August 26, 2021
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. While banks are being a little more stringent these days due to COVID woes, they are lending, and knowing a few things ahead of time can help make the process of getting the funding you need (relatively) headache-free. 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 saving more on your own 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 (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 so you’re able to keep more cash.
2. Document That You Are a Producer
One of the fundamental parts of getting a dental practice loan is proving to the bank that you will be able to produce (i.e. generate revenue) at the same level as the practice you’re buying. What does this entail? Simply document all of the dental work you are currently doing along with the associated fees. If you’re hoping to purchase a practice that produces $800,000 annually, and you can show that you’ll be able to do the same given your track record at your current position, then the bank will be more willing to provide the funding you need.
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 consultant can be tremendously helpful. Many dentists don’t know how to evaluate the true value of their own practice, let alone ones they aren’t working in every day. Plus, this can be a very time-consuming process if you’re unfamiliar with it. Professionals with experience determining the value of dental practices know where to look to find the real price, and not only that, but they can also give you the documentation so the bank has all the information they need to quickly approve your loan.
For many dentists, securing the proper funding is the first tangible step toward ownership, and with the right team at your side, you can start the process with confidence and excitement rather than having to stress and only hope things 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.