Dental Practice Funding: The Essential Dental Practice Loan Guide

You may be a dentist first, but if you own your own dental practice—and over 75% of dentists do—you’re also a small business owner. That means that in addition to providing top notch care, you’re also responsible for making sure your practice operates smoothly, including administrative work, managing your finances, and planning for growth.

Sometimes, that means researching and applying for small business funding to start your practice, support your operations, or kickstart your growth.

Whether you’re looking to open a practice, supplement your cash flow, or expand your offices, dental practices of all sizes and specialties can benefit from an infusion of working capital. Multiple types of small business funding are available for dentists in any area of specialty, including orthodontists, dental surgeons, endodontists, dental hygienists, periodontists, and more.

Dental practice loans can be used to help navigate the unique challenges of running a dental practice, including:

• Office space: Dental practices must present a clean, comfortable environment, which means they need an attractive office with well-equipped operatories. This infrastructure can be costly, especially if you’re just starting a new practice—the average cost of opening a new practice ranges from $350,000-$500,000.
• Equipment: Dental equipment and diagnostic tools like digital impression systems, electric handpieces, and other essential tools are costly to purchase and maintain, but are essential for providing high-quality care. You may also need to invest in new technologies and equipment if you are looking to expand your services to attract new patients.
• Specialized needs: Dental practices have more rules to follow and more specialized needs than other types of businesses like retail shops. As a result, operating costs are typically higher, and cash flow may be a challenge.
• Competition: Competition is high for dental practices and attracting new patients is an ongoing challenge. Dental practice funding can help you stand out from the competition by enabling you to offer new services such as online scheduling or billing or expanded office hours, improve your online reputation to get more referrals, or increase your advertising to help you attract new patients.

Most dental practice loans are designed for dentists who are preparing to start their own practice, or established practicing doctors who are ready to expand.

Long- and short-term loans for dentists are available, as well as secured and unsecured loans, including:

1. SBA dental practice loans
2. Bank loans
3. Alternative funding
4. Lines of credit
5. Dental practice acquisition loans
6. Equipment financing

Let’s take a closer look at these options.

SBA loans for dental practices are not technically provided by the Small Business Administration—the funds are actually disbursed by commercial lending institutions and are guaranteed by the SBA up to 85%. This reduces the risk to the lender, which in turn reduces your rates and fees.

The SBA offers a number of loans for dentists, including 7(a) Guaranteed Loans and 504 Local Development Company Program loans:

• 7(a) Guaranteed Loans: These are the most popular SBA loans for dentists, with the fewest restrictions on how the funds are used, largest loan amounts, longest repayment terms (up to 25 years), and lowest interest rates. Loans up to $5M are available, and funds can be used to meet long- and short-term needs, as well as for expanding or acquiring another practice.
• 504 Local Development Company Program Loans: These long-term, fixed rate loans are administered by Community Development Corporations (CDCs) through commercial lending institutions, with the expectation that the borrower will create or retain jobs or uphold other public policy goals such as revitalizing a business district, rural development, or supporting a minority-owned business. 504 loans are often used to acquire real estate or equipment.

Because they typically have the lowest rates, largest loan amounts, and longest term lengths, SBA loans are one of the most highly-sought loan options for any small business, including dental practices. However, the application process is lengthy (sometimes up to 4 months) and requires extensive paperwork, along with years of detailed personal and business financial information, all with no guarantee of approval.

Commercial banks also offer loans for dentists. Terms and rates are competitive but may not be as low as SBA loans, and will typically depend on the size of the loan and your credit history.

Some banks, including Bank of America and Wells Fargo, offer funding options designed specifically for dentists in partnership with the American Dental Association, such as:

• Interest-only and graduated payment structures for startup loans
• Dedicated project managers for project-related loans
• Commercial real estate loans to purchase or refinance office space
• Equipment loans

Approval requirements are strict but may not be as restrictive as the SBA, especially if you have an existing relationship with your lender. However, similar to the SBA, the application process can take weeks or months with no guarantee of approval.

The anticipated revenue and stability of dental practices can make these businesses an attractive candidate for funding, but it may still be tough to get the funding you need if you are a newer practice or have lower credit. Banks tend to prefer to grant larger loans to large, established businesses, which can make it tough for smaller businesses seeking smaller loan amounts to get the funding they need from a bank that doesn’t offer specialized dental practice loan programs.

Alternative funding options for dentists are available from direct online lenders like Greenbox Capital®.

Minimum qualification requirements at these lenders are typically lower, with more flexible underwriting requirements and less focus on factors like credit score. Approval is based on the overall health and potential of your practice, which makes more funding available to dental practices, including newer businesses.

With a streamlined application, alternative lenders can also approve your application and deposit funds in as little as 24 hours, making alternative funding ideal for practices that need fast funding to take advantage of short-lived opportunities to grow or cover unexpected costs like equipment repairs.

Loan amounts are typically lower and terms are typically shorter than SBA and bank loans. Because terms are shorter and underwriting requirements are more flexible, rates may be higher; however, it’s a common misconception that rates are always higher than other forms of funding—ultimately, rates and fees will depend on the type of funding you’re seeking and your business’s risk assessment and creditworthiness.

Multiple types of funding are available from alternative lenders depending on your practice’s needs, including lines of credit, alternative business loans, real estate collateral loans, and non-loan financing such as merchant cash advances and online invoice factoring. There are no restrictions on how your funds are used.

Lines of credit are available from traditional and alternative lenders, typically for longer terms than short-term funding options like merchant cash advances or invoice factoring.

Lines of credit offer the most flexibility, allowing borrowers to draw and repay from the line of credit as needed. You’ll only ever pay interest on the amount borrowed. This makes lines of credit ideal for responding to unexpected expenses, purchasing inventory, repairing equipment, and filling in cash flow as needed.

Dental practice acquisition loans are designed specifically to fund the purchase of another practice, whether you’re just starting out and are purchasing a retiring dentist’s practice or are considering expanding your existing dental practice.

Multiple types of funding can be used to acquire a dental practice, including SBA 7(a) Guaranteed Loans, 504 loans, traditional bank loans, and alternative funding. Some lenders, including Wells Fargo and Bank of America, offer specific lending programs designed to help dentists acquire an existing practice.

Dental practice acquisition loans are typically for larger amounts, which means you’ll likely need to provide detailed financial documentation when you apply, especially if you apply for an SBA or bank loan. Be prepared to provide:

• A purchase agreement
• Current balance sheet
• Year-to-date profit and loss statements
• Federal tax returns
• A schedule of inventory, equipment, and fixtures, as well as other assets when applying

Equipment financing is designed to help finance the purchase or repair of dental equipment, such as dental patient chairs, sterilization equipment, imaging machines, dental operating lights, handpieces, and more.

The equipment often serves as collateral, which may make these loans easier to acquire, especially if you’re just starting your practice. Loan terms will typically match the lifespan of the equipment, and a down payment may be required.

The best loan for dentists depends on your goals. The loan, including the amount of the loan and your repayment terms, should serve a specific purpose that aligns with your business goals, such as purchasing new equipment, expanding your marketing and advertising to acquire new patients, or investing in real estate.

For short-term funding, non-loan financing such as merchant cash advances or invoice factoring can provide a fast infusion of working capital that can help you maintain cash flow, cover unexpected expenses, or invest in growth.

For long-term funding, SBA 7(a) Guaranteed Loans offer the best rates and terms, but are the most difficult to acquire. Bank loans are a good alternative, especially if you work with a lender that offers loans designed specifically for dentists.

For fast funding, alternative lenders are always your best bet. These lenders can approve and deposit funds in as little as 24 hours, while SBA and bank loans can take weeks or months to process with no guarantee of approval.

Dental practice funding can help dentists overcome the unique challenges of their field, including:

• Equipment: Dental equipment is expensive, but it’s critical to providing top-notch services and patient care. Outdated or broken equipment can be costly to repair or replace, and small business funding such as equipment financing or short-term alternative funding like a merchant cash advance can help you cover these costs. Loans for dentists can also help you invest in new technology to keep your practice on the cutting edge, such as digitized impression systems or digital imaging systems, electric handpieces, and more.
• Insurance and billing: Insurance and billing can be time-consuming and can lead to cash flow challenges if insurance companies or patients are slow to pay their invoices. Short-term funding like online invoice factoring can help fill these cash flow gaps so you can keep operating at your best.
• COVID-19: While dentists have remained fairly stable through the COVID-19 pandemic, practices now need to contend with greater operating costs and PPE requirements, which can put a strain on your cash flow.
• Corporate dentistry: The rise of corporate dentistry presents many challenges to local dentists who may not have the money to compete with the lower prices of these larger-scale organizations. Investing in marketing, improving or adding new patient services, and offering personalized care can help you stand out from the competition.

Dental practice funding can be used for more than overcoming challenges faced by dentists—it can also be used to grow or expand your practice, such as:

• Purchasing real estate: Expand your assets or reduce your monthly expenses by purchasing your current office space, or grow your practice by expanding to another location. Owning your office space also makes it easier to update or renovate your space to accommodate new services or create a more comfortable environment for your patients.
• Acquiring a practice: One of the simplest ways to start or grow a practice is to purchase an existing one, but this method of starting up or expanding often comes with extremely high costs. However, the purchase typically includes the patient roster, as well as all equipment and fixtures, which can simplify the process of opening a new office and eliminate some of the stress of building a brand new patient roster.
• Hiring staff: Whether you hire a practice manager, administrative staff, or additional practitioners to offer more services, hiring staff will enable you to take on more patients without sacrificing quality of care. Onboarding a new employee takes time and can be costly, and dental practice funding can help you maintain cash flow and normal operations while your new hire settles in.
• Boosting marketing: Invest in improving your website, managing your reputation online, or advertising online or locally to attract new patients to your clinic, especially if you’ve added new services or have expanded to a new location.
• Technology: Simple upgrades like new computer systems can help your admin team work more efficiently so you can focus on providing better care. New technologies like 3D printers, laser dentistry, and emotional dentistry tools can also set your practice apart from the competition, but they can be costly, especially on top of your practice’s regular technology expenses.
• Improving patient services: Patients are prioritizing convenience in 2022. This can take many forms for your practice, including offering online billing and scheduling, online paperwork, expanded office hours, and additional services. These conveniences may require an investment of capital to implement, but they can set you apart from the competition and help you win new patients.

Dental practices are often considered to be ideal candidates for funding because of their high earning potential, high net worth, and stable income.

Here’s what you need to know before you apply for dental practice funding:

• Most dentists graduate with high amounts of student debt—the average student loan for a graduating dentist is just under $300,000. Some lenders will factor this into your loan application, especially if you’re just starting up, while others, such as alternative lenders, will focus more on the health and potential of your business. Some lenders, including Bank of America and Wells Fargo, even have partnerships with the ADA and will balance factors like student debt against your earning potential when evaluating your application.
• Revenue and billing structures for dental practices and delays receiving payments from insurance companies can strain your cash flow, which may make it difficult to get approved for funding. Requesting payments up front, billing patients quickly, and making it as easy as possible for clients to pay can all improve cash flow.
• You may be asked to provide a business plan that outlines a timeline of your dental practice’s income for the last 1-5 years, including costs associated with running your practice, an analysis of competition in your area, and how you intend to use and repay the funding. Some lenders, including the SBA, will require this, while others, such as alternative lenders, may not. It’s always a good idea to have it prepared just in case to minimize any delays with your application.

The steps you’ll follow when applying for a physician business loan will be similar to other industries.

Learn more about how to apply for small business funding