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5 Tips For Financing a Dental Practice Purchase

Buying a Dental Practice:?5 Tips For Financing a Dental Practice Purchase

Financing a dental practice is one of the most important decisions you will make over the course of your career. Giving yourself a solid foundation can help improve the quality of the services you provide and increase your revenue for decades. It is so important to take the right steps now to guarantee the future of your dental practice for the years to come. Consider these five tips to help you get the most value out of your investment.

  1. Analyze Your Current Situation

There are several things that you will have to straighten out before you can consider applying for a loan to finance a dental practice purchase.? Things like the location of the practice, the current cash flow, potential for growth, personal debt, credit score, and several other factors could affect the outcome of taking out a dental loan. Choose a Certified Public Accountant to help you understand what you can realistically borrow from a lender and what would best suit your needs. Assessing your financial health can help give you an understanding of the profit you will need to generate to cover the new loan, current debt payments, and still bring in a reasonable income. You will also need to create a budget with room to protect yourself from unexpected costs associated with any construction or installations.

  1. Hire Dentistry-Specific Advisors

When you are looking to secure a loan for your dental practice, be sure to hire industry-specific advisors. This means you should be working with people who have a history of successful dealings with other dental practitioners.

?Dental Attorney

Choosing an attorney that specializes in dentistry is essential early on in the development of a dental practice in order to avoid future legal issues down the road.

?Digital Marketing Specialist

Hiring the right Digital Marketing Specialist can help you reach your long-term goals for your practice. This person will be a new set of eyes that can help you identify your digital marketing strengths and weaknesses, and they will be able to give you their expert advice. Ideally, this consultant will have several years of experience helping to grow and develop dental practices. Ideally, you should work with a person or company who specializes in dental marketing.

?Dental Building Contractors

Trying to save money by using a general contractor can lead to big, expensive problems down the line. Ask your equipment specialist for a recommendation of a reputable dental contractor.

?Certified Public Accountant

Hiring a CPA who is experienced with dental practices is one of the most important financial decisions you will make for your business. Ask for recommendations from peers and choose someone who has a history of satisfied dental clients. If you are not confident with your CPA after about three months, consider seeking out a new one. This member of your network is essential to making sure you are making financially sound decisions.

?Dental Equipment Specialist

The equipment specialist should aim to find you equipment that will best serve your practice without spending your entire budget. If you are just starting out, it is perfectly fine to equip only two or three operational rooms until the needs of your practice increase. Your equipment specialist will ideally be someone you will have a career-long relationship with and a great resource for networking.

?Dental Lender

Taking out a loan for a dental practice comes with a lot of different costs that are specific to dentistry. Often times a third of the loan is used on just equipment for the practice. You also need money for upgrades, renovations, advertising, staffing, and countless other factors that typical loans do not adequately service. Dental lenders that have successfully loaned to practices understand that a large loan is required to see the practice through. Be sure to get a history of your lender and ask other practitioners about their experiences with their loan providers.

  1. Consider Your Dental Loan Options

Every situation is unique to the dentist and their goals for their practice. Once you understand where you stand financially and where you would like to go in the future, then you can take a look at your loan needs. Look for a longer loan term, just like you would for a home mortgage. This will allow you to make small payments while you grow your practice revenue. You can pay down your loan when your profits increase. You can choose a fixed-rate interest for the term of the loan or adjust with the prime; though it is recommended that you aim to get a competitive rate locked in for 15 years. Your individual needs will determine which type of loan would best suit your needs, so be sure to speak at length with your team of dental-specific advisors to understand what your needs actually are.

There are five common types of dental loans that you can apply for to finance your practice:

A highly selective type of loan–it takes several months to get accepted. Difficult to qualify and must provide extensive documentation about current practice. However, this loan offers the dentist flexibility for spending and can reach up to $5 million.

  • Bank Loan

This type of loan is ideal for dentists who have good credit scores and a good debt-to-income ratio.

  • Short-term loans

If you need money right away, a short-term loan may be a good option for you. This type of loan will come with a higher interest rate and shorter loan term, but it could be worth it if you are able to pay it off quickly. Do not attempt to use a short-term loan to finance your entire dental practice.

  • Business Lines of Credit

This form of funding offers an amount of flexibility that other forms do not. Whatever amount you choose to use from the line of credit is what you will pay interest on while it is withdrawn. This allows you to continue to withdraw and pay back as long as you need and just keep the same line of credit.

  • Dental Equipment Loan

Dental equipment tends to use up about one-third of a typical practice’s budget. An equipment loan can help cover this hefty cost upfront.

  1. Try to Keep Debt Low and Income High

There are two things that your loan could be based on collateral or cash-flow. A loan that is based on cash-flow will be determined by what your practice is proven to support. A loan based on collateral will be determined by the number of assets that are currently available to you. This form of business loan may require you to pay more out-of-pocket when financing your dental practice purchase.

A loan provider will also take into account your personal debt. This will include student loans, home mortgage, credit card debt, car loans, or any other monthly financial obligations. Personal debt is not necessarily a deterrent for loan providers, but it will affect the amount of the loan you qualify for. Your practice will need to be able to generate enough revenue to cover your personal debt, your new loan payment, and provide you with a reasonable salary. So, the more debt you have the bigger the loan you will need to take out.

It is best practice to keep personal debt low if possible and have a sizable amount of cash ready to provide to lenders. This helps you to look good on paper and attractive to loan providers. If you have a healthy cash flow, good credit score, and if you are projected to increase your income with the use of the loan at no additional cost, your practice would be an ideal investment for dental loan lenders.

  1. Have a Cohesive Plan.

One of the most important aspects of running a practice that often gets overlooked is having a business plan. Hiring a team of trusted advisors will be able to guide you in creating a profitable business model. You might consider hiring a practice management consultant. If you do so, your Practice Management Consultant will be your right-hand for all things related to business, and their experience should be able to assist you in crafting your business model. Speak to experienced dentists about their business plans and how they felt they could have done things differently. Gain insight from the dental community both in your area and through your alumni network. This will help you make the right decisions for your practice.