Are You Missing Out On These Terms for Dental Practice Loans? Rates, Terms, and Expert Tips

Building a brand new dentistry practice costs about $500,000 on average, while purchasing an existing practice from another dentist can easily run between $750,000, depending on the office’s income and client base. Whether you’re a recent dental school grad facing a ton of student loan debt, or an established practice owner hoping to expand or buy new equipment, taking out a dental practice loan can get you there.

The right dental practice loans help dentists fund their first practice from the ground up, buy an existing dental practice, or even renovate their current office. It’s important to pick the right loan and repayment terms for your situation though, so you can get the cash you need while saving money and improving your practice’s financial health along the way. Here’s everything you need to know about dental practice loan terms, the loan application process, and deciding which lender is right for you.

Understanding Dental Practice Loans

Dental practice loans are one of the business financing options available to new or existing dentists. These small business loans are specifically designed for professionals in the dental industry, and can be used toward

• Buying commercial real estate
• Building a new practice
• Practice acquisition (buying an existing practice)
• Renovating one’s own practice

While dentists can also utilize commercial real estate loans to purchase building or equipment loans to buy expensive healthcare machinery, dental practice loans are more of a one-stop-shop. These loans can also provide business owners with working capital as they start up or expand their business and build up their patient base.

Dental practice loans are offered by banks, credit unions, online lenders, and even some state- and government-backed programs, such as the Small Business Administration (SBA). The American Dental Association (ADA) also provides links and recommendations for various financing solutions.

Dental Practice Loan Terms to Note

There are many forms of dental practice lending available, each with their own costs, underwriting process, and repayment terms. Whether you take out a new practice loan, pull from a business line of credit, use a business credit card, or opt for a specific loan program like an equipment loan, be sure to understand exactly what the following terms mean for you.

Interest rate

Your dental practice loan interest rate will either be fixed or variable and may or may not be the same as its annual percentage rate (APR). Fixed rates remain the same throughout the loan, while variable rates may increase or decrease over time.

The lower your dental practice loan rate, the less you’ll pay the lender for your loan. However, your loan’s interest rate will be determined by things like your business (and sometimes personal) credit score, your business history and plans, loan size, and how long you choose to repay the debt.

Repayment term

Dental practice loans can be short- or long-term, just depending on the repayment term you choose. The shorter your repayment period, the higher your monthly loan payment will be compared to the same loan over a longer repayment term.

That said, choosing a longer repayment period may also earn you a higher dental business loan rate. So, while you’ll have a lower payment and more time to repay your debt, it will cost you more in the long run. You’ll also need to account for that payment in your monthly business budget for longer.

Loan amount

The dental practice loan amount available to you depends on your credit approval and other key factors. If lenders don’t think you can afford a certain monthly payment or you don’t have a strong enough business history to show creditworthiness, you may find it difficult to borrow enough for your new practice, existing practice purchase, or even a buy-in.

Fees

In addition to interest, some lenders will charge additional fees that will increase your overall practice loan costs. Some fees are upfront, like application or origination fees, and may depend on the amount you borrow. Other fees, like early prepayment penalties or late fees, are incurred if you try to pay off your loan early or don’t make scheduled payments on time.

Be sure to note any of these fees as they appear throughout the loan process, and calculate how they’ll impact your total loan cost. In some cases, it might make sense to keep shopping around for a lender that doesn’t charge those fees.

Expert Tips for Securing the Best Loan Terms

No matter where you are in your dental career or how much you need to borrow to reach the next step, here are some tips to help you lock in the best possible financial solutions.

Shop around

Even if the first lender you consider offers you a great loan and competitive interest rate, it’s always smart to shop around. Comparing offers from different lenders helps you make the most informed decision possible, so you can be sure you’re getting the lowest APR, smallest fees, and best repayment terms for your budget.

You can start your search at financial institutions that are already familiar to you, like wherever you have your business checking account. There are also many member FDIC online banks that have easy online applications and quick loan approval, allowing you to gather as many offers as possible.

Boost your credit score

The lowest dental practice financing rates are reserved for borrowers with the strongest credit histories. The better your business credit score, the more likely you are to get approved for the loan you need and the lower the interest rates you’ll probably be offered; if you have a limited business history, your personal credit score may also come into play.

You can improve your credit score before applying for a dental practice loan by making your monthly payments on time every single month, maintaining a healthy mix of debt, and limiting the balances you carry over.

Have a solid business plan

Many lenders will want to see a business plan before approving your loan application, especially if you’re borrowing six figures or more. If you borrow through an SBA loan program, expect your business plan to play a large role in the application and approval process.

Your business plan should be well thought out and include details for lenders such as your financial projections, growth plans, current account balances, profit and loss statements (P&Ls), and even market research.

Common Mistakes to Avoid When Taking Out a Dental Practice Loan

Loans can be the key that unlocks your dental practice dreams, but there are a few things you should avoid along the way.

Focusing only on interest rates

Yes, your dental practice loan rate will determine how much you pay in interest to your lender over the course of your loan, but this isn’t the only important term to focus on. Be sure to also calculate how fees (origination, application, processing, etc.) will increase your total cost both upfront and over time.

You should also pay attention to the other loan factors being offered. For example, a low APR doesn’t matter if you’re only given a short repayment term and monthly payments you can’t actually afford. And if you need cash right away to make unexpected purchases, some government-backed loan programs might not get you the funding you need in time.

Overextending your debt

Borrowing more than you need, or choosing loan repayment terms that don’t fit your budget, will strain your finances and possibly even derail you financially. Be sure that the loan you choose offers the right amount of funding and that you can make the monthly payments.

Not preparing for future growth

Sure, you’re taking out a loan today to cover today’s plans. But you also don’t want to have to go through the entire process again in a few short years because you didn’t also think about future growth.

When calculating your loan needs, be sure to consider how you’ll handle things like working capital, payroll, and emergency expenses. If you don’t have a safety net in place or think you might want to buy new equipment, bring on a partner, or renovate in the near future, add that number to today’s loan.

Final Thoughts

Dental practice loans are the answer for many new and existing dental professionals, offering the capital necessary for building a practice, buying an existing practice, or even just expanding and renovating the office they already run. These loans have specific terms — such as interest rate, repayment term, monthly payment amount, and fees — that can affect your total expense and how well that loan works for your budget.

Understanding these loan terms will be paramount to your dental practice’s success. Be sure to do your due diligence before choosing a lender and loan, and even special with a financial advisor if you aren’t sure what best fits your dental practice.

FAQs about Dental Practice Loans

Can I get an interest-only dental practice loan?

Some lenders will allow your dental practice loan to be repaid as interest-only for a period. In many cases, you’ll need to demonstrate financial hardship in order to qualify for interest-only payments. While this requires you to make a smaller payment each month, interest charges will continue to accrue and increase your total loan expense.

Can a dental practice loan provide working capital if I’m having cash flow issues?

Yes, many dental practice loans can provide you with the cash necessary to cover working capital needs or even pay for emergency expenses. You can also use your loan to purchase equipment, market your practice, buy out another dentist, and more.

Can I refinance a dental practice loan?

In some cases, you may be able to refinance an existing dental practice loan into a new loan with the same or a different lender. Refinancing allows you to reduce your interest rate, adjust loan terms, remove a co-borrower, or all three.

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