Loans for Dentists
Becoming a dentist means that you're choosing an occupation that enjoys a high rate of success. That successful reputation translates into many advantages; including preferred access to a small business loan.
Taking a business loan to start a dental practice may seem like the last thing a graduate would wish to do after such a long and expensive education. However, the truth is that lenders consider medical practices relatively safe credit risks: Lenders are students of history and history shows that medical professionals are more likely to repay their loans than any other industry group. With that background, medical and dental professionals are more likely to get approved more, get higher loan amounts, and get better rates and terms than most business owners.
6 of the Most Popular Types of Loans for Dentists
Dentist Loans for New Practice
Applying for a dental practice loan can be a daunting challenge for a young dental school graduate. Not only is there a lot of expensive equipment to acquire; borrowers also have to consider staffing, office leasing, licensing, continuing education and certification compliance, insurance, and paying off those dental school loans.
As in other businesses, it is prudent to start small and grow steadily. The first 5 years of a new dental practice is a delicate balance of building a clientele and acquiring needed dental equipment. That will almost always include various types of financing and several open credit accounts.
Loans for dentists starting a new practice may cover:
- Construction expenses
- Project expenses
- Working capital
Expansion Loans for Dentists with an Existing Practice
Perhaps you are an experienced dentist looking to expand or upgrade your facilities and technology, or to consolidate debt from building your practice over several years. Once established with a solid client base and steadily growing balance sheet, a dentist may choose to refinance previous debt into a lower-cost consolidation loan.
Loans for dentists with an existing practice may include:
- Purchase of updated dental equipment
- Office improvements
- Practice growth
Acquisition Loans for Buying a Dental Practice
Existing dental practices are often sold turnkey, meaning you are buying the real estate or lease, the equipment, and the clientele. In these cases, the business proposition is very predictable, and many lenders will consider 100% financing.
Alternatively, an existing partnership may have a transition agreement that lets one partner buy out the other at a previously agreed-upon price. When one partner retires or otherwise leaves, the remaining partner may need a loan to exercise this buy-out option. Similar to acquiring an existing practice, lenders acknowledge the value in such a transaction and routinely lend up to 100% of the amount of purchase.
Loans to a dentist acquiring a practice are designed to cover:
- Acquisition costs
- Transition costs
- Working capital
Loans to Dentists For the Purchase or Refinance of Office Space
For owner-occupied professional office space, it is common to get loans for up to 100% of the acquisition or refinance amount.
Loans for Dental Equipment Purchases
Dental equipment is extremely costly to purchase and maintain. Almost all dentists will seek some form of equipment financing when buying new dental equipment. When financing or leasing dental equipment, it is common to get favorable rates and support/maintenance contracts that help cap costs and keep your practice up and running. In addition, there may be very favorable tax benefits, which we will discuss in detail below.
Loans to dentists for the purpose of consolidating debt usually apply to practices with several years of doing business. Since almost every dental practice takes several loans, it is common to consolidate them at more favorable rates when the practice becomes more financially stable.
You should consider debt consolidation when it helps to increase cash flow, enhance a tax benefit, or simplify accounting.
Loans for Dentists - Getting Started
We have gone over a few scenarios where loans to dental professionals are needed. Let's dig a bit deeper into the needs and appropriate loan types for dentists to consider.
Starting an independent dental practice will require a lot of skills and expertise that you may not possess as a dentist. Understanding that your main priority is your dental practice, you would be well-advised to begin building the long-term team for your practice. Surrounding yourself with a team of professionals can save you millions of dollars over the life of your practice.
Think about what you will need today and in the future. Consider retaining the services of these professionals:
Real Estate Broker or Advisor
As we discussed above, your location can be the most important element of your success or failure. Understand demographics, zoning, and laws specific to dentistry is critical. Knowing which specific local ordinances pertain to your industry is equally important. For example, do you know how many parking spots are required per 100 square feet of office space? If you don't, your real estate consultant should.
Getting sound tax advice from an accountant who specializes in dental practices is crucial. This person should know industry write-offs and qualifying tax credits that can save you hundreds of thousands of dollars.
Like your accountant, your attorney should specialize in dental practice law. There are many nuances to the dental field, and the right lawyer can keep your practice on track.
Advertising and Marketing Professional
Target a market segment that you are well-suited to handle professionally and allow your marketing team to solidify your place within that segment. Today, most people seeking a new dentist will almost always consult peer-to-peer reviews on the web. Look for a marketing pro who understands digital marketing and search engine optimization (SEO) since that is likely to be your biggest and best source of new clients.
This is perhaps the most important relationship of all, since your practice is virtually 100% dependent on your equipment. Do your homework; ask for referrals and go visit their clients. Ask if they are satisfied and ask the other dentists who have used these vendors if they have any reservations about their services. Ask about the contractors they have worked with, such as electricians and plumbers. Take note if the contractors have worked together before, since you'll likely have projects that involve exactly this.
Determining Your Dental Office Location
Like retail businesses, dentists need to consider the location of their practice. This means choosing a location that is accessible via public transportation and/or has a parking lot. Location can be a critical component of your dental practice success as well as a major factor in determining expenses.
Since almost 100% of the population will seek dental services, you'll be able to conduct a practice feasibility study with relative simplicity and accuracy. In addition, many lenders will require or conduct a demographic site analysis for your proposed dental practice location. If your lender doesn't, you may wish to have a private analysis done for your own benefit. A positive demographic site analysis can be a very advantageous bargaining tool when seeking a loan.
On the other hand, a site analysis that is negative may save you from establishing your practice in the wrong location; so either way, it is an inexpensive asset when considering a new or existing dental practice location.
Let's look at some popular options for finding office space.
If you choose to lease space in a professional office building, you have a few things to consider. Naturally, the terms of your lease are very important; specifically, how much space, how long are the terms, and how much does it cost? Will the building owner build the space to suit your needs? If so, will the owner provide you with a build-out as part of the lease agreement, or at a reduced rate?
It's quite common for dentists and doctors to choose this office environment for their practices. Being able to realize the tax and expense savings of splitting off part of your home into a professional office is a very attractive proposition.
Equally attractive is the convenience factor. It's not for everyone, though; dentists with young children may feel uneasy about having people coming and going throughout the day. That's a personal decision that you should weigh carefully.
It's important to consider that if you choose to divide your home into a professional office space, you will be responsible for the cost of the construction and renovation.
Professional cooperatives are spaces owned by an individual or corporation that lease office space and share common space and equipment, for which you pay a usage fee each month. For example, you might find an office suite with several dentists practicing. Yet, none of the dentists own the equipment, hire the support staff, or operate any of the business function - they just perform their dental services and everything else is outsourced.
Real Estate Purchase
These loans are highly specialized, and may be considered commercial real estate (CRE) loans. A CRE loan could provide many tax and interest rate advantages, as well as access to additional capital at favorable rates.
Dental Office Design and Engineering
Floor Plan Build-Out
Once you sort out your location, you can start to plan your office design. If you have a lease that provides for basic office floor plan construction, you are in luck. As discussed above, many commercial leases include basic floor plan construction; be sure to inquire with your landlord.
Creating an ergonomic workspace may require a dental practice architect or engineer to coordinate the efforts of your equipment vendors and contractors. This is particularly important for dental practice specialists such as cosmetic dentistry.
Having a certified engineer submit a build-out plan can be an asset when submitting your business plan and applying for a dental practice loan.
Dental Practice Taxes: IRS Section 179
Dentists and many other healthcare professionals rely upon expensive equipment and sophisticated technology to practice their specialty. As advances in technology accelerate, dentists are forced to regularly trade up to new technology sooner and sooner.
Traditionally, the cost of business equipment could be used as a deduction against taxable income over the life of the equipment. For example, if an x-ray machine costs $1 million dollars and is expected to last 10 years, the dentist could take a $100,000 deduction each year for 10 years.
Under section 179 of the IRS tax code, certain qualifying purchases can be deducted at 100% in the year of the purchase, making the acquisition of new equipment more attractive from a tax standpoint.
The Best Business Loans for Dentists
Small Business Administration Loans (SBA Loans)
SBA loans are known across many industries as the gold standard of loans. They offer the most favorable rates and terms for borrowers seeking term loan financing. The SBA is not a direct lender; rather, it partners with qualified lenders and provides guarantees to those lenders against default. The SBA can guarantee up to 85% of a loan, allowing the lender to offer higher loan amounts on more favorable terms to the borrower.
SBA loans are notoriously difficult to qualify for and require a lot of extra paperwork of the borrower. However, the SBA loan program has a high approval rate for dental practices, given the profession's low risk.
When seeking a dental practice loan, you will want to pay close attention to the SBA 7(a) loan program. This program has features that align well with the needs of dental professionals, including its maximum loan amounts, repayment horizons, interest rates, and flexibility in the use of funds.
What to expect:
Loan Amounts: $5,000 to $5 million
Repayment Term: 5 to 25 years
Interest Rates: Starting at 6.75%
Time for Approval: Approximately 6 weeks
Traditional Bank Loans
Traditional banks are still the leading source of small business loans. Most dentists will find that they are able to secure some level of funding through the bank where they already conduct their business banking.
In particular, the larger national banks usually have loan programs especially designed for dental professionals. Once again, the high success rate of dental practices makes lending to dentists an attractive credit risk, and banks often offer more favorable rates for financing a dental practice.
Bank terms are not generally as favorable as SBA loans, but here is what you may expect from a bank loan:
Loan Amounts: $30,000 to $5 million
Repayment Term: Up to 10 years
Interest Rates: Starting at 7%
Time for Approval: average 4 weeks
Non-bank lenders such as Biz2Credit, Kabbage, and OnDeck provide business loans for dentists on an accelerated approval basis. These lenders tend to have shorter approval cycles, lower credit standards, and less paperwork than the other sources mentioned above.
However, dental professionals should expect that there will likely be higher fees and interest rates associated with the convenience of quicker approvals and lower credit standards. If you need a fast solution to your dental practice financing needs, an alternative lender may be the right solution. Always be aware that non-bank lenders are not subject to the same regulations as banks. You should read your loan documentation carefully before agreeing to the terms.
What to expect from non-bank lenders:
Loan Amounts: $2,500 to $250,000
Repayment Term: Three to 18 months
Interest Rates: Starting at 10%
Time for Approval: As fast as one business day
Business Line of Credit
A business line of credit is ready cash that you may draw upon up to a pre-set limit. It acts like a hybrid between a business loan and a business credit card. Like a business loan, an unsecured line of credit provides business financing that can be used for general business expenses. Like a credit card, there is no lump-sum disbursement; a business owner borrows only what is needed and pays interest only on the amounts borrowed; payments are revolving. You can get a business line of credit through banks or alternative lenders.
A business line of credit can be an expensive proposition for marginal credit risk. However, if you have a strong credit profile you can negotiate rates and terms. The best advice is to shop around, since rates can fluctuate greatly.
Loan Amounts: $10,000 to $1 million
Repayment Term: Six months to 5 years
Interest Rates: 7% to 25%
Time for Approval: As fast as one business day
Dental Equipment Financing
Financing your dental equipment can be one of the simplest elements of financing your overall practice. In many cases, you will receive highly favorable terms. You can use the financed equipment as collateral and, often, you can deduct the entire cost from your taxes in the year you purchase the equipment.
Loan Amounts: Depends on the cost of equipment
Repayment Term: Six months to 5 years
Interest Rates: Starting at 6%
Time for Approval: As fast as one business day