Dental and Medical Counsel Blog

Financing Your New Dental Office

April 4, 2018
buying a dental practice

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.

real estate commercial

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.

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