The purchase of a dental practice is normally a quicker route to achieving practice ownership compared to setting up a practice afresh. The practice will already have an established clientele, staff and system, and be generating income. On the other hand, the buying of a practice involves substantial finances and hence financing for dental practices becomes crucial.
Why Finance a Practice Acquisition?
A dental practice purchase can be beneficial to buyers in many ways, as it ensures steady income from day one of operation, a tested business model, and already having a reputation in the town. To pay in full at the time of sale will mean losing working capital that one can use for the running of one’s own company or even new ventures. Financing for a dental practice is an option that can be used by the buyer, who can choose to pay off the purchase price gradually while keeping the necessary cash for the daily running of the business, not to mention the investments in the future. Choosing a suitable financing option will not only reduce your money burden during the transition but will also provide you with a buffer.
Bank Loans
Typical bank loans are one of the popular choices for purchasing a practice. Banks provide good interest rates and fixed monthly payments. The typical requirements set by the bank include:
- Good credit history
- Stable cash flow
- A down payment
- Financial statement
- A proposal
The financing for dental practices would be useful to those experienced dentists who have good financial stability.
SBA Loans
Yet another great choice for buying a dental practice is SBA loans. Since SBA loans minimize the risks to lenders through government guarantees, they usually are easier to qualify for even when the borrower does not qualify for traditional funding. Even though it takes longer to get approval on such a loan, SBA loans are still among the most inexpensive ways for financing a dental practice. SBA loans have many advantages, including:
- Less stringent down payment terms
- Extended periods for repayment
- Good interest rates
- High loan amounts
Alternative Financing Solutions
Acquiring an asset doesn’t always match perfectly with conventional lending requirements. Alternative financing avenues, however, can enable those with atypical financial circumstances to make a purchase for dental equipment. This category of financing methods may consist of:
- An online lender providing business loans
- Dedicated healthcare lenders
- Making arrangements through the seller
- Securing financing from private sources
Such lenders may not only be more lenient on qualifying requirements but also have a much quicker decision process, which could be a big plus. If the dental practice needs speed or is looking for more lenient requirements, then they may be a good bet, especially if one takes into consideration that financing for a dental practice rates are definitely higher than conventional loans.
Comprehending Borrowing Costs
Total cost of financing does not consist of only the interest rates. When looking for a loan, you should pay attention to the
- Interest rates
- Origination fees
- Closing costs
- Prepayment penalties
- Loan servicing fees
The analysis of the whole cost structure allows determining what the best financing option in the long term.
Comparison of the Repayment Schedules
There are differences in repayment schedules for different lenders or finance schemes. The typical repayment schedules are:
- Fixed monthly payments
- Interest rate that is not fixed
- Repayment periods of 5 to 25 years
- Balloon payments under certain conditions
Selecting the most suitable repayment schedule will help to maintain the financial stability of your practice.
Qualification Requirements
While each lender’s standards may vary, most lenders are very consistent in determining eligibility based on a set of important factors. This is how a typical lender would break down the main aspects before approving financing for dental practices:
- Personal and business credit check
- The cost of buying the dental practice
- Your yearly earnings
- Total obligations compared to earnings
- Cash that you’ve set aside and available for quick access
- Years of experience in the dentistry profession.
Furnishing proper financial evidence and showing a clear plan of how you’ll take over and run the dental office successfully will certainly increase your likelihood of being accepted.
Undertake Detailed Due Diligence
Due diligence needs to be done on the business operations and financing for dental practices before completing the acquisition deal. Among the things that need to be checked are the following:
- Income patterns
- Retention strategies for patients
- Unpaid debts
- Condition of the current property
- Leases
- Employees’ contracts
Detailed due diligence gives lenders a chance to identify any risk factors that can be beneficial to the lending process.
Conclusion
To make buying an existing dental business work for you, it is crucial that you go through a proper process and choose the right financing for a dental practice. Basing our analysis on the various methods of bank financing of dental practices, we have found that the best way is to take conventional bank loans, then to get an SBA loan, etc. Therefore, the method you choose depends first and foremost on your current and future development plan.
