Dental offices are like small businesses in other industries in many ways.
Loans for dentists have similarities to other businesses as well, but do have a few unique aspects.
For instance, the old real estate adage comes to mind: Location. Location. Location. If you are a dentist and open a practice in a hard to reach part of town, it may hinder your ability to attract new clients and expand your patient base. Having adequate parking nearby is another concern. Finding the right location for your dentistry practice is one of the biggest challenges.
After the right property is identified, then the financing must be secured. Many lenders now offer loans for dentists at affordable rates and terms. The type of funding depends on usage. Among the most common dental practice financing needs are:
- New practice startup financing
- Existing practice improvement and expansion
- Buying out partners (purchases of existing practices)
- Commercial real estate and equipment purchases
- Debt consolidation
According to Kent W. Stapley, DMD of DentalEconomics.com, it costs over $500,000 to start a dental practice. Much of that amount is tied up in equipment, leasing agreements, and working capital.
Try to find vacated dental space, rather than fitting out an entirely new office from scratch. This strategy will help to significantly cut down on costs. Build your office in such a way that you can share space with other dental professionals or specialists.
“When equipping your new office, focus only on equipment you will actually need to open your doors. A quality patient chair, a good practice management software system, and a reliable autoclave are all good examples of what a budding practice needs,” Dr. Stapley suggests. “Please don’t allow yourself to be sold equipment that is not a ‘need.’ A hard/soft tissue laser or a crown mill and digital impression system are all great additions, but does your new practice really need these items on day one?”
Running an efficient dentistry practice with dependable, positive cash flow will allow you to purchase additional equipment a lit bit down the road once the business has more cash reserves available to invest.
Even if you are a recent dental school graduate, securing financing is likely an obtainable goal. Unlike the restaurant business, for example, dentistry is not considered a high risk industry. Dentists are highly skilled and relatively well paid professionals. Nonetheless, in order to obtain small business loans, it is important to create a business plan that provides a roadmap to profitability.
Elements of a successful business plan are:
- Executive Summary: A one-page summary of the business, including revenue goals, operations, marketing strategy, and financial information.
- Business Description: Explain what type of practice you are building: general dentistry, orthodontics, oral surgery, etc.
- Competitive Analysis: Assess the competition objectively and realistically. Be sure to explain how you plan to differentiate your dentistry practice from others in your general vicinity.
- Service: Outline the various services that your dentistry practice will perform: check-ups, X-rays, fillings, teeth whitening, etc.
- Sales, Marketing and Promotion: Explain how you will let people who live in your service area know about your practice. If you are buying out a partner and the name stays the same or similar, the methods you use will be different from those of a startup.
- Management: Introduce the underwriter to the partners in the dentistry practice or the leaders of the organization. Include short bios of partner dentists and key team members (dental hygienists, office manager, etc.)
- Financial Data: Include a break-even analysis, cash flow projections, and sample balance sheets and profit-and-loss statements.
- Investment: Report the amount of money you (and your partners in the practice, if any) will put up. Banks look favorably upon borrowers who have “skin in the game.” If you are unwilling or unable to invest your own money into the practice, lenders are likely to be wary about sinking their money in it, as well.
- Appendices: Include research papers, patents, photos from community events in which you have donated your time and talents, and other supporting documents.
A well-written business plan can help borrowers secure financing and can mean the difference between success and failure. The business plan should document the challenges that come with running a dental office, including late payments from insurance companies that hurt cash flow and the cost of building purchases and renovation costs.
How to Apply for a Dental Practice Loan
Use the internet and find a site that can match you with multiple lenders. Thanks to advances in financial technology (FinTech) loan applications can be submitted online via cell home at night or during the weekend.
Be prepared to provide the lender with your two most recent federal tax returns and three months of business bank statements, along with balance sheets and P&L statements. Decisions can sometimes be made in just a couple of days. Traditional bank loans will offer the best interest rates, but having a good credit score is critical to landing a traditional term loan. SBA loans come with a government guarantee that mitigates risk to the lender. However, these loans take longer to process because of the paperwork involved. Non-bank lenders are an option, and while they do provide quick funding, the cost of capital will be much steeper than the interest rates charged by banks.