Unless you have a particularly rich and generous uncle, chances are that you’re going to need a loan in order to buy a dental practice. The combination of fluctuating interest rates, inflation affecting operational costs, and the high cost of starting and running a practice can influence the availability and terms of lending.

Lenders may be more cautious due to economic uncertainties and the rising costs faced by dental practices. But don’t stress out about all those factors too much. Lenders are still favorable toward dentists. Here are 3 tips to secure funding for buying a dental practice.

1. Start Hoarding Cash

Needless to say, buying a dental practice (along with paying for any new equipment or renovations) is a big purchase, so it’s wise to start saving money as soon as the idea pops into your head. What’s especially important is that you have cash on hand, or liquid cash, that is instantly accessible and could be spent immediately.

Most of the time, a bank will want you to make a down payment of at least 10% (for example: $50,000 for a practice valued at $500,000) before they’ll give you a loan, and many prospective buyers get stuck because they don’t have this type of accessible capital.

In addition to building up that savings account each month, you can also take money out of any securities you have (not retirement funds), as well as accept gifts from friends and family members (maybe it’s time to call that rich uncle!). If you have ongoing debt (student loans anyone?), it may be wise to see if you can reduce your payments via various consolidation efforts or paying off a large portion. This way you’re able more cash flow positive and solvent as a business owner.

2. Document That You Are a Producer

One of the fundamental parts of getting a dental practice loan is providing the bank with proof that you will be able meet or exceed production (i.e. generate revenue) at the practice you want to buy. So what does this entail? Simply document all of the dental work you are currently doing along with the associated fees. Work with front office team members to help you become familiar with working supporting staff. Remember when you buy a practice you adopt an entire team and you’ll have to manage them!

If you’re hoping to purchase a practice that produces $800,000 annually, you have to show that you’ll be able to do the same given your track record. The bank will be more willing to provide you the funding at favorable terms when they know you won’t be stretched too thin. Also, having a solid business plan on how you plan on maintaining a practice you’ve got your eyes on will definitely be favorable to underwriters. Work with a dental consultant on your business plan if need be.

3. Make Sure the Practice is Not Over-Valued

Many, many factors need to be considered when evaluating a practice beyond what it is producing each year. Some questions the bank might ask are, “What do the accounts receivable look like?” “Has the practice bounced back to pre-COVID levels?” “Is there a non-compete clause that could hamper the transition between owners?” If a bank even thinks that a practice is overvalued, this will make your life much harder.

This is where working with a dental consultant or buyer’s representative can be tremendously helpful. Many dentists don’t even know how to assess the true value of their own practice, let alone one they aren’t working in every day. This is actually a very time-consuming process if you’re not familiar with it. Professionals with experience can help you determine a fair value of dental practices. They have looked at and evaluated many practices, so they know where to look to find the real price. Not only that, they can also give you the documentation so the bank has a complete and detailed picture of that practice, which is needed to quickly approve your loan.

For many dentists, securing the proper funding is the first tangible step toward ownership, and with the right practice transition team at your side, you can start the process with confidence and excitement rather than having too much stress only hoping things will go your way.

About Next Level Consultants

Our mission is to make the process of buying a dental practice as simple and straightforward as possible for dentists. Next Level Consultants is led by Mike Dinsio, a former banker who has helped hundreds of dentists successfully purchase practices, and Paula Quinn, an active hygienist, in-demand speaker/educator, and practice owner. To learn more about how they and their team can help you get the funding you need, contact us today.