The Ultimate Guide to Dental Practice Financing

Starting your own dental practice turns you from a practitioner into a businessperson. However, running your business while providing the best possible service for your patients means wearing multiple hats at once.

The greatest challenge of launching your own practice is finding the best dental loans for your needs. Let’s jump into what you need to know about dental practice financing and securing a loan for dentists that will allow you to plant the seeds of a flourishing new business.

What is a Dental Practice Loan?

The dental business has several advantages that make this industry attractive to lenders. For example, dentists commonly report six-figure annual incomes. Healthy incomes make these practitioners an attractive prospect.

Dental businesses are also largely insulated from economic downturns. While people may skip eating out or going on vacation during a recession or a pandemic, most people are still likely to address crippling toothache.

Business loans for dentists are relatively simple to secure, and you already have the inherent advantages of the profession to fall back on. Securing the best dental financing can enable you to address expenses ranging from the rent of your building to state-of-the-art equipment to your first employees.

Different Types of Loans for Dental Practices

Your dental business loan is designed to help you establish your business and see you through growing pains that come naturally to any new company. There are several types of financing available to you. You need to understand the ins and outs of each dental practice financing option so you can make the right move for your venture. 

Here are some of the most common dental practice loans and the pros and cons of each.

Equipment Financing

The equipment required for your dental practice largely depends on your specialization. For example, a family dentist will need different equipment from one specializing in cosmetic procedures, such as crowns and veneers.

Equipment financing helps you finance the purchases you want and need to provide your services. It includes the basics like X-ray apparatus, handheld dental tools, and patient chairs. You can also invest in advanced technology to help your practice stand out from the crowd.

Many new “dentalpreneurs” find themselves shocked at the cost of equipment in today’s market. Dental practice loans allow you to make those purchases without breaking the bank or going into debt.

Pros

• Assume complete ownership of your equipment immediately.
• Spread out the cost of expensive equipment that would otherwise be out of your budget.
• Increase your future revenues by having the necessary equipment available.

Cons

• Equipment financing is strictly limited to equipment purchases , leaving you with less flexibility.
• These loans typically have higher rates than traditional loans.
• Assuming full ownership of equipment in the fast-paced dental industry could leave you with a significant liability.

Startup Business Loan

Another option for dental practice financing is a startup business loan. These loans are specifically designed for dentists establishing their own practices for the first time. Aspiring business owners do not need to own an existing dentistry clinic already. All you need is a firm business plan and a reasonable credit history to qualify.

Startup business loans are available from several providers, including major banks and online investors. Make sure you do your research and shop around to ensure you are getting the best rates.

Pros

• You have as much flexibility as you want to use your capital on anything. It could help purchase equipment or function as a dental office loan.
• There are lots of providers, enabling you to find the lowest dental practice loan rates.
• Startup loans usually come with more manageable loan rates.

Cons

• Startup business loans can be more challenging to secure because they rely on your personal credit score.
• Taking out large amounts can mean restricting your cash flow from day one.
• You may need to tie up your personal assets to get approved for these dental practice loans.

U.S. Small Business Administration (SBA) Loans

The SBA does not provide any loans to any businesses. Instead, they guarantee loans to encourage private lenders to support new businesses. Lenders have the comfort of knowing that the SBA has guaranteed up to 85% of the loan amount. It enables them to take risks by investing in dental professionals who want to form their own clinics.

Strictly speaking, SBA loans function like any other business loan. The only difference is the Federal government has guaranteed them.

Pros

• SBA loans are more affordable for business owners because of their favorable terms.
• You benefit from capped interest rates, meaning that you will always be aware of how much you will be expected to pay per month.
• Choose from both small and large loan amounts, so you get the loans for your dental practice that match up with your needs at the time.

Cons

• SBA loans are notoriously difficult to secure. Strict criteria can make qualifying extremely difficult for applicants.
• The application process is known to be slow and clunky. Expect to wait months for a decision on your application.
• SBA loans come with a lot of rules on what you can use the money for. You have less flexibility than with other lending options.

Business Line of Credit

Taking out a business line of credit gives you a form of revolving credit to tackle those down periods and demanding billing cycles.

Think of a business line of credit as your dental practice’s personal credit card. You take out a business line of credit for a set period and only make repayments on anything you borrow. You’re not obliged to borrow any money, making it an excellent fallback option during your business’s early months and years.

Pros

• Meet sudden and unexpected cash flow demands. If a customer is late paying, your business line of credit can avoid you going into the red.
• You only pay back what you borrow when you borrow it. Smart utilization of a line of credit can prevent you from assuming bad debt.
• Take advantage of opportunities with the maximum flexibility inherent within a business line of credit for your practice.

Cons

• Business lines of credit often incur far higher fees than other lending options. You also need to account for the elevated interest rates.
• Many lenders will only approve applications for business lines of credit from established businesses, meaning you’ll need to rely on a high personal credit score.
• Most lines of credit come with lower borrowing ceilings, making them unsuitable for larger business purchases.

Merchant Cash Advance

Merchant cash advances can be used to boost your financing temporarily. If you’re experiencing slow periods or need to confront an emergency expense, a merchant cash advance can quickly get the money into your pocket.

Applying for a merchant cash advance is relatively simple because all you need are your previous numbers. The amount you can borrow and for how long depends on your business’s finances. You’re essentially borrowing against future transactions.

A merchant cash advance could be the solution if you need money quickly to get your business through a tough spot.

Pros

• Get immediate access to cash. Borrowing against future payments means that most businesses get approved within a few days.
• Lower credit scores are accepted since you already have something tangible in the form of future revenues.
• There are no fixed monthly installments. More of your debt will be paid off if you have a good week. It gives you flexibility in your repayments.

Cons

• Be aware of high interest rates. Merchant cash advance providers don’t always offer affordable options.
• Higher payment frequencies can hurt your cash flow, leading to further problems running your practice.
• Successful repayments will not improve your credit score because such transactions are not reported to the three major credit reporting agencies.

What Do You Need for a Dental Practice Loan?

It’s important that when applying for dental practice financing, you keep your application organized, know the right questions to ask, and choose the right lender. So, what are the most critical aspects of applying for a dental practice loan?

3 Questions to Ask Yourself Before Applying

There are three crucial questions to ask yourself before applying. Here’s a rundown of each question and what they mean.

Do I Have Good Credit?

Lenders want to see that you have a positive personal credit score. Check your credit score with your bank or credit card company. Anything above 670 is considered good, whereas anything above 740 makes you a tantalizing prospect for lenders.

Do I Have a Business Plan?

All lenders will ask to see a business plan. The SBA has plenty of free business plan templates online to help you create your own. A business plan maintains all the details of how your business will operate, its services, and how it will appeal to the local market.

Do I Have Access to Group Discounts?

Pay attention to both administrative costs and origination fees. Take advantage of group discounts. You may be eligible for group discounts if you’re a member of ADA or another industry organization. Factor these discounts into your business plan. They not only reduce your costs but potentially point you in the right direction of a suitable lender.

5 Things You Need to File Your Application

Filing your application requires time and attention to detail. Not having the required documentation or meeting the lender’s minimum requirements will delay your application or see it rejected.

Here’s what you need to file your application:

• Minimum Credit Score – Since you’ll be using your personal credit score, make sure you meet the lender’s minimum requirements. You can obtain a free copy of your credit once a year from each of the three major credit bureaus: Equifax, Experian and TransUnion.
• Business Plan – Fill out a comprehensive business plan. You don’t need to know everything at this stage, but make your best guess while keeping your projections reasonable. Remember, the more thorough, the better. 
• Tax Returns – Provide copies of your last two to three years of tax returns. Lenders will want to see what your previous income was.
• Licensing/Certifications – Bring along your documentation proving that you are a qualified and experienced dentist.
• Identification – All lenders will need to make copies of your identification. Make sure you bring at least two forms of ID, such as a driver’s license or your passport.

How to Apply for Dental Practice Financing

The most time-consuming aspect of setting up your practice will be securing the funding you need to get your business off the ground. Thankfully, the application process is essentially the same as applying for any other type of loan.

Follow these steps for securing dental practice financing.

Step One – Compare Lending Options

The first step is to find a lender that fits your requirements. First, you will need to pinpoint your ideal lending option and then shortlist some lenders that provide that option. Using loan comparison platforms can help you slash the time you spend tracking down lenders and figuring out their rates.

Take your time with this step. Thousands of lenders across the country offer different terms and conditions. Make sure you leave enough time to apply for your loan. Some lending options may take weeks to approve, whereas others may take months.

Step Two – Complete the Lender’s Application Form

Most application forms ask the same questions. You will need to enter some basic details about you and your proposed business.

Many lenders use automated verification systems, so ensure you fill out every field to the best of your ability. You may even be able to attach documents to your initial application form. If this is the case, now is the time to attach your completed business plan.

Step Three – Provide Company Accounts (For Existing Businesses)

Step three applies to established dental practices only. If you’re applying for financing to get a new piece of equipment, make your latest hire, or expand your operations, you will need to provide a copy of your recent company accounts.

Go as far back as you possibly can. Generally, two to three years should be enough, but providing this information won’t harm your application if you have five-year accounts. If you’ve yet to establish your business, you will be able to supply your salary/tax returns from the last few years.

Step Four – Wait for an Answer

Lender waiting times vary from lender to lender. However, you can typically expect to hear back within a few days to a week. Many lenders may ask you for additional documentation or want to speak to you directly.

Expect to be asked for further details if you’re a new business, have an average credit score, or you’re asking for a sizable loan amount.

Step Five – Receive Your Money

If accepted for a dental practice loan, the money should take just a few business days to arrive in your business bank account. You will now be free to spend the money in accordance with your loan’s terms. You will begin making your repayments immediately.

If rejected, begin searching for other lenders who may be willing to lend to you.

Find Your Funding with L3

Applying for financing is the single most crucial step in launching your dental practice. With so many financing options and lenders to deal with, the process may feel overwhelming. 

Get the help and financing you need with L3 Funding. Our team has a long history of helping small business owners secure the financing that makes sense for their ventures.

We also provide merchant cash advances for businesses that need money fast. To learn more about merchant funding or other lending options, contact L3 Funding today.