Conventional Loans for Dental Practices
Conventional loans can provide a financing option for qualified dentists who want to purchase, expand, or invest in a dental practice. Unlike SBA financing, conventional business loans are not guaranteed by the Small Business Administration and are offered through banks and other commercial lenders.
For dentists considering dental practice financing, conventional financing may be worth considering depending on the transaction, financial profile, and intended use of funds.
What Can a Conventional Dental Practice Loan Finance?
The potential uses of conventional financing depend on the lender and loan structure.
Financing may potentially be available for:
- Dental practice acquisitions
- Practice expansion
- Equipment purchases
- Office renovations
- Commercial real estate
- Working capital
Financing a Dental Practice Acquisition
A conventional loan may potentially be used to finance the purchase of an established dental practice.
Lenders may evaluate the practice’s historical revenue, cash flow, profitability, assets, and other financial information when determining whether the transaction can support the proposed debt.
Conventional Loans for Practice Expansion
Established dentists may need additional capital when expanding an existing practice.
Financing could potentially support eligible expenses such as additional treatment rooms, renovations, technology, equipment, or other expansion-related costs.
Equipment Financing
Dental equipment can represent a substantial investment.
Depending on the lender, conventional financing may potentially be used to purchase or upgrade equipment needed to operate or expand the practice.
Dentists should consider the useful life, cost, and expected benefit of major equipment purchases when developing a financing plan.
Commercial Real Estate Financing
Some dentists choose to purchase the building where their practice operates.
Conventional commercial real estate financing may be an option for qualifying owner-occupied properties. Purchasing the property can allow a dentist to build equity while maintaining control over the practice location.
Working Capital
Working capital can help a dental practice manage ongoing operating expenses.
Depending on the loan structure, financing may potentially provide capital for eligible expenses such as payroll, supplies, marketing, technology, and other normal business needs.
What Do Conventional Lenders Look For?
Conventional lenders generally evaluate the financial strength of the borrower and the proposed transaction.
Factors can include:
- Credit history
- Income
- Existing debt
- Liquidity
- Professional experience
- Business revenue
- Cash flow
- Profitability
- Collateral when applicable
Conventional vs. SBA Financing
Conventional and SBA financing can both be useful depending on the circumstances.
SBA loans are backed in part by an SBA guarantee and have specific program requirements. Conventional loans are generally underwritten according to the individual lender’s credit policies and requirements.
The appropriate option depends on the dentist’s financial position, transaction structure, financing needs, and lender criteria.
Prepare Your Financial Information
Dentists should organize their financial information before applying for conventional financing.
Depending on the transaction, lenders may request personal and business tax returns, financial statements, bank statements, information about existing debt, purchase agreements, equipment quotes, and other documentation.
Consider the Entire Project
Dentists should calculate the total amount of capital required rather than focusing only on the purchase price or largest individual expense.
An acquisition or expansion may also involve equipment, renovations, working capital, professional expenses, and other costs.
Final Thought
Conventional loans can be a potential financing solution for qualified dentists purchasing or expanding a dental practice. Depending on the lender and transaction, financing may potentially be used for acquisitions, equipment, real estate, renovations, working capital, and other eligible business expenses.
Dentists should compare conventional financing with other available options and consider the loan structure, repayment requirements, total project costs, and long-term financial goals before moving forward.
