Dental Practice Financing
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DISCLAIMER: This article was written in 2022 and has not been updated. For more up to date information about small business funding products and options, please browse our recent articles.

In this article, you’ll learn:

  • The benefits of dental practice financing
  • Why you might need funding for your dental practice
  • Who the best loan providers are
  • Types of funding available for your dental practice
  • The average interest rate for a dental loan
  • The best financing in 2022 for dental practices

In 2022, going into the dentistry profession is an expensive undertaking. Your training alone costs hundreds of thousands of dollars, but the costs don’t stop there. Expenses keep piling on once you get your dental practice. According to Dental Economics, the average overhead for dentists in the U.S. is 73%. This means that for every dollar a dentist earns, they only end up with 27 cents. But, as the saying goes, sometimes you have to spend money to make money. Maybe you want to finance a new facility you’ll be proud of on the opening day of your practice, or you may want to get the latest innovations in dental technology to offer your patients the best there is. Either way, you’re probably looking at an additional few hundred thousand dollars. That’s when most dentists seek financing. What surprises so many dentists is how challenging it is to get a small business loan for their dental practice. Whether you’re a new dentist just starting out, or an experienced dentist wanting to make a few upgrades to your existing practice, finding the right lender for your dental practice doesn’t have to be complicated. And you shouldn’t feel like you’re getting a root canal when you seek funding for your venture. Hopefully, this article will shed some light on your financing options and make things easier for you.

What are the benefits of dental practice financing?

For one, you’re probably already saddled with student loan debt from dental school. The average four-year education in dental school runs between $251,233 and $321,575. In addition to student debt, the American Dental Association (ADA) says that it takes about $500,000 on average to set up a dental practice. There aren’t many dentists who leave their training with enough cash to secure a building for their practice or the working capital and operational cash flow necessary to fill their offices with dental equipment and x-ray machines or hire staff. What’s more, many dental practitioners don’t even have enough for a down payment on a small business loan. The most significant benefit of dental practice financing is that it allows you to get your practice set up right from the get-go. Funding can help make your plan come together when you need it the most. And, unlike with other types of small businesses, you don’t have to worry as much about whether or not you can repay a dental loan. Dental professionals tend to be quite successful, and a little business savvy can go a long way towards making a dental practice quite lucrative.

What are some other reasons a dentist might need funding for their practice?

Established dentists may also need dental practice loans. Some reasons they seek dental practice financing are:

  • To fund new construction or a new dental practice
  • To purchase equipment
  • Renovations or remodeling an existing practice
  • When expanding or buying another dental practice
  • To open a second location
  • To get more working capital
  • For debt consolidation and refinancing
  • To relocate to a better dental office

Once you determine that you need financing for your practice, the next question is what kind of lender to use and what type of loan can best meet your need.

Who are the best dental loan providers?

Though a few funding options exist for dentists, there’s no one-size-fits-all option. It’s best to consider your circumstances before determining the optimal solution for your dental practice.

Online lenders/alternative lenders

Typically, when a dental professional is seeking financing, the need is somewhat pressing, and time is of the essence. The advantage you’ll have with an online lender over a traditional bank is the expediency of the application and approval process. With some alternative lenders, it can take just a business day before you find out if you’ve been approved for dental practice financing. Within a few days, you can have the funds deposited in your bank account and move forward with your business plans. Also, online lenders are more forgiving about a lack of credit than the SBA or banks. Many newer dentists haven’t had time yet to build a credit score or business profile. Where traditional banks are set in their credit requirements, online lenders are more flexible. Although they prefer that borrowers have good credit, they will often still provide financing to those with less than stellar credit, albeit at a higher interest rate. But it’s better to get some dental practice financing than none at all! Plus, even a small loan will help strengthen your credit and give you more borrowing (and bargaining) power as you advance in your practice and have more financial needs down the road.

Traditional banks

Credit unions and traditional banks may be the first option that comes to mind when you think about getting financing. With these types of lenders, each bank has its own underwriting criteria you’ll have to meet. For instance, Wells Fargo might have different qualifying or underwriting guidelines from Bank of America and so on. It is sometimes easier to get a dental practice bank loan when you’ve developed a working relationship with a bank over the years. Ultimately, though, bank lenders expect a nearly flawless credit record before they’ll approve a small business loan. They also take their time reviewing a loan application, so traditional bank financing might not be the best solution when you need funding sooner rather than later.

What types of funding are available for dental practices?

There are multiple channels you might consider to fund your dental practice. The route you end up with will depend on which loan provider will work with you, how quickly you need the money, and how the loan money is used.

Small Business Administration (SBA) loans

SBA loans are available from both traditional banks and online lenders, but they are backed by the Small Business Administration, and as a result, have a significantly lower interest rate. While SBA loans are among the best financing for dental practices and other small businesses, they may not be the best choice if you need fast funding. The application process is time-consuming, and it can take many months before a borrower even learns if their loan is approved. But if you have time and patience to wait it out, the SBA has the most competitive interest rates among dental practice loan providers. The two primary SBA loan programs of interest to dentists are the SBA 7 (a) loans and microloans. If you need less than $50,000, a microloan might be a good fit. These smaller loans are typically used to provide working capital or pay for more minor expenses. If you’re looking for a sizable sum to help fund a real estate purchase or buy a practice, you’ll want to look into a 7(a) loan, which provides up to $5 million in small business financing. A 7(a) loan allows you up to 25 years to pay back the loan, depending on your credit and other criteria in the underwriting process.

Short term loans

True to their name, short-term loans are designed to meet a temporary need for your dental practice. As such, the loans are typically paid off quickly, usually within one to three years. Short-term financing can also give your business a little more working capital when you’re just starting. It can help you manage your practice’s cash flow more efficiently, finance equipment, or pay end-of-the-year taxes or insurance premiums. Speaking of taxes, did you know that the interest from a short-term loan is tax-deductible?

Types of short-term loans

There are different types of short-term funding available for dental practices. These include term loans, business credit cards, business lines of credit, dental equipment loans, and working capital loans. A regular term loan provides a lump loan amount upfront, and the borrower makes a monthly payment with interest for a set number of months. Business credit cards and lines of credit both have revolving credit lines that you use as needed up to the limit granted by the financial institution. It differs from traditional term financing in that you only have to pay interest on the amount of credit you use. Revolving credit is great to have when waiting for your patients’ insurance providers to make payments to you. Working capital loans and dental equipment loans work similarly to term loans. They can be used to grow or expand your business, hire workers, help with operational expenses, or purchase dental equipment. As a dentist, you’re probably aware that the minute you purchase and pay off one piece of dental equipment, something more innovative comes along. It’s par for the course when you’re in dentistry because the health market is always looking to serve patients with better technology. Dental equipment is expensive, and you won’t always be prepared to lay down that kind of cash. Short-term financing can help you stay current and offer better options for your patients. The great thing about equipment is that it can serve as collateral, and you don’t always need a down payment.

Commercial real estate loans

Commercial real estate (CRE) financing is a longer-term loan that dentists can use to acquire a new business, consolidate debt or refinance current real estate loans, renovate their business, or grow or expand their practice. While most dental professionals and business owners would prefer to go the route of an SBA or bank loan, the reality is that the loan application process for both is tedious and difficult to qualify for. That’s why online dental loan providers are becoming more common for CRE loans. Commercial real estate financing can provide up to $6 million in financing, depending on the lender. Origination fees are sometimes added to the loan amount and interest. Since online lenders typically offer shorter repayment terms to pay back the loan, many dentists initially get a loan with an online loan marketplace or lender and later refinance their loans with the SBA or a bank, where they can take their time paying back the loan.

What is the average interest rate for a dental practice loan?

Since the interest rate for a dental practice loan depends on so many variables, there is no “average” rate. Dental practice financing interest rates can run from 7% to 25% or more, depending on the lender and the type of financing. Many factors will influence the interest rate, including a borrower’s creditworthiness or credit score, how long they’ve been in business, the loan amount, the annual revenue of the dental practice, and the type of small business loan applied for. Traditional bank financing and SBA loans have the lowest rates, while alternative lenders have higher rates. But it’s much easier to qualify for a dental practice loan with an online lending marketplace than with a traditional lender. For example, Biz2credit has more lenient credit underwriting requirements and will typically have loan funds to a borrower within a couple of business days. On the other hand, a traditional lender or the SBA will likely take months and may not approve a dental practice loan.

The bottom line

Dental practice financing is necessary for your dental startup to have its best chance of success. You undoubtedly want a state-of-the-art medical building to treat your patients and the latest and greatest equipment to provide maximum comfort and the best treatment results. Then there’s marketing, overhead, staffing, and all of the capital needed just to get up and running. As always, in 2022, there’s no simple answer to what the best dental practice financing is. But, when it comes right down to it, the best one is the one that’s available to you when you need it. While you wait for funding, focus on strengthening the financial health of your dental practice. It’ll open the door for more loan options in the future for your dental practice. If you need fast funding, consider Biz2Credit. That’s what Dr. Kumar Patel did. He realized that traditional banks limited his options when he wanted to open a second dental practice. Dr. Patel also didn’t have time for the accompanying paperwork and questions the bank had for him. As he said, “losing time is losing money.” He needed to move forward with his business plans as quickly as possible to avoid losing an important opportunity to grow his business. After applying with Biz2credit, he was able to expand his practice. Stories like these are why we continue to pursue our mission at Biz2Credit to serve small businesses across the nation. So, ask yourself, are you ready to grow?

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