Dental practice financing
It can be easier to get a loan to purchase an existing dental practice compared to starting your own practice.
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If you're looking to open a new dental practice, you may find it harder to get approved for a loan. Some lenders will not approve your business for a loan unless you meet certain requirements. These will generally include a minimum business age and turnover, so if your business is completely new, there are some loan products that you may not be able to apply for.
However, you may still be approved for a secured business loan by using existing property you own as collateral against the cost of the loan. In the event that you fail to repay the loan, the lender may take ownership of the asset.
Compare dental practice loans
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What factors should I consider when buying a dental practice?
Not all dental practices are created alike. Before purchasing an existing practice or starting your own, consider the following factors.
- New or existing practice. The first decision you need to make is whether you intend to create a new dental practice from the ground up or whether you will purchase an existing practice. Keep in mind that there are two options when it comes to purchasing an existing practice. You may have the opportunity to buy your way into an existing practice, where the current owner(s) remain working in the business while selling a portion of the business interests to you. Alternatively, you could purchase an existing dental practice outright, where the former owners leave the practice and you take over the full running of the business.
- Purchased or leased premises. If purchasing an existing practice, you may not have much of a say as to whether the existing practice premises are subject to a lease. But if starting a new dental practice, you will need to decide from the outset whether you intend to lease or purchase your practice premises. Your decision will depend on your financial circumstances and how much you intend to borrow.
- Practice location. Consider the location of the practice, whether purchasing an existing practice or starting your own. Is the practice conveniently located close to your home? From the point of view of your patients, is the practice easy to access via public transport? Is there plenty of parking available? From a marketing point of view, what are the signage opportunities like? Does the premises receive natural foot traffic? How far away is your closest competitor?
- Growth opportunities. Are there opportunities to expand the business? If the premises are leased, to what extent are renovations permissible?
- Financial considerations. If purchasing an existing practice, you will need to supply your lender with the full audited business financials for at least the past 12 months, including a profit and loss statement and business tax return. But before you even approach a lender, appraise the practice's financials for yourself and make an appointment with your accountant to get their opinion.
- Staff and patients. If purchasing an existing dental practice, find out whether the existing staff are willing to continue working for the practice. Will the former owner recommend you to their existing client base? You may like to consider a non-compete clause in the business purchase contract.
What do I need to know about financing a dental practice?
Dental practice loans have much in common with other types of business loans, along with a few important differences. Here's what you need to know about obtaining finance for a dental practice.
- 100% finance. One of the most important differences between dental practice loans and loans for other types of businesses is that, because dentistry is considered a strong, reliable industry, many lenders are willing to lend up to 100% of the loan amount. This applies whether you are looking to purchase an existing dental practice, set up your own dental practice or purchase premises to run a practice.
- Loan term. In general, the maximum loan term to purchase freehold dental practice premises or a dental practice with freehold property as security is 25 years. If purchasing or setting up a dental practice subject to a lease agreement, the maximum loan term will be up to 15 years or as specified in the lease agreement.
- Overdrafts. Given the strong status of the dental industry, many lenders will be willing to offer up to $100,000 as an overdraft facility to assist with ongoing cash flow.
- Security. Three types of security are generally required for dental practice loans: freehold commercial or residential property, a director's guarantee, and a registered fixed and floating charge over the dental practice itself. Some lenders will consider dental practice loans without freehold property as security.
How can I make sure the business is worth buying?
Before you approach a lender to enquire about dental practice finance to purchase an existing practice, you need to satisfy yourself that the business is worth buying. To do so, you will need access to full audited financials for at least the past 12 months, or preferably 2 years. These financial documents will give you an objective view as to the current and recent financial status of the practice, and will shine a light on any misrepresentations or exaggerations that the current owners may have made as to the financial status of the business.
In general, it is best to let the financial documents speak for themselves, and not to be swayed by any reasons the current owners may give as to why the financial figures may not be as positive as they would like. Ensure that you ask the current owners about their reasons for selling, but view their answer in the context of the financial documents.
You will need to prepare a business plan including profit and loss and cash flow forecasts for the practice. Not only will you need to satisfy the lender that you have a solid business plan for the future operation of the business, it is through the preparation of the business plan that you can satisfy yourself that you have the skills, experience and finances necessary to run a successful business.
An existing dental practice without a strong financial position could still be a worthwhile investment if purchased at the right price. It is your business plan that will help you determine whether you can turn the business around and make it profitable.
Looking to finance your existing dental practice?
If you currently own or run a dental practice, you can still use a loan to help fund your ongoing business. Most lenders are more likely to approve loans for businesses that have been operating for a certain period of time or have a certain turnover, so if you have an established practice, you should be well positioned to get a loan.
You can use a loan for most worthwhile business purposes, including:
- Funding new equipment
- Managing cash flow
- Hiring staff
- Purchasing commercial property
The loan amount you can borrow will depend on a number of factors, including the age and size of your business, as well as your credit history.
What are my loan options?
Given that dental practices enjoy such a strong position from the point of view of those in the finance industry, there are several viable options available for dentists wishing to purchase, start or finance a dental practice.
Secured business loan
If you have residential or commercial property that you are willing to offer as security for the business loan, lenders will tend to offer extremely favourable finance conditions, with loan terms of up to 25 years and finance for potentially 100% of the loan amount.
Unsecured business loan
If you do not have residential or commercial property to offer as security for the loan, you can consider applying for an unsecured business loan. If you're applying to start a new business, you will generally need to demonstrate industry experience or have the financials of an existing business to show as evidence to apply for one of these loans. For existing businesses, you will just need to attach your business accounting software to apply. You may find that the rates are higher than for a secured business loan but the loan amounts are lower, which could suit smaller business needs.
Business line of credit
Unlike a regular business loan, a line of credit gives you access to a certain amount of funds that can then be drawn against as you need them. You only pay interest on the amount you use, as opposed to the entire loan amount.
Frequently asked questions
How much experience do I need to run a dental practice?
Most lenders will require that you have current membership with the Australian Health Practitioner Regulation Agency (AHPRA). In addition, you should wait until you have at least two years' experience as a qualified dental practitioner before looking to start your own practice. Your business plan should set out how your experience will help you to manage the practical and financial aspects of running your own dental practice.
Do I need to bring my own patients to a new dental practice?
If purchasing an existing dental practice, ensure that you have clauses in the contract that cover the existing client base. In addition, include in your business plan the client base that you may already have from your previous dental experience.
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