Strategies to Finance Your Dental Practice
- Jun 3, 2021
- Erick Cutler
Most dentists establishing a dental practice for the first time need a loan to help them get started. You may also need financial help to relocate or expand your existing practice. Thankfully, there are many financing options that dentists can seek out to help their practices grow and thrive.
Finance Options for Your Dental Practice
There are four key types of loans that are available to dentists. You can use any of these loans, or a combination of them, to get access to the cash you need for your dental practice.
The first type of loan is a practice acquisition loan. This kind of loan gives you the cash you need to buy an existing dental practice. Contrary to what many people think, you can actually borrow more than 100 percent of the purchase price of the practice, which means you don’t necessarily need to have money saved to use as a down payment, as long as you have a good enough credit score and business proposal to convince the lender to give you the full value loan you need.
Other three types of loans that dentists can use are tenant improvement and equipment purchase loans, refinance loans and real estate loans. These loans can help you consolidate existing business debts, find a new property for your dental practice, or buy the equipment you need to start providing dental treatments and services.
If you can’t access enough funding through these types of loans, consider using a federal guarantee program. One example is the Small Business Administration 7(a) loan program. This loan program helps dentists and other people who want to start small businesses by providing funding with capped rates of interest.
How to Apply for a Loan for Your Dental Practice
Lenders want to see that your dental practice has the potential to make a profit before they will agree to offer you a loan. You need to provide a solid business plan, which defines exactly how much money you need to borrow, how you plan to spend the funds, and how much revenue you expect to have flowing into your business after a month, three months, six months, a year and so on.
You need to convince lenders that your business can generate enough cash to make loan repayments, including the interest on the loan. If you’re applying for a variable rate loan, consider how you will cope if the interest rate increases during the repayment term.
Once you have worked out how much money you need to borrow and how you will handle the repayments, it’s a good idea to talk to lenders as soon as possible. Begin by approaching your bank with your proposition to ask about funding options that are available to you. If your regular bank refuses to lend you money, try approaching both local and national banks to explore your financing options.
Don’t sign a lease on any property before you have been approved for the full amount of money you need to cover all your costs. You don’t want to be left facing a bill that you can’t pay.
Documents You Need to Apply for a Loan
Your chosen lender will let you know which documents you need to apply for a loan. Typically, these documents include a business plan, as well as documents showing your current financial situation, such as bank statements and student loan documents.
Help your lender get a clear picture of your financial situation by preparing a personal financial statement. This document should show your income, the value of assets such as your home and vehicle, the amount of money you have in savings accounts, and any outstanding debts.
Explain your plans to your lender by preparing a detailed written description of how you plan to use the money. This use-of-funds document should include the costs of setting up, buying or expanding your practice, as well as the costs of equipment, hiring staff and marketing.
Finally, lenders want to see that you have the right skills and qualifications to open a successful dental practice. Check that your resume is up to date and bring it along to any interviews you have with lenders.
What It Takes to Be Approved for a Loan
Dentists typically have a low risk of defaulting on loan payments, so you have a good chance of being approved for a loan. However, you still need to meet certain requirements to be approved for a dental practice loan. In general, lenders look for a FICO credit score in the mid- to high-600s. You may be able to get a loan with a lower credit score, but you can expect to pay higher interest rates.
If you want to set up your own dental practice, it is essential to get the right finance in place. Once you have prepared your business plan and the documents showing your personal financial situation, it is time to start talking to as many lenders as possible to find the best loan deal for you. Remember that you need to make regular loan repayments to protect your credit score and keep your dental practice running.
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Erick Cutler is a Partner in the Private Client Services Group, with nearly 25 years of public accounting experience including health care and the real estate industry.
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