Becoming a dentist is a rewarding career choice that allows a person to truly make a difference in their patients’ lives. Unfortunately, opening a dental practice and maintaining it is a big undertaking. The financial strains of updating equipment and remodeling can place a dentist under stress.
Although there are bank loans that can help dentists with their financial needs, these are not always customized funding solutions. Some traditional bank loans come with stipulations that can limit how the funds are used.
This extensive guide is meant to help dentists gain the financing they need for their dental practice, whether they are opening up a new office, relocating, or upgrading their current office. The guide will assist dentists in better understanding their options and what they should consider before seeking financing for their dental practice.
Table of Contents
Why Should Dentists Upgrade and Expand Now?
Dentistry is growing at a rapid rate. The dental industry is set to become a $135 billion industry in the coming year. With advances in dental science and improved steps in dental health education, it is clear to see the dental industry is on the rise.
Knowing the demands for dental care are going to be increasing over the next few years, dentists need to make sure they are fully prepared to provide their patients with the highest level of expertise and the latest advanced equipment.
Dentists who are working with outdated equipment will likely be unable to keep up with the ever-increasing demands of their patients. Today’s dental patients want their dentists to provide them with the latest and most beneficial procedures.
Upgrading equipment and expanding their office should be on the minds of every dentist in the United States. Now is the time to make an investment in their dental practice, so their patient numbers will continue to grow, along with patient satisfaction.
Consider the Reasons for Financing
Before a dentist begins the process of seeking financing for their dental practice, it is wise for them to take note of the reasons they need the money. Most banks and lending institutions prefer dentists to submit a solid business plan that includes a strong financial section. This section should detail the plans for growth and how the funds will be used to improve the business and its bottom line. Common reasons for dentists seeking financing include the following.
- Upgrading equipment
- Dental equipment maintenance
- Opening a new practice
- Expanding a dental practice
What Will Lenders Ask?
Whenever a dentist begins seeking financing for their dental practice, they are inevitably going to be inundated with questions from the lender. Being prepared for these questions will help a dentist to know the answers and offer a good impression to the lender. The following are a sampling of questions that may be asked.
- How much money is needed?
- What will the money be spent on?
- Will the loan cover the entire need? If not, where will the rest of the funds come from?
- How will the business operate and what is the expected cash flow?
- Is there enough cash flow to pay for day-to-day operations, interest, and principal payments?
The lender is going to want to know how well the dentist can manage their practice and how much of a risk they will be. Student, personal, and mortgage loans the dentist already has can affect whether or not they will be approved for the loan. The main focus of the lender is going to be whether or not they will get their money back.
Options for Obtaining Dental Practice Financing
Nothing can cripple a dental practice faster than a lack of cash flow. Providing dental care to patients is expensive. Being able to have access to cash means keeping patients and staff happy. Thankfully, dentists have plenty of options to choose from. Before making a decision on any lender, it is wise to research the options and take time in making a decision.
We want to help dentists understand their options before they even start the process. Knowledge is power and having information about their options allows dentists to take control of their financing and choose the best lender to meet the needs of their practice.
The usual route of seeking financing for a dental practice is a bank. If you already have a successful dental practice with a strong flow of income, banks are likely going to be quick to respond. Not only do they want to loan you money for the interest payments it will bring, but they also want your business. Banks want to provide services for your checking, savings, and investments.
Before jumping into a bank loan, there are a few things that should be considered. One of the biggest considerations is the repayment of the debt. If you are even slightly worried about your ability to repay, a big bank loan may not be the best option. The following are some things to consider.
- Does the loan provide you with a safety net if your practice begins to fail?
- Is the loan flexible enough to meet your immediate and future needs?
- Will the loan help your dental practice to grow and create wealth?
- Are you going to be putting your dental practice in jeopardy by taking out a bank loan?
What Should You Know?
There are a few things you should know before you taking a bank loan out for your dental practice.
- You can expect the loan process to take at least 30 days.
- You will need to provide a personal guarantee on the loan. If you default, it could hurt your personal finances.
- Your credit score, personal finances, and business practices will be under full scrutiny.
- Be prepared to provide a business plan, tax returns, bank statements, and possible collateral.
If a bank loan does not seem right for your dental practice needs, there are also other financing options to consider.
Line of Credit
Many dentists consider applying for a line of credit because it meets their immediate and possible future financing needs. You should only use a line of credit for short-term needs such as upgrading equipment. A line of credit should never be used for purchasing an office or other financial needs that will require ongoing payments.
What Should You Know?
There are a few things you should know before you dive in and apply for a line of credit.
- The term of a line of credit is typically around 12 months.
- Your credit score is likely going to be one of the factors that will be considered.
- A line of credit generally offers better interest rates but is not suitable for long-term financing.
Some dentists obtain a line of credit and a bank loan for their practice which allows them to meet their short-term and long-term financial goals.
Small Business Administration Loan
Small Business Administration Loans are backed by the government. Although these loans are highly beneficial for dentists, there is a lengthy application process to consider. You will need to be prepared to provide a lot of documentation to the SBA and this is not a loan you can expect to receive in a short amount of time.
What Should You Know?
As with any type of financing, there are some things you should know before you start the process of applying for an SBA loan.
- The process is more difficult for obtaining an SBA loan because you must satisfy the demands of both the SBA and their lenders.
- As a part of the approval process, you can expect your credit score, business track record, and even your personal finances to be heavily scrutinized.
- Most SBA loans take around 90 days for processing. This amount of time can be increased if the applicant is not properly prepared.
- This type of loan does require some form of collateral. It is imperative you fully understand your liability before accepting the loan and signing the loan documents.
As you can see, there are a few different options when it comes to obtaining financing for your dental practice. It is wise to carefully research the options and learn as much as possible before pursuing any lender.
Meeting with a range of lenders can help you to learn more about your loan options, so you can make a wise choice. A customized loan option can sometimes be obtained from different types of lenders. Customized options can grow with your business and can sometimes be based on the income flow.
Preparation is key when it comes to pursuing any financing. The better prepared you are with all of your documents in order, the less time will be wasted. Making a good impression with lenders and proving you are not a risk is challenging, but certainly not impossible. A well-prepared business plan, the right documents, and a hefty sense of confidence will assist you in seeking a loan for your dental practice.