There are many reasons why dentists need loans. They may need to buy equipment, pay off debt, renovate their office, or just take care of day-to-day operations. Whatever the reason, getting approved for a loan is not easy.
A dentist needs to prove they are creditworthy before they can qualify for a business loan. That means they must show their ability to repay the loan, and show that they have enough income to cover all expenses.
This guide will walk you through the steps needed to get a business loan for a dental practice. We’ll help you find the right lender, determine what type of loan works best for your situation, and explain the loan terms and conditions of the loan.
Why You Need A Loan From A Bank Or Lender in San Diego
A dental practice loan from a bank or lender is often referred to as a “hard” money loan because it’s secured by real property. The borrower has equity in his or her building, which serves as collateral against the loan. If the borrower defaults on the loan, the bank can foreclose on the property, sell it at auction, and recover the amount owed.
The advantage of this type of loan is that the borrower can use the funds operating expenses immediately. This allows him or her to grow the business without having to wait until cash flow improves.
The downside is that if the borrower doesn’t pay back the loan, he or she loses ownership of the building. So, while the building serves as security for the loan, it’s actually worth less than its value when the loan is paid off.
If you don’t own a building, then a hard money loan isn’t an option. Instead, consider one of these alternative types of loans:
Commercial Lines Of Credit
If you want access to additional funds for your business but don’t want to give up control over the assets securing the loan, a commercial lines of credit might work better. With a commercial line of credit, you borrow a certain amount of money each month based on how much revenue you generate. Once you’ve repaid the loan, you keep using the line of credit to make purchases.
You can apply for a line of credit with a bank or another lender.
What Other Types of Loans for Dentists are Available?
The other business loans for dentists are available include:
- Equipment Financing
Business owners looking for equipment loans can turn to an equipment leasing company instead of a traditional bank. Equipment leasing companies charge interest only during the lease term, so there’s no repayment required after the equipment is purchased.
After the lease expires, the equipment becomes the property of the lessee. In exchange for receiving the equipment free and clear, the lessee pays monthly rent payments.
Banks typically offer equipment financing to borrowers who plan to use the equipment within three years. After that time period, the bank usually requires that the equipment be sold or leased.
- Debt Consolidation
Banks sometimes offer debt consolidation loans to dental practices that are struggling financially. Debt consolidation programs combine multiple debts into a single payment, allowing the owner to reduce the number of monthly bills.
However, most lenders won’t approve a debt consolidation program unless the practice shows that it will repay all the outstanding debts.
In addition, many debt consolidation programs require that the dentist agree to increase the total amount of debt being consolidated.
- Dental Office Loans
A dental office loan is like a hard money loan except that it’s not secured by real estate. It’s more like a personal loan where the borrower gives the lender a promissory note.
With an office loan, the borrower makes regular payments directly to the lender. He or she receives a check once per month or every two weeks.
Office loans come in several forms. Some are fixed-term loans, meaning they have set exact terms such as a specific repayment schedule. Others are long-term loans, which last longer than 12 months. Still others are revolving accounts, which allow the borrower to draw down the principal balance whenever he or she needs the money.
Office loans are often offered by banks and credit unions. However, some lenders specialize in lending to dentists. You’ll find this information at the end of this page.
- Larger Loan Amounts
Getting a loan for dentists for larger amounts isn’t always easy. Most lenders prefer smaller loans because they’re easier to manage. If you ask a lender for a large loan, you could get rejected. Lenders focus their efforts on helping people get approved for lower-interest loans.
Getting a long-term loan for larger amounts might take longer. Getting approval for a large loan is much more complicated than going through the same steps for a short-term loan.
If your practice has been growing over the past few years, consider applying for a larger loan. This way, you can pay off more of your existing debt while still paying additional expenses.
- Draw Loans
A draw loan is another option you should consider if your practice has significant cash flow problems. A draw loan allows a dentist to borrow up to 90 percent of his or her net worth. The remaining 10 percent must be paid back over a seven-to-10-year period.
There are downsides to using a draw loan. First, you’ll pay higher interest rates than when borrowing from a bank or another lender would. Second, dental professionals will have to sell assets such as equipment and furniture to cover the costs of repaying the loan.
The upside of a draw loan is that it’s flexible. You don’t have to wait until you have enough liquid assets to tap into them. Instead, you can use the funds immediately.
How to Get Started with Dental Loans
The experienced dentist that is interested in getting started with dental business loans is simple. Here’s how to apply:
1. Determine whether you qualify for a loan based on your financial situation.
2. Apply online with a loan application.
3. Submit supporting documentation.
4. Wait for approval.
5. Decide on what to do next.
6. Pay off the loan.
7. Repeat steps 1 – 6 until you’re ready to make improvements.
What Type Of Documentation You Will Need?
The documentation needed for dental equipment loans varies depending on the type of loan you choose. There are three main types of dental equipment loans:
• Fixed term
• Revolving account
• Hard money loans
Fixed Term Equipment Loans
These are loans that typically have a short duration (12 months) and a low monthly payment. They’re suitable for borrowers who want to buy equipment that will be used for only a short time.
Revolving Account Equipment Loans
Revolving account loans offer flexible terms and no prepayment penalties. Borrowers can use these loans to finance purchases of equipment that won’t be fully depreciated for many years.
Hard Money Loans
Hard money loans are high risk loans that require substantial collateral. Borrowers usually face stiff competition for hard money loans. In addition, lenders charge higher interest rates and fees.
You must submit a variety of documents for each type of loan. Your loan officer will review this information before approving your request. Each document includes important information such as:
• Income statements
• Balance sheets
• Financial projections
• Tax returns
• Personal references
• Credit reports
• Bank statements
• Other relevant documents
- Applying Online
Most dental lenders allow applicants to complete applications online. It takes just minutes to fill out the forms. Once you’ve submitted your paperwork, it’s sent directly to the lender.
- Strict approval requirements
Lenders typically ask for several pieces of information in order to approve your loan. You should expect to receive a response within five days. If you don’t get one, contact your loan officer immediately.
- Approval Process
Once you’ve received approval, you’ll sign all required contracts. When you close the transaction, the funds are deposited into your checking account.
What Kinds of Borrowers Qualify?
The kinds of borrowers that qualify for dental loans as a part of their growth strategy vary depending on the type of equipment they plan to buy. The following list describes the most common kinds of equipment eligible for financing.
- Dental Office Equipment
Financing office equipment allows owners to purchase items like chairs, stools, lights, and sinks. This type of equipment helps create a professional appearance and is often necessary for providing quality care.
- Office Furniture
Furnishing offices with furniture can help increase productivity and attract new patients. Financing furniture can include everything from desks to filing cabinets.
- Equipment For Dental Clinics
Banks and other lending sources sometimes offer financing for clinics that specialize in cosmetic treatments such as teeth whitening, veneers, and crowns. Cosmetic procedures are popular among people seeking to improve their smile.
- Other Types of Equipment
Many types of equipment can be financed. Some examples include:
• X-ray machines
• Air compressors
• Vacuum cleaners
• Washing machines
• Water coolers
• Inkjet printers
• Ultrasound machines
• Digital x-rays
Business strategies that include using bank financing to acquire equipment have been proven effective. Lenders understand how critical equipment is to growing a profitable practice.
A Loan Officer Is An Important Person To Have On Your Side
If you’re looking to start up a new business, consider getting some dental equipment financing options. There are many ways to go about doing so, but if you’re going to take the time to apply for a loan, you may as well make sure you find someone you trust.
A good place to begin with your financing options is to create a great business plan. A business lender will use this document to determine whether to lend money to you. In addition, a business plan will give you the opportunity to explain what kind of return you expect on your investment.
What Kinds Of Interest Rates are Available?
Alternative funding options are available to you. Depending on your needs, there are various interest rates available. Most commonly, you will see two kinds of interest rates – fixed rate and variable rate. Here’s a brief description of each.
Fixed Rate (or Fixed) Interest Rate
This means that the interest rate doesn’t change over the life of the loan. Instead, it remains constant throughout the term of the loan. As long as you keep making payments on time, the amount of money you owe the lender won’t change.
Variable Rate (or Variable) Interest Rate
This option is more flexible than a fixed rate because it changes every month based on the prime rate. It does this automatically without having to do anything extra. However, it can fluctuate quite high. If the prime rate rises, then so will your monthly payment. If the prime rate falls, your payment goes down. You’ll only pay the lowest possible interest rate during periods when the prime rate is low.
The best way to get a feel for what kind of interest rate would work best for you is to talk to lenders. A loan officer can tell you exactly what you can expect to pay. Remember, though, that the exact cost depends on several factors including the size of the loan, the length of the loan, the borrower’s credit score, and the terms of repayment.
What Happens After You Get Approved?
Approval of funding can happen quickly or slowly. The approval process varies from one lender to another. It can also depend on whether you choose a direct or indirect lender. Direct lenders are ones where you actually meet with the person providing the funds. Indirect lenders don’t require face-to-face meetings. Instead, you fill out a form online and submit it along with all required documentation. Once everything has been received, the lender makes a decision.
You should always check in with your lender once you’ve applied for a loan. This is especially true for larger amounts. Even though you haven’t heard back yet, it’s important to stay in touch. Otherwise, you risk losing the opportunity to borrow money.
Once you’ve received approval, you’ll receive a letter or email letting you know. This usually happens within 24 hours after submitting your application. You’ll also receive a detailed list of information regarding the loan. This includes things like how much you’re expected to repay, the due date, the total loan, its duration, and other details.
It’s important to note that even if you get approved, you still have to complete certain requirements before receiving the full loan amount. This could mean waiting until you make all scheduled payments before getting the entire sum. Or it could involve additional fees. Regardless of which it is, you’ll want to make sure you understand them fully before signing off.
If you’re looking for ways to improve your chances of getting funded, consider doing some research. There are many websites that offer tips on improving your credit rating. One of these sites is www.creditfix.com. Another is www.myfico.com.
They both offer free services that can help you determine areas of improvement.
How to Pay Back the Loan
The dental practice owner that has to pay back the loan from alternative funding sources is going to have to pay back the money at a different pace than someone who gets their funding from traditional means. In fact, they’re going to have to pay it back over a period that lasts longer than the typical term of a mortgage.
There are two basic types of alternative financing: secured and unsecured. Secured alternative financing requires collateral, such as real estate or personal property in order to secure the loan. Unsecured alternative financing does not require collateral. Both types of alternative financing carry higher rates of interest than conventional lending.
Cash flow shortages often occur during the first year of ownership because cash is needed to cover operating expenses. However, the second year is typically more profitable than the first year. That’s because most people pay off their debt and saving for retirement. Because of this, cash flow becomes easier to manage.
In addition, the dentist will likely have to use part of the loan for working capital. Working capital is short-term financing that allows the dentist to buy supplies, rent office space, and hire employees. It’s very common for dentists to use up half of their alternative finance for working capital.
The Bottom Line
Financing is one of the most important aspects of starting a dental practice. By following the steps outlined above, you should have no problem securing the funds necessary to run your dental office smoothly.
Dental practice financing with alternative lenders is becoming increasingly popular among dentists. Alternative financing provides several benefits, including flexibility and low minimum amounts. A key to finding a lender who understands your dental practice’s needs is to find the right online lender and ideal loan program.
To learn more about these options, please call us at (888) 653-0124 today!
Have Any Additional Questions?
FAQS for Business Loans for Dentists
✔️ What Three Steps Should A Dentist Take Before Opening A Dental Practice?
The three steps a dentist should take before opening a dental practice are: 1) Determine what kind of practice you want; 2) Decide where you want to open your practice; 3) Find a suitable location.
1) What Kind Of Practice Do You Want To Have?
You might think you know what kind of practice you would like to own but let me ask you this question: How much do you really know about running a dental practice? If you know nothing about how to run a successful practice, then maybe you shouldn’t be thinking about buying one!
I’m sure if you were to sit down with a group of seasoned dentists and ask them what they thought was required to run a successful dental practice, you’d get a wide variety of answers. Some might tell you that you need to work long hours while others might say you need to make sure you have enough staff to handle all your patients’ appointments.
2) Decide Where You Want to Open Your Practice
Once you’ve decided on a location for your practice it’s time to decide whether you want to go into a solo practice or join forces with another dentist. There are pros and cons to both options, so it’s important to weigh out the advantages and disadvantages of each option.
3) Find A Good Location
One last thing to consider when deciding on a location for your dental practice is whether you need to build a new facility. This decision can be made based on several factors, such as existing building infrastructure, size of the area population, and proximity to other practices.
If you’re looking for funding for your dental practice, you’ll find there are many types of funding available. We offer several financing programs for dentists and other healthcare providers. We understand the unique challenges faced by dentists and we take great pride in helping our clients achieve their goals.
✔️ How Profitable Is A Dental Practice?
A dental practice is profitable when the owner makes more money than he spends. If the owner runs his business well, it will cover its expenses without having to borrow from anyone. However, if the owner does not keep careful records of his income and expenses, or if he overextends himself, he could end up owing someone else money.
There are two ways to measure profitability: gross profit and net profit. Gross profit is the total amount of revenue generated by the practice minus the cost of goods sold. Net profit is calculated by subtracting the practice’s operating costs (e.g., rent, utilities, insurance premiums, supplies, etc.) from its sales revenues.
✔️ What Is The Typical Profit Margin For A Dentist Office?
The typical profit margin for a dentist’s office is 60% to 70%. This means that for every $100 of revenue earned, the practice needs to spend at least $60 to cover its costs. In order to earn a higher profit margin, the practice must either reduce overhead costs, increase revenue, or both.
A high profit margin helps a business stay afloat during lean times and allows owners to invest in growth opportunities.
In addition, most states require dentists to pay taxes on their profits. Dentists usually pay state income tax at a rate between 2% and 6%, depending on the state. States levy a franchise tax on top of the state income tax.
The franchise tax varies widely among states. It ranges from 0% to 3% of the company’s annual gross receipts. Most states impose a corporate income tax, which is paid by the corporation rather than the individual shareholders.
✔️ What Makes A Dental Office Great?
A dentist’s office is great when the owner enjoys what he does and gets satisfaction from seeing patients smile again and feeling good about making people healthy. He should enjoy the work because if he doesn’t, then he won’t do an outstanding job.
Dentists have a lot of responsibility. Their jobs involve taking care of people’s mouths and teeth. Although this profession has some similarities to medicine, it also involves dealing with pain and suffering. Therefore, dentists have much greater emotional involvement with their patients than physicians do.
Dentists must have excellent communication skills. Patients expect them to listen carefully, explain procedures clearly, and answer questions honestly. Dentists must be patient and compassionate as they treat their patients.
It is important that dentists have a positive attitude toward their work. When dentists feel happy doing their jobs, they perform better and make fewer mistakes.