Whether you’re a new dental school graduate eager to start your career, a seasoned veteran expanding an existing dental practice, or a dental professional who’s considering a move from a salaried role to a practice of your own—the financial side of managing a successful dental practice can be equally intimidating.
The prospect of taking out a small business loan to start or expand your practice might be especially daunting, especially given that the average student loan debt per graduating dentist is an astounding $287,331. Given this existing debt, will you even qualify for a new loan to start or grow your dental practice? And if you do, how will you know which type of dental practice loans make sense for your practice?
If you find yourself asking these questions, we are here to guide you through the various options for dental practice loans so you can find the best funding option for your needs.
There is good news for dentists seeking financing: Dental practice loans are widely considered a good investment by lenders because dentists earn an income that’s well above the average small business owner. The average small business owner salary is $70,599 , compared to $120,000 for the median dentist in a private practice. That means you have a strong chance of qualifying for dental practice loans.
Better yet, many lending institutions even have special divisions dedicated to understanding the unique borrowing needs of dentists and other medical specialists, including the circumstances surrounding student loans.
To help you navigate your options, let’s walk through the five best dental practice loans:
Across almost every industry, traditional term loans offered through the U.S. Small Business Administration’s various loan guarantee programs—known universally as SBA loans—are revered as the best of the best in the business loans market. Through these programs, the SBA partners with local intermediary lenders—typically traditional brick-and-mortar banks—to guarantee up to 85% of loans funded to small business owners. With this guarantee, banks can fund small business loans for larger amounts and at lower rates than their risk calculations would otherwise allow.
The SBA 7(a) loan program provides a particularly strong fit for dental practice financing due to its great terms and wide flexibility in the use of funds.
Here are the quick facts you need to know about SBA 7(a) loans for your dental office:
As you’ll note above, a major downside of working through the SBA’s loan programs for a dental office loan is a relatively long time for approval, which can delay your timeline. That said, Fundera works with banks who are part of the SBA’s Preferred Lender Program. Preferred lending partners have more authority to underwrite applications without the SBA’s supervision, which makes the process go faster.
Keep in mind that the application process for SBA 7(a) loans is rigorous and highly selective. You should expect to provide extensive documentation about your business before learning whether your application was approved.
When you need a business loan, shouldn’t the bank where you already manage your business finances be the obvious choice? For dentists, this simple solution may, in fact, be the right one.
That’s because, even as business borrowers across other sectors lament that traditional bank loans carry near-impossible qualification standards, dentists tend to have better-than-average success with bank financing. Institutions including Bank of America, Wells Fargo, and U.S. Bank even have resources and specialists dedicated to meeting the unique needs of dentists and other health care providers, including relationships with the American Dental Association and other industry groups to offer reduced fees and other special offers for members.
Here are the quick facts you need to know about term dental office loans from traditional banks:
As traditional banks offer an array of options for dental practice financing, the exact terms of your dental office loan will vary based on your loan’s purpose, amount, and term—as well as your financial situation. If you have a good credit score and are interested in traditional bank financing, start with a phone call to your bank’s practice financing specialist to learn more about your options.
For those seeking a large amount of funding to start or expand a dental practice, there’s little substitute for the customized practice solutions and enviable interest rates offered by banks’ dental practice financing specialists.
But if what you really need is a fast dental loan with as little paperwork as possible, you’ll likely be better served by a short-term or medium-term loan from an online lender such as Kabbage, Funding Circle, or OnDeck.
These loan options come with pros and cons: They are more expensive than the other options on our list and come with a shorter repayment period. At the same time, they can provide cash in hand within as little as one business day after a simple 20-minute application—even for borrowers with poor credit. For busy dentists facing immediate cash-flow challenges, there is little substitute for this level of convenience.
Here’s what you need to know about short-term loans and medium-term loans from online alternative lenders:
Given the higher interest rates and quick repayment periods, short-term loans shouldn’t be used to fully finance your dental practice. But if you’re busy, aren’t worried about repayment, and just need cash quickly, these dental office loans are a convenient solution.
When it comes to convenient financing, getting cash in hand quickly isn’t the only need dentists face. As you deal with the uncertainty of costs related to your dental practice, what if you aren’t entirely sure how much financing you’ll need—or exactly when costs will arise?
Business lines of credit are specifically designed to address these circumstances. Similar to a traditional credit card, approval for a business line of credit gives you access to funds up to a set maximum amount. You’re required to pay interest only on the funds you actually withdraw.
Imagine, for example, that you obtain a line of credit of $50,000 to meet the needs of your dental office. At first, though, you only need to withdraw $5,000 for immediate expenses. Even though the full amount is available to you should you need it, you’re only required to pay interest on that $5,000 while it’s withdrawn. And best of all? Funds are replenished once you repay what you’ve borrowed, so you can re-use the same line of funds over and over again.
These are the terms you can expect when seeking a business line of credit for your dental office:
Since there’s no cost associated with a business line of credit until you actually use the funds, this dental practice financing option might be worth pursuing even if you have no immediate need for a dental loan. That way, you can take your time shopping around for the best possible rates and terms, then rest easy with the peace of mind that funds are available when you need them. Both banks and online lenders provide business lines of credit.
From dental chairs and lighting to X-ray equipment, basic instruments, and even office computers—equipment purchases represent a significant portion of the total startup costs for any dental practice. This is just one of many reasons why dental equipment loans are an ideal choice for many dentists.
Another standout factor? Equipment financing is far more readily accessible for dentists with bad personal credit, and because the equipment itself can be used to secure the value of the loan, you likely won’t be asked to offer up additional personal collateral. The primary downside to equipment financing is that you might have to put down a 10% or 20% down payment, and it can be difficult to come up with the cash for that.
Let’s take a look at the numbers behind dental equipment financing:
Of course, if you’re opening a new dental practice, equipment purchases won’t be your only significant expense. Even so, dental equipment financing does cover one area of significant need and may even be combined with other forms of financing in order to fully fund your dental practice.
To increase your chances of qualifying for dental practice financing, you need to have a strong loan application. This is especially important for bank and SBA loans that have lengthy, detailed application processes. Short-term and medium-term lenders require significantly less paperwork.
Be sure to address the following in your dental loan application:
For bank and SBA loans, be prepared to turn in an extensive amount of documentation to support your loan application. For example, you’ll need to show a business plan, financial statements, tax returns, and more.
Now that you know more about the various dental practice loans available to your business, you’re left with an obvious question: How do you choose what’s right for you? The answer here will depend on your financial circumstances, your credit history, how quickly you need funds in hand, and how you plan to use the funds you borrow.
Are you forming a long-term plan to start a new dental office, acquire an existing practice, or expand to a larger location? Provided you have strong credit, you should look no further than a low-interest bank or SBA loan.
Do you have an immediate need to meet payroll or other expenses? A short-term loan would be the natural fit.
If you want the availability of financing for ongoing working capital needs but aren’t sure exactly how or when you’ll use the funds, a business line of credit provides the ideal solution. And of course, don’t overlook the possibility of combining multiple forms of dental practice financing to create a customized funding solution.
As a dentist, you have focused your career first and foremost on the health care needs of your patients. Don’t forget, though, that getting the financing you need to sustain your dental practice is key to continuing to provide great service for years to come. A Fundera loan specialist can help you get better clarity on the best dental practice loans for you.
Sally Lauckner is the editor-in-chief of the Fundera Ledger and the editorial director at Fundera.
Sally has over a decade of experience in print and online journalism. Previously she was the senior editor at SmartAsset—a Y Combinator-backed fintech startup that provides personal finance advice. There she edited articles and data reports on topics including taxes, mortgages, banking, credit cards, investing, insurance, and retirement planning. She has also held various editorial roles at AOL.com, Huffington Post, and Glamour magazine. Her work has also appeared in Marie Claire, Teen Vogue, and Cosmopolitan magazines.