Best Financing and Loan Options for Your Dental Practice
As a dentist, you likely earn more than the average small business owner. Unfortunately, dentists often come out of the gate with the highest student loan debt of any college graduate, averaging just over $285,000, according to the American Student Dental Association.
How do you make your career and small business work against the odds?
Let’s look at the various types of funding for dental practices. Keep in mind, dental practice loan terms can vary depending on the following factors:
- Loan type
- Dental practice financials
- Credit score
- Collateral available
Some of the best dental practice loans include:
Dental Equipment Financing
Looking to purchase new equipment? Consider dental equipment financing. The machinery serves as collateral to secure your funds. In other words, if you default on repayment, the lender has the right to take back your equipment to recoup their losses. This type of financing can extend to dental equipment leasing as well.
Terms are generally meant to run 18 months or less, though working capital loans may be able to be repaid in 3 years.
Dental practice loan rates for working capital vary, as there are various types of working capital loans. Rates also vary by lender. Credit score and business financials can also affect rates. As an example, short-term working capital loans can have an annual percentage rate (APR) as low as 6% and can go into the triple digits.
Here’s more info from our experts to help your small business thrive.
Commercial loans for dentists are another option for those who want to grow their business. You can use commercial loans as bridge financing, providing you with a “bridge” of capital, so you can get from one month to the next. You might also use it to buy inventory and supplies. In addition to term loans and equipment financing, there are other types of commercial loans and funding options available, including:
- Lines of credit
- Small Business Administration loans
- Business lines of credit
- Merchant cash advances
Let’s look at these in a bit more detail below.
Lines of Credit
Business lines of credit are similar to personal lines of credit. You’re approved for a certain amount, available when you’re ready to use it, and you don’t need to use it all at once.
For instance, let’s say you’re approved for a $100,000 line of credit. A month after approval, you need $10,000 to cover unexpected expenses. After taking $10,000 from your credit line, you still have $90,000 of remaining available credit. You’re only charged interest on the $10,000 you’ve used. Plus, once you pay down the $10,000, that amount can be replenished so you have a full $100,000 available again.
Rates can vary based on the lender, whether you’re able to offer collateral and your creditworthiness, with APR that could range from 7%-65%.
You also might consider an Small Business Administration (SBA) loan for your dental practice. SBA-backed loans and financing options are less risky for lenders because the SBA insures up to 85% of the loan value, depending on the amount borrowed. Some of the more common SBA financing options include the following.
SBA 7(a) Loan
With an SBA 7(a) loan, you can request to borrow up to $5 million. SBA 7(a) loans are a great option for dental practices who have time on their side, as these loans can take up to 3 months for approval. However, rates are typically lower than you’d find with other financing options.
Interest rates for SBA 7(a) loans can be fixed or variable. As of July 2019, the maximum allowed fixed interest rates ranged from 10.5% for loans greater than $250,000 to 13.5% for loans of $25,000 or less.
|Loan Amount||Maximum Fixed Interest Rate for 7(a) Loan*|
|$25,000 or less||13.5%|
|$250,001 or greater||10.5%|
*As of July 2019
Variable interest rates must be approved by the SBA. Borrower percentage rates can be tied to the lowest prime rate, which as of July 2019 was 5.5%.
Also, repayment is often over 10 years but may extend up to 25 years under certain circumstances. Collateral isn’t required for loans less than $25,000.
SBA 7(a) financing can also function as a dental equipment loan, real estate purchase loan, refinance option and more.
SBA Express Loan
A faster alternative to the 7(a) is the SBA Express loan, which can be funded in as little as 30 days. The downside is you’re limited to requesting a max of $350,000. Additionally, loan repayment terms don’t exceed 10 years. Interest rates for the SBA Express loan are the same as those for the 7(a) program.
Dental practices also might consider a working capital lines of credit insured through the SBA, which can be offered on a one-time or revolving basis.
Merchant Cash Advance
If you have self-paying patients, you likely have future credit card sales. A merchant cash advance (MCA) is an advance against your future sales. If you need access to cash fast, this might be an option for you. Payments will need to be made daily or weekly and aren’t fixed.
There’s no fixed maturity date. Also, repayment is based on a factor rate (e.g., 1.14), not an interest rate. With factor rates, repayments are calculated by multiplying the factor rate by the amount borrowed.