000 to $100,000 to qualify for $1 million. This isn’t money you have to tie up in the acquisition or build out. Rather, it demonstrates you have financial discipline and the wherewithal to be viewed as a saver.

“I should refinance my student loan to lower my interest rate first.” FICTION.

Unfortunately, this one catches people by surprise. If you’re thinking about starting or buying a practice, do not refinance your student loan. Do not do it! Keep your loans on income-based relief.

Here’s the thing — if you refinance your student loan, you’re going to be stuck with a much higher monthly payment. That will affect your cash flow which could limit your loan qualifications. (Already refinanced? That doesn’t mean you can’t get a loan. It just means you might qualify for less.)

“There’s no point in talking to a lender until I’m sure I’m ready.” FICTION.

Start the conversation early — as soon as you think you might want to buy a dental practice or open your own. Yes, even if you’re still in residency! Dental lenders are happy to have informational conversations with potential borrowers.

A prequalification conversation takes no time at all, and you’ll gain valuable tips on how to best position yourself for a loan. For example:

  • Credit score: Most lenders are looking for a FICO score of 680 or better, so make minimum payments on time for all your existing debt.
  • Debt strategy: It’s generally better to have $25,000 in the bank than to pay down $25,000 in student loan debt. There’s a strategy behind buying your business first and paying down your student debt second.
  • Homebuyer strategy: You might want to put off buying a house. Your dental lender will have preferred mortgage options for you after you start your practice. 
  • Acquisition strategy: If you’re buying a practice, you need to demonstrate you can produce at or near the retiring dentist’s trends. For example, if the retiring dentist is doing high-end dentistry and you’re doing mostly crown and bridge work, the lender will see that as a gap. Ask your employer for your monthly production reports so you can show a lender your performance trends.

“I’m fresh out of school. I should be happy with any loan offer I get.” FICTION.

Again, dental loans have a very low default rate. Banks want your business. That gives you leverage to negotiate flexibility in payment schedules, working capital and even interest rates.

It’s generally a good idea to have a prequalification conversation with multiple banks so you can compare their lending packages as well as other bank products, including mortgage programs, business checking benefits and rewards programs.

“I’ll need a lot of startup cash to cover loan payments at the beginning.” FICTION.

Dental startup loans are generally structured with no payment requirements until your office is opened; at that point, you will likely make graduated payments for the first year or two until your schedule becomes full. After that, you’ll move into making standard payments for the remainder of your loan term.

Again, this is why you want to work with specialized dental lenders. They know the patients will come — and they’ll give you time to make that happen.

“Whether I’m buying or expanding, practice loans are pretty much the same thing.” FICTION.

At some point, most successful practice owners will want to expand or upgrade. Maybe you need more space and equipment to add an associate, or maybe you see an opportunity for additional locations. Dental lenders are poised and ready to support you, just like they are for startups and acquisitions. But dental expansion loans and terms will look much different.

For example, if you want to open a second location, you’ll need to show that your first location can cover those new debt payments. Underwriters will look at your historic cash flow and make sure your first location is performing before approving a second office purchase.

Equipment loans can be fairly straightforward, but a lender can help you strategize the best approach. Perhaps you want a loan you’ll pay off over two to three years; or perhaps you’d be better off buying the equipment and reconsolidating your existing loan to stretch your cash flow. Real estate loans are also managed separately, but that’s true whether you’re starting up or expanding.  

The bottom line

Experienced dental lenders will help you through the process. To reduce stress and ensure you’re making the right decisions for your future, bring in additional resources. Aprio’s National Dental Practice can help you find the right practice, evaluate a market, make business projections, choose the right dental lender and otherwise set yourself up for long-term success.

If you think dental practice ownership, or expansion, is in your future, schedule a consultation with us today.

Related resources

About Aprio’s National Dental Practice

From Associate to Owner: How to Buy a Dental Practice in Today’s Economy

Before Buying a Dental Practice, Take These 3 Steps

Are You Ready to Hire a Dental Associate? 6 Metrics to Consider

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