Business Loans For Dentists
Making a career in dentistry means that you have chosen an occupation with a high success rate. The successful reputation of the occupation offers you many advantages including easier access to a small business loan.
Finding finances for starting a dental practice by taking a business loan is not an idea that is easily appreciated by graduates that invested a lot of time and money in their education. However, in reality, lenders view medical practitioners as safer credit risks, and from what lenders learned from history, the likelihood of medical practitioners repaying their loans on time is more than that of other industry groups. In that light, people in the medical and dental profession may easily get loan approvals, get better rates and terms, and get more loan amounts.
What Are The Most Popular Types Of Loans For Dentists?
Here are the six popular types of loans granted to dentists.
Loans For New Practice
For a young dental school graduate who has just finished studies, applying for a dental practice loan is a quite challenging task. In addition to expensive equipment that is to be acquired, borrowers have to consider office leasing, staffing, certification compliance, continuing education, insurance, and paying back the dental school loans.
Like other businesses, it is advisable to start small and achieve steady growth. The initial 5 years of a new dental practice are years when you are required to bring about a balance between building a clientele and acquiring necessary dental equipment. This period will mostly include multiple open credit accounts and financing types.
Loans given to dentists that are starting new practice may cover:
- Project expenses
- Construction expenses
- Working capital
Expansion Loans For Dentists That Are Currently Practicing
Sometimes you may be an experienced dentist planning to upgrade your facilities and technology or consolidate debt that you have from years of practice. After establishing a stable client base and steady balance sheet growth, a dentist can refinance previous debt into a low-cost consolidation loan.
Loan given to a dentist with existing practice can include the following.
- Purchase of the latest dental equipment and devices
- Office improvements
- Practice growth
Acquisition Loans For Purchasing Dental Practices
Existing dental practices may be sold in a fully operational form. This means that you are buying or leasing the real estate, the clientele, and the equipment. The path that the business will take is predictable in these cases and most lenders consider 100% financing.
Alternatively, some existing partnerships may have a transition agreement that allows one partner to buy the shares of the other at a price that they previously agreed upon. If one partner retires or decides to quit the partnership, the remaining partner may require a loan to buy-out the other’s shares. Like in the case of acquiring an existing practice, lenders assess the value in such transactions and often lend up to 100% of the purchase price of the practice.
Loans given to dentists that are acquiring a dental practice may cover:
- Transition costs
- acquisition costs
- Working capital
Loans To Purchase A New Office Space Or Refinance It
It is common for dentists to be awarded loans for up to 100% of the acquisition or refinance amount of owner-occupied office space.
Loans Given For Purchasing Dental Equipment
The purchase and maintenance of dental equipment are extremely costly. Most dentists will require some kind of equipment financing when they buy new dental equipment. When financing or leasing dental equipment, you may get maintenance/support contracts and better rates that help limit costs and ensure the continuity of your practice. In addition, you may get favorable tax befits.
Loans offered to dentists for debt consolidation mostly apply to the ones with several years of practice. As most, if not all dental practices take loans, it is quite common to consolidate them at favorable rates once the practice attains financial stability.
If you think it will give a boost to cash flow, simplify accounting, or enhance a tax benefit, you should adopt the idea of debt consolidation.
We have covered a few situations where loans to dentists are required. Let us have a detailed discussion of the loan types appropriate to dentists according to their needs.
Starting an independent dental practice demands various skills and expertise you may not have as a dentist. With the realization that your dental practice is your priority, be proactive in building a long-term team for your practice. Having professionals in your staff can help you save millions of dollars.
You should have a very clear idea about what you need today and what you will need in the coming years. Therefore, you may need to consider retaining the services of the professionals in your team.
Real Estate Broker Or Advisor
The location that you are based in is a crucial element in deciding your success and failure. It is important for you to understand the zoning, demographic, and laws that are related to dentistry. Knowing the local ordinances relevant to your industry has equal importance. For instance, do you have an idea about the number of parking spots that are needed per 100 square feet of office space? If you don’t, your real estate consultant definitely will know these details.
It is important to get tax advice from an accountant that specializes in dental practice. The person should be knowledgeable in qualifying tax credits and industry write-offs that will save you thousands of dollars.
Your attorney should also have a specialization in dental practice law like your accountant. There are many different practices in the dental field and the right lawyer helps ensure that your dental practice is on track.
Advertising And Marketing Personnel
Set a marketing segment that you can handle professionally with confidence and ask your marketing team to work towards solidifying your place in that segment. Now, most people who are looking for a new dentist often depend on peer-to-peer reviews available on the internet. Find a marketing professional that has deep knowledge of the trends in search engine optimization and digital marketing because these are most likely going to be your largest sources of new clients.
As your practice is entirely dependent on your equipment, this is perhaps the most important relationship among all. Do your research about the vendors, ask for referrals and visit their clients. Ask the opinion of other dentists that have used the service of the vendors about their quality. Ask them about the contractors like electricians and plumbers they have previously worked with. Notice if contractors have worked together before because you may have similar projects.
How To Determine Your Dental Office Location?
Similar to retail businesses, dentists should give adequate importance to determining their practice location. The location chosen has to be accessible by public transport vehicles and/or have a parking lot. Location plays a key role in determining the success of your practice as well as the expenses that are incurred from running your practice.
As almost 100% of the population will need to seek the help of dental services, you can conduct a relatively simpler and almost accurate feasibility study for your dental practice. In addition, most of the lenders will conduct a demographic site analysis of the selected area for practice. If your lender doesn’t do that, you will have to get a private analysis done. A positive demographic site analysis is a good bargaining tool that can be used when you are seeking a loan.
If what you get in the end is a negative demographic site analysis, you are in fact, saved from setting up your practice in the wrong location. So in one or the other way, it is an inexpensive asset in the context of a new or existing location for a dental practice.
Take a look at the popular options to find office space.
If you have decided to lease space for your practice in a professional office building, there are a few things you need to take into account. Your lease terms are very important, particularly how much space you are leasing, how much is the cost of the space and how long the terms are? Will the building owner get the space ready as per your requirements? If yes, will the building owner mention granting a build-out in the agreement, or offer a reduced rate?
Many doctors and dentists choose their homes for their practices. It is a quite promising proposition considering the tax and expense savings associated with converting a part of your home into the office.
The convenience associated with the home office is another attractive factor. However, not everyone might not feel the same about home offices. Dentists with young kids may not be that comfortable about people coming and going all day. The decision is all up to you.
If you have decided to convert a part of your home into your office space, you will have to take care of all the construction and renovation costs.
A professional cooperative is a space owned by a corporation or individual that lease office space. Here you share a common space as well as equipment and you have to pay a monthly fee for that. For example, there might be office suites where several dentists practice with no one required to have their own equipment, hire staff, or take care of any other business task. They are only obligated to offer their dental service and all tasks except that are outsourced.
Real Estate Purchase
These highly specialized loans can be considered as commercial real estate loans. They offer many tax and interest benefits, as well as additional capital provided at favorable rates.
Design And Engineering Of Dental Office
Floor Plan Build-Out
Once you figure out the location for the dental practice, you can focus on your office design works. You are fortunate if you have a lease that finances basic office floor plan construction. Like we discussed in the previous paragraphs, many commercial leases also incorporate basic floor plan construction and hence speak about that with your landlord.
You would require a dental practice architect to build an ergonomic workspace or an engineer for coordinating the efforts of contractors and equipment vendors. It is especially important for dental practitioners such as those in the cosmetic industry.
Getting a build-out plan made by a certified engineer can be beneficial when you are applying for a dental practice loan by submitting your business plan.
Dental Practice Taxes
Dentists and other professionals in the healthcare industry require sophisticated technology and costly equipment for their practice. With technology advancing at a rapid pace, dentists are forced to adopt newer technology sooner.
The cost of business equipment can be deducted against your taxable income over the life of the equipment. Consider for example that an X-ray machine costs $1 million and has an expected life of 10 years. Then the dentist can take a $100,000 deduction every year for 10 years.
As per section 179 of the IRS tax code, some of the purchases can be deducted at 100% in the year of purchase. This can make the acquisition of new equipment easier, considering the tax benefits.
What Business Loans Are Ideal For Dentists?
Here are the business loans that are ideal for dentists.
Small Business Administration Loans
SBA loans are generally considered the gold standard of loans. Highly favorable rates and terms for borrowers looking for term loan financing are the features of small business administration loans. The SBA does not act as a direct lender, instead, it enters into partnerships with reputed lenders and offer guarantees to them against default. The SBA may guarantee up to 85% of a loan, thereby letting the lender provide higher loan amounts to the borrower with more favorable terms.
Getting approval for SBA loans isn’t that easy, and in addition, requires the borrower to handle a lot of paperwork. But when it comes to dental practices, SBA loans have higher approval rates due to the low risk of the profession.
While looking for a dental practice loan, take notice of the SBA 7(a) program. It has many features that go well with the needs of dental professionals in terms of its maximum loan amounts, favorable interest rates, repayment horizons, and better flexibility in using funds.
What to expect:
- Loan amounts: $5000 to $5 million
- Repayment term: 5 to 25 years
- Interest rates: Starting at 6.75%
- Time for approval: Approximately 6 weeks
Traditional Bank Loans
Traditional ban loans are the most popular source of small business loans. Most dentists believe that they can secure some funding through the bank they already depend on for conducting their business banking.
Particularly, the larger national banks usually conduct business programs that are specially designed for helping dental professionals. Needless to say, the high success rates of dental practices make lending dentists a trouble-free job and banks often go ahead with offering more favorable rates to finance a dental practice.
Bank terms are usually not as favorable as that of the SBA loans. The things that you can expect from a bank loan are given below:
- Loan amounts: $30,000 to $5 million
- Repayment terms: up to 10 years
- Interest rates: Starting at 7%
- Time for being granted approval: 4 weeks on average
Non-bank lenders offer business loans to dentists on an accelerated approval basis. These lenders usually have lower credit standards, shorter approval cycles, and less paperwork than the sources mentioned in the above paragraphs.
Because of the lower credit standards and quicker approvals characteristic of non-bank lending, there is an increased likelihood of higher interest rates and fees and the dentists should research this in advance. It is important to keep in mind that non-bank lenders will not be subject to the same regulations as that of banks. Carefully read your loan documentation before you agree to the terms.
Features of non-bank lending:
- Loan amounts: $2,500 to $250,000
- Repayment term: 3 to 18 months
- Interest rates: Starting at 10%
- Time for approval: One business day
Business Line Of Credit
A business line of credit is cash that can be drawn upon to a previously agreed limit. Like a credit card, there isn’t a lump-sum disbursement, which means the amount borrowed by the business owner is the same that he/she wants and the interest is charged only on the amounts they borrowed.
The features of a business line of credit are:
- Loan amounts: $10,000 to $1 million
- Repayment term: 6 months to five years
- Interest rates: 7% to 25%
- Time for approval: As quick as one business day
Dental Equipment Financing
One of the simplest elements of financing your dental practice is financing the dental equipment. In most cases, you will get very favorable terms. The financed equipment can often be used as collateral and you can also often deduct the full cost of equipment from the taxes of the year in which you made the purchase.
Some of the features of dental equipment financing are:
- Loan amounts: Determined by the equipment cost
- Repayment term: 6 months to 5 years
- Interest rates: Starting at 6%
- Time for approval: As quick as one business day