Dental and Medical Counsel Blog

You're ready to open your new dental office--but that doesn't mean that you're financially able to purchase your new practice without help. Financing your new dental office is a big step in your ability to open your own practice and start bringing in those important customers. Whether you're adding a second space to your existing practice in an expansion or purchasing that important first practice, knowing what steps to take to secure your financing will go a long way toward ensuring that the process is successful. 

Step One: Get Your Paperwork in Order

When you go in to obtain a dental practice loan, your lender will let you know what paperwork is necessary--but having it prepared ahead of time will help the entire process move more smoothly. Make sure that you've taken the time to put together your paperwork and gather the necessary information, including:

Your business plan: How do you expect cash to flow through your practice? How many clients do you plan to be able to take? What expenses will the business have on a regular basis?

How much you need: When you apply for a loan to help you get your practice off the ground, how much money are you asking for? How will those funds be spent? While you may not need to offer a dollar-by-dollar account of how much you'll be spending, your lender will want to know how you plan to spend the loan. Make sure that you carefully consider not just the amount of the building but how much you'll really need to get up and running--and what the terms of repayment will look like down the road.

How much of the money for the practice comes from the loan: Do you have another source of money that will help cover this purchase--a down payment that's been gifted, saved, or acquired from another source, for example? In order to secure financing, you'll need to show the rest of the financial assets associated with the business. 

Cash flow: When you acquire the practice, is there going to be adequate cash flow to ensure that you're able to make payments on your loan as well as keeping your practice operational? It can be helpful, for example, to have established patients already with the office or coming with you from a previous location as you're getting started. 

Experience: Do you have previous management experience that you bring to the table--or at least an experienced bookkeeper who will help you handle the financial management part of the program? What does your previous financial history look like: do you manage money well overall?

Timeline: Most of the time, when you're buying a dental practice, you have time to get everything in order. In some cases, however, you may find yourself scrambling to make a fast purchase because the dentist who currently owns the practice needs to make a fast sell. This may be due to divorce, financial problems in other areas of their lives, or other key problems. Make sure that your lender knows your timeline when you go in--and that you're prepared to make decisions fast.

Location: Where you open your practice is vital. Commercial brokers that specialize in dentistry like ROAM Realty and CARR Health Care Realty can help. But in the meantime, getting pre-approved by a lender is a good idea. You should have a location in mind before you head in to secure your loan. 

By gathering up this information before you head in to visit your lender, you'll help that first appointment move more smoothly and ensure that you don't have to make a second appointment--a critical step in getting you in your practice sooner. It can be helpful to practice your presentation with a friend or family member to ensure that you know what you need to say to your potential lender and that you've answered those important questions before your appointment. 

Step Two: Know Your Terms

When you choose to take out a loan, it's important to understand the terms of your loan. Take the time to read the paperwork thoroughly so that you'll better understand what's expected of you and how this loan will impact the finances of your business for its duration. Ask a few key questions before you sign the paperwork for your loan.

• How long will the loan last? Note that shorter terms often lead to much lower interest rates over the life of the loan--and often, thanks to the accumulation of interest, your monthly loan payments may not be as different as you think. On the other hand, a longer loan frees up your cash flow which can help with investing in a consultant or marketing.

• How much is the interest rate? If you have low or no credit, your interest rates may be higher than if you've taken the time to build your credit while you were in school. Shopping around will often yield better interest rates than going with the first lender that catches your eye. 

• What are the terms for early repayment? If your practice does better than anticipated, you may be able to pay off the loan early, giving you more financial freedom sooner than anticipated. 

Step Three: Evaluate Your Ability to Secure a Loan

Now that you're sure that you've found the perfect place to put your practice, it seems as though everything is going exactly according to your plan--but will the bank agree? Consider these elements before you start looking for a loan. 

How long have you been practicing as a dentist? Many banks prefer to see a successful track record that will indicate your ability to successfully open your own practice. Working within another practice for a couple of years is one great way to show your commitment and success record. Barring that, it can be helpful to provide proof of your success during your production capabilities. 

What do your student loans look like? While student loans certainly won't prevent you from taking out a loan to open your practice, it's important to consider what repayment will look like. Make sure that your finances will support the terms of the loan that you're considering. 

What does your past credit look like? If you've made major financial indiscretions in the past, you may have more trouble securing a loan than many of your peers. By carefully considering how your past financial mistakes have impacted your overall credit, you can decrease the odds that you'll be surprised by a refusal at the bank. 

What are you looking for? Are you jumping straight in to a large, high-end practice, or are you taking more time to consider your options and be sure that you're securing the practice that's right for you, building up slowly to that big purchase? If this is your first practice, you may have an easier time securing a small loan than a large one. 

Step Four: Ask Around

When you're looking for a lender, you want to be sure that you're getting the right one for your new practice. Make sure to ask a few key questions of others in the area, including:

• Are other dentists in the area satisfied with their lenders?

• Do they specialize in dentistry?

• Do they have internal resources to help you if you get in trouble with your loan?

Most of the time, banks consider dentists to be a comparatively low-risk loan. This makes it easy for you to secure the financing you need to open your practice--and it means that you must be careful to evaluate the terms and amount of your loan to ensure that they meet your personal financial requirements. Through careful evaluation and attention to these details, you can successfully secure the loan you need, putting you in your own practice before you know it.

Frequently Asked Questions

Q: What is the first step in securing financing for a new dental office?
A: The first step is to get your paperwork in order, including your business plan, the amount of money you need, and details on how you will use the funds.

Q: Why is a business plan important when applying for a loan?
A: A business plan outlines expected cash flow, client capacity, and regular expenses, helping lenders assess the viability of your practice.

Q: How much detail should I provide about my funding needs?
A: While a dollar-by-dollar account isn’t necessary, you should clearly explain how you will spend the loan amount and the terms of repayment.

Q: What role does cash flow play in securing a loan?
A: Adequate cash flow ensures you can make loan payments while keeping your practice operational, which is crucial for lender approval.

Q: How can prior management experience influence loan approval?
A: Previous management experience or having an experienced bookkeeper can demonstrate your capability to handle financial management, increasing lender confidence.

Q: Why should the lender know my timeline for purchasing a practice?
A: Knowing your timeline helps the lender understand the urgency of the loan and your preparedness to act quickly if necessary.

Q: How important is the practice location for securing a loan?
A: The location is vital as it affects your practice’s success. Having a specific location in mind can also streamline the loan approval process.

Q: What should I do to prepare for my loan application appointment?
A: Gather all necessary paperwork and practice your presentation to answer the lender’s questions confidently.

Q: What terms of the loan should I thoroughly understand?
A: Understand the loan’s duration, interest rate, and early repayment terms, as these will impact your finances.

Q: How can the loan term affect your practice's finances?
A: Shorter terms typically have lower interest rates, while longer terms can free up cash flow for other investments.

Q: What factors should I consider before applying for a loan?
A: Consider your experience as a dentist, current student loans, past credit history, and the size of the practice you are purchasing.

Q: Why is it important to ask around about lenders?
A: Feedback from other dentists can help you find a lender specialized in dentistry and ensure they have resources to assist if needed.

Q: What makes dentists low-risk borrowers for banks?
A: Dentists are generally seen as low-risk due to the stability and profitability of dental practices, making it easier to secure loans.

About the Author

At Dental & Medical Counsel, we've been instrumental in realizing the practice goals of countless dentists. Whether you're looking to purchase, launch, or sell a dental practice, our expertise is your guide. Beyond the initial stages, we're committed to ensuring your dental practice remains legally compliant.

We provide comprehensive support, including employment law protections, dental contract reviews, and assistance with dental employment agreements. Additionally, we specialize in incorporating dental practices and securing trademarks. And for long-term planning, our services extend to helping dentists with succession and estate planning. Trust us to be your partner in every step of your dental practice journey.

About Ali Oromchian, Esq.

Your Dental Lawyer

Ali Oromchian, JD, LL.M. is the founding attorney of the Dental & Medical Counsel, PC law firm and is renowned for his expertise in legal matters

Ali Oromchian, JD, LL.M., is a leading legal authority in dental law and the founding attorney of Dental & Medical Counsel, PC, with over two decades of experience. His deep connection to dentistry comes from his wife's nearly two-decade-long career as a pediatric dentist. 

This personal insight fuels his dedication to empowering dentists to navigate their legal challenges and achieve their practice goals. In doing so, Ali has helped thousands of doctors open their practices while maintaining legal compliance. 

Ali is frequently quoted and contributes articles to dental publications, including the California Dental Society, Progressive Dentist, Progressive Orthodontists, Dentistry Today, Dentaltown, and The New Dentist magazines, further showcasing his commitment to the dental community.