August 20, 2022

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Small Business Loans For Dentists: (2022) The Essential Guide

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Lenders typically consider dentist business loans safe investments because dental professionals earn a higher-than-average salary, and dentists are always in demand regardless of external variables. Dental practice loan programs are open to family dentistry practices, orthodontists, periodontists, endodontists, prosthodontists, and oral surgeons.

Like many small business owners, dentists often need funding to finance their operations or fuel growth. Running a dental practice requires investing in both tangible and intangible items. Tangible investments include dental hygiene equipment, while intangible investments include advertising and promotion. Although you may receive payment from your patients or insurance companies in the future, you may need to cover some of your business expenses with cash upfront.

Dental office loans can provide you with the working capital to sustain and grow your business before receiving insurance and patient payments. From installing new dental hygiene equipment to funding marketing initiatives, dental offices require additional working capital to grow their business.

In this guide, we’ll answer the following questions and more:

What Are Some Uses of Dental Practice Loans?

If you start or manage a dental practice, you may need a dental office loan or dental equipment financing. Securing financing is a significant part of running a dental practice, as it helps you improve your business in many ways:

Working capital infusion

To keep your dental practice open, you need to cover various costs. Running a business can be expensive, and cash flow can be an issue. Borrowing money to cover expenses like payroll, supplies, utilities, or insurance can help you keep the lights on and the gears moving.

Small business lenders can provide the capital you need to cover those costs. Numerous dental business loan products and financing solutions make it easier to run and move your business forward.

Business expansion or renovation

Opening a new dental practice or sprucing up your current office with new fixtures, decor, or equipment can help to create a clean and modern look in your waiting area and promote comfort for patients.

Moving a dental practice to a more prominent location, renovating a current practice, or opening a second practice in a new area requires both planning and money.

You can apply for bank loans, which you can use to finance new store openings or remodel your office. However, if your local bank makes it tough to get the financing you need, some alternative lenders simplify the application process and can fund within a few business days.

Acquire an existing practice

When buying into a dental practice, you may want to consider a loan that funds renovations, equipment upgrades, and other expenses associated with the purchase. In this case, the SBA 7a loan will probably be the best bet.

Loan terms may vary greatly depending on the patient portfolio of the business you’re acquiring, the age of the equipment, and other factors.

Purchasing or upgrading equipment

Technology in dentistry is ever-evolving. To keep your practice on the leading edge, you might consider investing in new equipment.

Dentists have several options for financing this equipment, including using some of the capital they have in the bank, getting a business loan, or using a credit line. There are also small loans from online lenders that might work for paying a portion of the cost of new office equipment and software.

Equipment loans are often easier to obtain than other business loans because the dental equipment will serve as collateral. That’s right, no personal collateral is required! The terms are generally favorable; even larger dental practices take advantage of equipment financing. However, consider the total cost of ownership and long-term financial impact when deciding how to finance your new dental equipment. 

Dentist performing services

Starting a dental practice

Starting a dental practice can be very expensive, so it may be helpful to finance the endeavor with a startup loan.

When starting a new practice, you need to consider many factors. You will need to find office space for your practice, get the necessary equipment, and hire staff.

You’ll probably be in the market for bank loans or SBA loans for financing like this.

Investing in Dental software

When you own a dental practice, you have many choices of practice management software. Involve your whole team in the purchase process, and make sure new software will work with your existing setup. Financing can come into play to help pay for the software itself, and you may want to set money aside for training. If you’re changing accounting software, you may need to hire an accountant or bookkeeper to move your books over to the new system.

What Are the Requirements for Dental Practice Financing?

To qualify for dental practice loans with the best terms, it is essential to have a strong loan application. You must have a good credit score, have at least one year of tax returns and financial statements, and provide several personal references.

This is especially important for bank and SBA guidelines that require a lengthy, detailed application process. Make sure to have the following in your loan application:

Business plan

One of the first steps for a person who wants to own or get funding for a dental practice is to prepare a business plan. A business plan should include your experience, target market, competing practices, and marketing strategies. It should also contain financial projections. In addition, a business plan will give a lender an idea about the loan applicant’s ability to run a successful practice.

Outstanding student loans

Many dentists take out a student loan when they attend dental school. Student debt and any other form of consumer debt—not business-related debt—will not be a factor in qualifying for dental business loans. As long as you can pay back the dental office loan, the bank will only concern itself with how your dental office performs.

Dental office experience

To be eligible for a substantial loan in the dental industry, you must demonstrate your experience and track record. The more experience you have, the larger the loan amount you can qualify for in some cases. Banks may deny you a loan if you have little or no experience in dentistry.

Credit Score

One of the main factors determining whether you qualify for dental practice loans is your credit score. To be eligible for a bank loan or an SBA loan, your credit score should be at least 650. Scores below 650 may qualify you only for an online lender’s short-term or medium-term loan. 

What Are Some Dental Practice Loan Options?

Various factors affect the cost of a small business loan for dentists, including the performance of the business, credit score, and the type of financing you’re applying to get. Dental professionals who want to finance dental equipment or purchase a practice will be best suited with different financing types that are more appropriate for each transaction.

Available dental practice loans are as follows:

Small Business Administration (SBA) loans

The government guarantees Small Business Administration (SBA) loans. The SBA offers term loans to businesses ranging in size and need, with a broad spectrum of loan products. Small business loans can be used for capital expenditures, working capital, and debt restructuring, among other things.

SBA loans have the most stringent documentation requirements of any lender, with detailed financial documentation required along with a business plan in some cases. There are strict collateral and/or personal guarantee requirements. These loans can take weeks or months to process.

Business owners with strong credit who require a long-term loan can apply for an SBA loan through their local bank, credit union, or United Capital Source’s extensive list of SBA partners.

The SBA 7(a) loan program is designed for significant small business loans up to $5 million and is perfect for dentists. The terms of these loans are highly competitive because of the financial protection the lender receives. You can expect a lower monthly payment with SBA loans because the terms can go out as long as 25 years.

Bank loans

Commercial banks offer a variety of funding options for dentists. Some commercial banks offer lending options specifically designed for dentists that feature unique advantages such as reduced fees and other special offers for ADA members.

Traditional banks offer several types of financing to dental practices. The terms of your bank loan—purpose, loan amount, and duration—will vary based on your financial situation. If you have a good credit score and are interested in traditional bank financing, a phone call to your bank’s dental practice loan specialist is an excellent first step.

If you’re a startup with no credit history or an established business that’s working on expanding, a bank loan could be a good option for dental practices.

Alternative business loans

Alternative business lenders provide dental practices with funding options to help with business cash flow. These lenders fund a range of business loan products, including working capital loans, business lines of credit, equipment financing, revenue-based financing, term loans, and receivables factoring. Some even offer merchant cash advances funded within a few business days.

Alternative dental practice loans generally provide smaller loan amounts than standard business loans and have shorter terms. Still, they can be offered to businesses with less than one year in business and low credit scores.

Business lines of credit

A business line of credit functions similarly to a business-purpose credit card. It enables a small business owner to draw on an ongoing source of working capital that can be used and repaid as needed.

Because the line of credit is an ongoing revolving source of funds, it’s ideal for handling unexpected expenses, purchasing supplies or equipment, or repairing equipment. You only pay interest on the amount drawn from the credit line, not the entire credit limit.

Business lines of credit are essentially pre-approved loans for businesses. You don’t have to worry about obtaining funding before you need it, as the funds will be there when you need them for dental practice expenses. You can compare loan rates from multiple lenders, at which point you might even decide to apply for a business line of credit with your bank or local credit union.

Businesses with a good credit history should consider applying for a business line of credit when they need to fill cash flow shortages or manage unexpected expenses.

Dental equipment financing

Dental practices have many needs, including dental chairs, lighting, x-ray and imaging equipment, basic instruments, office computers, and PPE for staff.

A small business owner may use equipment financing to fund the purchase of new equipment. A down payment is required to purchase new equipment, but because the equipment serves as collateral for the loan, you can use equipment financing to buy expensive items that your practice needs to function.

Financing dental equipment is more readily available to dentists with bad personal credit; therefore, you can borrow more money than you could by getting a traditional loan. Loan amounts are based on the purchase price of the equipment. Using the equipment itself as collateral makes it easier to secure financing.

Existing dental practice acquisition loans

Many lenders, including Bank of America and the SBA, offer funding options to help dentists purchase or improve their practices. Still, the financing comes with a catch: each lender has different requirements, including a minimum credit score.

Businesses that would benefit from acquiring an existing practice should have a solid financial history, adequate industry experience, and a plan to expand their operation.

Dentist showing patient an x-ray of their mouth

What is the Best Dental Practice Financing for Your Business?

Dentists have the potential to earn more than those in other fields, so you have a good chance of acquiring dental practice financing. However, the loan product you apply for should be based on how you intend to use the funds.

Many lending institutions offer specialized lending divisions for dentists and other medical professionals to help you understand the loan process and the various types of loans available to your business.

Once you’ve researched your options, you are left with the obvious question: How do you choose what loan is right for you? Your financial circumstances, credit history, and whether or not you need funds immediately will influence which option works best for you.

Frequently Asked Questions

Can I Qualify for Dental Practice Loans with Bad Credit?

Your credit can be a factor in qualifying for a dental practice loan. However, bad credit isn’t necessarily a deal-breaker—it depends on why your credit is bad, business performance, and the lender.

How Long Can Dental Equipment be Financed?

Most dental equipment financing programs can go out up to 5-6 years. The longer the term of your loan, the more time you have to pay it off, but you will probably pay more interest if you choose a long-term loan.

Some lending institutions might allow you to repay an equipment term loan early without paying a prepayment fee; and, in the process, reduce the amount of interest you pay.

Is it Hard to Get Approved for Dental Office Loans?

Dental startups and business owners with bad credit can have difficulty getting business loans. While these obstacles make it challenging, getting approved for a dental business loan is not impossible. When you work with a business loan marketplace like United Capital Source that understands your situation and how to meet your needs best, applying for a loan can be easy.

Conclusion

As a dental professional who belongs to American Dental Association, you care about the health of your patients. And if you want to see your dental practice thrive for years to come, you need to be able to find financing.

For the dental professional eager to start or expand a dental practice, taking out a new small business loan can be daunting. However, to qualify for a loan, you need to determine which type of dental practice loan will make sense for your needs first.

Dental business loans are usually available for various purposes and can help you with an immediate or anticipated need. Whether you want to buy additional equipment or wish to expand your practice, dental practice financing is a great way to accomplish your goals.

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