Getting a dental practice loan or equipment financing can be a challenge for new and experienced dentist professionals, but there are a number of options to make it easier. Whether you’re starting a new dental business, making a dental practice acquisition, or upgrading your practice, you may need to borrow hundreds of thousands of dollars to have the latest dental technology to better serve your patients.
Fortunately, many lenders offer dental office finance options with favorable terms to dentists based on the dental industry’s reputation for repaying loans on time.
Working Capital Loans For Dentistry Equipment and Other Uses
Dentists may look for a small business loan or business line of credit for any number of reasons. You might seek dental practice financing for a new business, which might require working capital for office space, new equipment, and staff. Or you may want to expand a currently successful practice.
The reason you’re applying for financing can determine which type of loan may be best. For example, a SBA loan guaranteed by the U.S. Small Business Administration can be a good fit when you’re opening a new practice and need to purchase or lease property. But a line of credit could be a better fit if you’re struggling with cash flow while waiting for payments from insurance providers.
If your business is brand new, you’ll want a startup loan that doesn’t require that you’ve been in business for years.
No matter the situation, you’ll want to compare several dental lenders to find the one that offers the best rates and terms.
How to Qualify for a Dental Practice Loan
Lenders set their own underwriting requirements, and they may vary depending on the type of financing you’re looking for and your plan for what you’ll do with the money. If you’re looking for significant funding to start, buy, or expand your business, you may need to:
- Form a business entity, such as a limited liability company or corporation
- Have a business plan that you can share with the lender if you’re buying or starting a new practice
- Have a history of paying personal debts on time. A personal credit score around 700 or higher can be important for getting the best rates, although you can find financing with a lower credit score.
If you’re like many dentists, you might have several hundred thousand dollars in student debt (dental school is expensive!), which may impact your ability to qualify for financing with a general business lender. However, lenders that have experience working with dentists understand that that’s the norm and may ignore the loan balance and focus on your payment history instead.
Having a history of paying all your bills on time, and having enough savings to cover short-term emergencies, can go a long way toward qualifying for dental practice loans. With a strong track record, you may even be able to qualify for a large equipment or dental practice loan without putting any money down or paying an origination fee.
Dental Practice Financing Use Cases
Knowing what you plan to use the funds for can help a lender decide whether to lend you money or not. Here are a few scenarios that might fit.
Starting a New Dental Practice
If you plan on building your practice from the ground up, you may want to look for a graduated loan. These start with low or interest-only payments, which limit your expenses during the initial construction and opening phases. Some creditors will also release loan disbursements over time, either to you or by directly paying your contractors progress payments, which can limit how much interest you have to pay.
Buying a Dental Practice
Purchasing a practice rather than building your own comes with pros and cons. You’ll have immediate cash flow if patients stay with the practice after you acquire it. However, you’ll also inherit potential shortcomings with the staff, equipment, systems, and setup. You may want to look for a loan that covers renovations or equipment upgrades in addition to the purchase price.
Grow Your Practice
Growing your business will require investments in marketing, employee headcount, equipment and more. Every area of your business will be impacted by an increase in customers. For that reason, it’s important to consider financing in the early stages of growth rather than scrambling to find it once you’re slammed with new business.
Start A Digital Marketing Campaign
There are more ways than ever today to reach prospective customers, and digital marketing can often provide an excellent ROI. Whether it’s growing an organic social media presences on Tiktok, Instagram, Facebook etc., or paid social media campaigns such as Google Ads, you’ll likely need to invest in a digital marketing campaign and it may take time to see results.
In this scenario, business credit cards can be an excellent option for paying for ads. If you need some time to see results before paying back the money you spend, a 0% APR credit card may help. Just be careful: you don’t want to run up debt for a failed campaign.
Getting More Working Capital
If you’re already running an existing dental practice, you might need financing to help with cash flow or during a slow business period. You may also need additional capital to support marketing efforts, hire additional staff, or simply cover day-to-day operating expenses (i.e. rent, utilities, maintenance costs, etc.). In these cases, an online lender that offers quick financing may be a good option.
Replace Office Equipment
Office equipment won’t be as expensive as medical equipment, and you could compare a wider range of loan options if you’re looking to upgrade your office’s computers and printers. A simple online loan might provide the most straightforward financing. If you’re already working with a lender, you could ask about options for expanding the relationship to upgrade or replace your office equipment.
Invest in Dental Software
From practice management software (PMS) to general accounting and payroll services, your technology needs can change as your practice grows. Involve your whole team in the purchase, and make sure new software will work with your existing setup. Financing can come into play to help pay for the software itself, and you may want to set money aside for training. If you’re changing accounting software, you may need to hire an accountant or bookkeeper to move your books over to the new system.
Open A New Location
Whether it’s a move to a better location, or adding a new office, the costs of opening a new location are significant and must be carefully planned. If you want to own rather than rent, a commercial real estate loan (including a SBA 504 loan) may be appropriate.
In addition, you may need financing for new equipment, furnishings, a buildout, making sure the facility meets ADA requirements, and more.
Hire Additional Employees
Payroll and benefits are often at the top of the list of expenses for dental practices. Adding new employees can help your business grow, but it can be a chicken or egg problem: do you hire then bring in new customers, or vice versa? If you don’t want customer service to suffer, adding employees earlier rather than later can be the best strategy.
If doing so will cause cash flow problems, financing in the form of a short-term loan may help smooth things out until the new employee is paying for themselves through increased business to the practice.
Lines of Credit For Dental Practices
A business line of credit is one of the most popular forms of financing for small businesses. You fill out one loan application and then once approved, you get access to financing when they need it. Pay it back and those funds become available to borrow again. Borrowers don’t need to justify why they need the funds every time they need to borrow.
For a dental practice, a line of credit can be useful in myriad ways, but primarily for managing fluctuating cash flow. Interest is only charged on the amount you borrow, though interest rates are often variable and may be higher than secured loans.
Best Equipment Loans For Dental Practices
Equipment financing is a common type of financing used by dental practices, due to the high cost of equipment required. Some lenders specialize in equipment loans and leasing for dental practices, and some equipment manufacturers offer financing to customers. If your personal and business qualifications are strong, you’ll have a variety of options available.
Generally speaking the best rates usually come from traditional banks, but with leasing the manufacturer’s captive financing will often be competitive.
Dental Practice Equipment Financing Vs Equipment Leasing
Equipment financing loans can be easier to get than general practice loans since you’ll often use the equipment as collateral for the dental loan. Specific equipment loans might not be amortized like small business loans, meaning the loan amount includes the financing charge. In these cases, paying off the loan early won’t save you money because interest isn’t accruing over time. However, some lenders may offer a discount if you can repay the loan in full ahead of schedule.
You could take out a loan to buy dental equipment, or use a lease to rent the equipment. Both have pros and cons. Leasing may offer significant tax advantages, depending on the type of lease and the terms.
What Credit Score Do You Need For Equipment Financing?
Creditworthiness is an important part of the application process for small business loans. While dental practices often have a high rate of success, lenders want to make sure business owners are both willing and able to repay the loan and credit checks help them assess that risk.
Your personal debt as well as both your personal and business credit will likely be a factor in qualifying for a dental practice loan. However, bad credit won’t necessarily rule you out — it depends on why you have bad credit, and the lender’s policies.
Check your credit before you apply and look for ways to improve your credit before applying.
If you need capital now, business credit cards or a merchant cash advance from an alternative lender may be your best option. These types of but know you’ll pay more in interest (unless you pay your credit card balance in full before the interest kicks in).
How Many Years Can You Finance Dental Equipment?
The repayment terms of your loan can vary greatly depending on the type of financing you’re using to purchase equipment. If you take out a dental equipment loan, you may have several months to 10 years to repay the loan. But larger practice loans, particularly those that will cover commercial real estate in addition to equipment, could have much longer loan terms of up to 15 or 25 years.
The longer your repayment term, the lower your monthly payment. However, a longer term also means more interest can accrue, which increases your overall cost of financing. Some lending institutions may allow you to repay a loan early without paying a prepayment fee, but longer-term loans could still have higher interest rates.
Find Funding Options With Nav
Opening and running a dental office can be a capital-intensive process. It can take several hundred thousand dollars to get started, and that can be daunting, especially if you already have student loans you took on to become a dentist. However, many dentists are able to build their own practice, repay their debt, and build significant wealth over their lifetimes.
An easy way to find funding options is with Nav. Nav instantly shows you your options for small business loans and business credit cards based on your business data. Syncing your data to Nav allows you to see financing opportunities with just a few clicks.
While you’re here, we’ll also show you your best options for business checking accounts, business incorporation services, accounting software programs, and more. Our goal is to supply you with everything your dental practice needs to thrive.
Final Thoughts On Finding Dental Practice Financing For Your Practice
When you’re looking for dental practice financing, having the right team can be important. You may want to hire an accountant and financial planner who has experience with dentists in your area, and find a lender that can act as a partner (although, don’t forget their bias). You can also reach out to other dentists or classmates and ask about their experience with different lenders.
Also, try to match the financing option you choose to your needs. A bank loan may be best for a large project, but it can take weeks or months to get approved. Online lenders can offer quick and easy financing for smaller projects or when you need working capital. Planning ahead can ensure that you get the money you need when you need it, at the best rate possible.
This article was originally written on January 23, 2020 and updated on October 18, 2022.