Dental Practice Business Financing – Four Options
There are a variety of dental practice business financing options available to the business owner. The nature of the dental practice business requires you to have enough working capital to have the right locale, supplies, equipment, certification and skilled staff to provide your patients the type of attention and care they expect. Additionally you will also face the challenges of marketing activities to retain and stimulate repeat business plus attract new customers.
Here are four dental practice business financing options, with their pros and cons, on how to finance your dental practice growth:
Small Business Administration (SBA) Loan
The Small Business Administration (SBA – Federal Government) provides a guarantee to banks and lenders for the money they lend to small business owners. An SBA loan is a commercial loan through a bank or authorized SBA lender network, structured according to SBA requirements with an SBA guarantee. This allows for an expanded source of funding for entrepreneurs, small and growing businesses, minorities and veterans.
Since the SBA provides a partial guarantee of up to 85% of the loan amount, this network of approved lenders will approve loans to small businesses that ordinarily would be considered “too risky” otherwise. For a small business that is unable to qualify for an SBA loan, any other financing options will normally be more costly, with less favorable terms and collateral requirements.
The SBA loan application process is very restrictive, thorough and long (up to 3 months, after full documentation submitted). You will need to have exhausted other financial sources, invest significant time and patience to get an SBA loan approved for your dental practice business.
Pros: Least expensive, long fixed rate payment terms
Cons: Extensive paperwork, long evaluation process, restrictions to qualify
Traditional Financial Institution Lending
For a secured small business loan, a traditional bank requires that your dental practice business has a minimum of two years in operation, be profitable, has good business and owner credit history, plus a business asset (e.g., property) to serve as collateral guarantee. The loan evaluation process will be time consuming (30 days) and detailed, requiring bank statements, multi-year financial reports, future sales projections, business asset market evaluation and business and personal credit reports.
Assuming your dental practice business is approved for the secured small business loan, funds are usually available 30 days later, with interest rates higher and payment terms shorter than an SBA loan. If your dental practice business needs the funding in less than 60 days, this is not a viable option for you.
As a result, to finance your dental practice business may be difficult to qualify for a small business commercial loan due to its limited business history, insufficient revenue, profitability, limited collateral or credit history.
Pros: Medium expensive, long fixed rate payment terms.
Cons: Extensive paperwork, long evaluation process, difficult to qualify.
Alternative Financial Lending
Traditional bank small business financing has declined significantly during the last ten years. To fill this gap, alternative financial lending has evolved to provide the needed small business financial capital. Alternative financial lenders offer a variety of specialized financial solutions to finance your dental care business when the previous options are not available or don’t fit the funding needs of the small business.
For the small business seeking additional capital, the financing process requires less paperwork, the evaluation process is shorter with less focus on credit history, with approval and funding in less than a week. The costs for the capital are higher and the payment terms shorter then the previous financing options mentioned. Why? Higher risk to the financial lender.
Pros: Simplified, short evaluation process, easy to qualify, rapid access to funding.
Cons: Higher cost, shorter payment terms.
Private Investment In Existing Dental Practice
An alternative option for growth of a dental practice business is via a partial or full buy-in of another dental practice business. This buy-in process is usually cash/share and may be totally upfront or a series of deferred payments using a promissory note. Depending upon how the buy-in is structured can help minimize upfront capital investment and the need to secure external funding.
Pros: Simplified, less external capital requirements, existing customer base.
Cons: Less focus on primary practice, partnership not for everyone.
Dental Practice Business Financing – Conclusion
Four options to finance your dental practice business are presented. An SBA loan is one of the most attractive financing options available to a small business owner, but is time consuming and difficult to qualify. A traditional bank small business loan is easier to qualify, but at higher cost and less favorable terms versus the SBA loan. An alternative financial lender small business loan or Merchant Cash Advance is the easiest to qualify for, but with higher costs and less favorable terms than the other financial options. Finally, a private buy-in to an external dental practice also is a viable option. Each financial solution may fit your business depending upon your specific needs.
Please call us at (888) 213-3383 to help review which financial product best serves your business needs or Contact Us via Email.