Dentists looking to purchase existing practices may face a big price tag – between $300,000 and $500,000 on average – but still benefit from historically low interest rates. Dental loans remain among the lowest default rates and are considered safer risks for lenders, but that doesn’t mean your loan application will get pushed through without at least a few questions. Here’s what you should be prepared for when financing your new dental practice.
Read our post Tips for Buying Your Own Dental Practice for an overview of financing best practices and other helpful advice.
There are conventional bank loans, Small Business Association (SBA) loans, and other types of financing.
- Fixed interest rates
- Average interest rate of around 5.5 percent
- Average loan length of 7-10 years
- Closing costs averaging 10-20% of loan amount
- Credit score of at least 725
- Available liquid assets of up to five percent of the loan amount
- Loan application
- Low debt obligations
- Business plan, personal financial statement, resume, 2-3 years’ tax returns, 2-3 years’ profit and loss statements and balance sheets of intended dental practice
When possible, stick with a lender that specializes in dental practice and healthcare loans. Their loan officers will be more familiar with the nuances of the industry, which can make for a much easier process. Wells Fargo Practice Finance, Bank of America Practice Solutions, and US Bank Practice Financing are all top national lenders.
Some offer 100 percent financing, but it depends on the type of loan. Loan types vary based on lender and can include start-up, refinance/remodel, acquisition, real estate, equipment, and working capital.
- Variable interest rates
- Average interest rates around 6-7 percent
- Generally high closing costs
- Shorter loan terms
- In practice for one or two years
- Credit score of around 600-675
- Use alternative financial resources, including personal assets
- Loan application
- Personal financial statement, profit and loss statement and tax returns for 3 years, 1-year projected financial statements, business license, loan application history, resume, business history and lease, and other information on the dental practice being purchased
To begin an SBA loan process, you must start with a local lender that works with the SBA. Bank of America and Live Oak Bank are two top national SBA lenders for dental practices.
Other Lending Options
In some cases, other financing options could include SBA microloans and grants, and high-rate unconventional loans (generally undesirable unless there are no other options).
Lenders vary with fees, terms, and requirements. It’s best to shop around and meet loan officers before deciding on financing. Examples of items to ask about include down payment, closing costs, pre-payment penalties, future expansion opportunities, loan terms (fixed monthly payments or graduated payments), and what other assets or collateral are required.
Equipment loans and loans to cover operating costs are slightly different. Talk to your lender about specific requirements.
If you have bad credit, expect to pay high interest rates and have shorter loan terms.
Before you submit a letter of intent to buy a dental practice, you should be pre-qualified for a loan. In some cases, sellers won’t even entertain potential buyers who are not pre-approved. If you’re still in dental school, it’s a good idea to make contacts with lenders before you graduate.
There are many options for dental loans, and the best approach for one dentist might not work for another. Do your homework, get your documents organized, and watch as your dream of opening your own dental practice comes true! For questions on obtaining financing for dental loans, contact our team of dental CPAs today.