Financing Options for Buying A Dental Practice

For dental professionals considering practice ownership, understanding practice financing options is essential for a successful acquisition. Buying a dental practice is often the most significant investment in a dentist’s career, and choosing the right financing structure impacts both financial health and long‑term success.

Understanding Dental Practice Financing Basics

When you begin evaluating a dental practice opportunity, begin with a comprehensive dental practice valuation. A clear appraisal lays the groundwork for securing adequate financing. CTC Associates offers expert guidance performing valuations and structuring transition plans through their practice transition services.

Once you know value, potential loans or financing must align with that figure. Typical options include:

• SBA loans (7(a) or CDC/504) with favorable terms and longer repayment schedules
• Conventional term loans from banks tailored for medical professionals
• Internal financing via seller notes when buyer and seller agree on deferred payments

These channels help bridge purchase price gaps while allowing manageable cash flow in the practice’s early years.

Buyer Representation and Negotiation Help

Professional representation is often undervalued. CTC Associates provides full buyer representation, offering negotiation support, transaction coaching, and assistance structuring financing terms. Their team has facilitated over 2,000 transitions since 1988, and they work closely with buyers to match financial needs with appropriate solutions.

When you are represented:

• Practice purchase agreements reflect realistic pricing and terms
• Financing contingencies are clearly defined to protect your deposit
• Seller-friendly structures (like earn-outs or seller carry) can be negotiated

This approach ensures you secure a deal suited to your financial profile without hidden risk.

Navigating Loan Options

SBA Loans

An SBA loan is often preferred by many dentists due to up to 10-year payback terms, fixed rates, and low down‑payment options. These loans typically cover:

• Purchase of goodwill, equipment, and working capital
• Real estate if needed—especially via the CDC/504 program
• Acquisition financing integrated with seller carry

SBA debt service coverage ratios and credit requirements are stringent; working with an experienced advisor can streamline approval.

Conventional Loans

Banks familiar with dental industry lending provide acquisition financing suited to high-credit borrowers. These loans may require:

• Higher down payment (25–35%)
• Shorter amortization periods
• Collateral such as accounts receivable or equipment

They are best when buyers bring equity or when practice revenue supports service of debt without heavy leverage.

Seller Financing

In some practice transitions, the seller agrees to carry a portion of the purchase price. This seller note can:

• Reduce initial borrowing needs
• Provide flexibility in repayment terms
• Signal seller commitment to smooth transition

Combined with SBA or conventional loans, seller financing can fill gaps without major cash outlay upfront.

Key Financing Evaluation Criteria and Loan Qualification Tips

For many buyers, qualifying for a loan is the biggest hurdle in the dental practice acquisition process. Even with a profitable practice lined up, lenders must feel confident in the buyer’s ability to repay. That’s why it’s essential to not only compare financing options—but also prepare thoroughly for the qualification process.

What Lenders Evaluate

Dental professionals should be ready to address the following key criteria when comparing financing offers:

• Down Payment and Equity Required: Some loans—especially conventional ones—require 10% to 30% down. SBA loans may reduce that to as low as 5%, but strong financials and credit are still expected.
• Interest Rate and Amortization Terms: Fixed versus variable interest rates, and loan duration (typically 7 to 10 years), significantly impact monthly payments and total loan cost.
• Prepayment Flexibility: Some lenders penalize early payoff, while others offer no-fee options that allow quicker debt elimination.
• Debt Service Coverage Ratio (DSCR): Most lenders require a DSCR of 1.20 or higher, meaning projected practice income must exceed debt payments by at least 20%. This ratio is calculated using projected net collections and operating expenses.
• Cash Flow Impact and Growth Potential: Buyers should ensure the debt burden does not restrict reinvestment in equipment, staff, or marketing—especially in the first 2–3 years.

How Dental Professionals Can Prepare to Qualify

Before applying for financing, take the following preparatory steps to improve your approval odds and secure better terms:

1. Improve Personal Credit: Aim for a credit score above 680—ideally 720+—and pay down revolving debt. Lenders view personal credit history as a reflection of financial responsibility.
2. Save for a Strong Down Payment: The more you can offer upfront, the more favorable your loan terms may be. Consider saving 10%–15% of the projected practice value as a benchmark.
3. Organize Your Financial Documents: Have two to three years of personal tax returns, bank statements, proof of liquid assets, and a current personal financial statement (PFS) ready. If you’ve owned or operated a practice before, include business returns and financials as well.
4. Prepare a Business Plan: Include your vision for the practice, operational goals, projected income and expenses, and staffing plans. Lenders appreciate buyers who show clear, thoughtful planning—especially if you’re purchasing a practice in a new area or demographic.
5. Get Prequalified: Engage early with a dental-specific lender or financing advisor. Prequalification gives you insight into your borrowing power and makes your offer more credible when entering negotiations.
6. Work With Industry Experts: Brokers like CTC Associates streamline the lending process by recommending lenders familiar with dental practice financing, preparing transition documentation, and facilitating coordination between all parties.

Modeling Projected Financials

Careful modeling of expected revenue and expenses post-acquisition is crucial—not just for lender approval but for your own planning. Most dental practice listings include pro formas or historical financials. Use these to:

• Estimate collections based on past performance
• Project monthly loan payments across different financing options
• Evaluate how debt payments will affect your ability to maintain profitability, reinvest, or draw income

If projections look tight, this may also open the door for negotiating a lower purchase price, longer amortization, or seller-financed terms.

Expanding your financing knowledge and preparing early increases confidence, bargaining power, and loan accessibility. With the right strategy and support team, dental professionals can overcome qualification barriers and step confidently into practice ownership.

Financing Today, Ownership Tomorrow

Purchasing a dental practice requires strategic financing decisions. By aligning dental practice valuation, acquisition loan structures, and broker-supported buyer representation, dental professionals can secure ownership positions that are both financially sustainable and professionally rewarding.

If you're ready to explore loan options, SBA qualifications, or seller-financing scenarios for your next acquisition, CTC Associates can help guide you through every step—with clarity, integrity, and a focus on long‑term success.