How to Get a Business Loan to Buy a Dental Practice

Securing a business loan to buy a dental practice is an important task for Australian dentists looking to advance their careers and financial security. Purchasing an existing dental practice can be a great way to lower risk while acquiring an existing customer base, however navigating the business loan process can be somewhat complicated. To help simplify the process, let’s break down the essential steps involved in buying an existing dental practice.

The Dental Practice Loan Market

Before we get into the loan process it’s important to understand the state of dental practice finance. Lenders know that dental practices are stable and profitable businesses so they are attractive investments.

However the costs of buying a practice require careful financial planning and an understanding of the loan options.

Loans for Dental Practice Purchases in Australia

When it comes to financing a dental practice purchase in Australia there are several options:

1. Bank Business Loans: Major Australian banks offer business loans for healthcare professionals including dentists. These loans have competitive rates and terms for practice purchases.

2. Equipment Finance: If you need to upgrade equipment in the practice equipment finance loans are a good option. These loans use the equipment as security and can have lower interest rates.

3. Commercial Property Loans: If you’re buying the practice and the property it’s housed in a commercial property loan may be suitable. These have longer terms than standard business loans.

4. Specialist Medical and Dental Lenders: There are lenders in Australia that only lend to the healthcare sector. They often have a deep understanding of the dental industry and may have more flexible terms or higher lending limits.

5. Practice Purchase Loans: Some lenders offer specific “practice purchase” loans for buying into or taking over an existing dental practice. These often have features tailored to the needs of dental professionals.

Each of these loan types has its pros and cons. The right one for you will depend on your situation, the practice you’re buying and your long term business goals. It’s recommended you speak with a business finance broker with experience in the dental industry to work out the best option for you.

How to Get a Business Loan for a Dental Practice

1. Review Your Financial Position

Before you approach lenders review your current financial situation – things like:

• Personal credit score

• Savings and assets

• Existing debts and liabilities

• Income history

Presenting a strong financial position will increase your chances of loan approval and better loan terms. Our team at Smart Business Plans can help you understand what’s needed.

2. Create a Business Plan

A business plan is essential for the loan application. Include:

• Executive summary

• Practice overview and history

• Market analysis

• Services offered

• Marketing strategy

• Financial projections (3-5 years)

• Management team and staffing plan

Highlight any unique selling points or growth opportunities for the practice you’re buying. We can create your business plan for you as part of your business loan application process.

3. Collect Documents

• Personal and business tax returns (3 years)

• Financials of the practice you’re buying

• Proof of dental qualifications and registrations

• Business registration documents

• Lease agreements or commercial property information

• Equipment list and valuations

• Patient records and demographics (ensuring privacy compliance)

4. Determine How Much Do You Need to Borrow

Calculate the total amount required:

• Practice purchase price

• Working capital for start up

• Renovations or equipment upgrades

• Legal and professional fees

Estimate the costs and loan amount for buying a dental practice in Australia using this calculator:

5. Research Lenders

Look into:

• Traditional banks

• Specialist medical and dental lenders

• Private investors or dental specific investment firms

Each option has pros and cons with interest rates, terms and approval processes. As business finance brokers we can help you quickly see the different lending options available, and potentially get you better terms or rates using.

Book an appointment today with our business loan brokers to see how we can help.

6. Prepare for the Valuation

Lenders will require a professional valuation of the practice. This may include:

• Financial performance assessment

• Patient base analysis

• Equipment and technology evaluation

• Location and market potential review

Be prepared to supply necessary information for the valuation.

7. Apply for a Business Loan to Buy a Dental Practice

Complete the application process by:

• Filling out the application form

• Business plan

• Financial documents

• Valuation report

• Personal guarantee (if required)

8. Review and Negotiate the Terms

Once approved review the loan offer carefully:

• Interest rate and repayment schedule

• Loan term

• Fees and charges

• Prepayment options

• Collateral requirements

Don’t be afraid to negotiate or look elsewhere for a better offer.

9. Due Diligence

Before you sign:

• Go through the practice’s financials in detail

• Check patient retention rates and demographics

• Inspect equipment and technology

• Check for any outstanding legal issues or liabilities

• Review all contracts and agreements

10. Sign and Buy

Work with our business finance brokers to:

• Finalise loan documents

• Complete the practice purchase agreement

• Transfer the necessary licenses and registrations

• Update the insurance policies

You’ll also want your lawyer and accountant involved.

Dental Practice Business Loan Considerations

Cash Flow

Lenders will scrutinise the practice’s cash flow to ensure it can service the loan repayments. Be prepared to show how you will maintain or improve the practice’s financial performance. We can prepare a cash flow forecast for you to make this easy.

Equipment and Technology

Modern dental practices require significant investment in technology. Does the practice you’re buying need upgrades to stay competitive? This may impact the loan amount and the practice’s valuation.

Location and Demographics

Assess the practice’s location in terms of competition, population growth and economic factors. A practice in a growth area may command a premium but could be better long term.

Practice Transition

How will you manage the transition from the selling dentist? A smooth transition will help retain the existing patient base and maintain cash flow.

Getting started

Buying a dental practice with a business loan requires planning, preparation and a clear understanding of your financial goals. Follow these steps and consider the dental practice loan specificities and you’ll increase your chances of getting the funds to buy an established practice and set yourself up for success in the dental industry.

Each lender and practice purchase is different. Working with a business finance broker like our team here at Smart Business Plans can help you make informed decisions throughout the process.

With the right approach and preparation you can get the financing you need to take the next step in your dental career and own a practice.

FAQs

To help you with the process of getting a business loan for a dental practice here are some answers to frequently asked questions:

How much deposit do I need for a dental practice business loan in Australia?

The deposit required for a dental practice loan can vary depending on the lender and the specific circumstances of the purchase. Typically you’ll need a deposit of 10% to 30% of the practice’s purchase price. Some lenders who specialise in dental practice finance may offer better terms and require lower deposits for well qualified applicants with strong financials and dental industry experience.

What’s the best business structure for a dentist?

It depends on individual circumstances but common options are:

1. Sole trader: Easy to set up but no personal asset protection.

2. Partnership: For multiple dentists working together.

3. Company: Personal asset protection and potential tax benefits.

4. Trust: Asset protection and tax planning opportunities.

Many dentists choose a company structure or a combination of company and trust structures for tax efficiency and asset protection. It’s recommended to consult with a dental specific accountant or financial advisor to determine the best structure for you.

What’s the most profitable dental service?

Profitability varies depending on location, patient demographics and practitioner expertise. However some of the most profitable dental services are:

1. Cosmetic dentistry (e.g. veneers, teeth whitening)

2. Orthodontics (especially clear aligner treatments)

3. Dental implants

4. Full mouth rehabilitation

5. Sleep dentistry

These services command higher fees and have lower material costs but may require additional training or equipment investment.

How much does it cost to open a dental clinic in Australia?

The cost to open a new dental clinic in Australia varies a lot, but could be between $500,000 to over $1 million. This could include:

• Leasehold improvements: $200,000 – 400,000

• Dental equipment: $150,000 – 300,000

• IT systems: $20,000 – 50,000

• Initial marketing: $10,000 – 30,000

• Working capital: A$100,000 – 200,000

Costs can vary greatly depending on location, size and technology. Buying an existing practice may be cheaper initially but could require additional investment for upgrades or rebranding.

What’s a good profit margin for a dental office?

A good profit margin for a dental practice is 15% to 25% of total revenue. However this can vary depending on:

• Practice location and competition

• Service mix (general vs. specialist treatments)

• Operational efficiency

• Staff costs

• Equipment and technology investment

Newly acquired practices may have lower initial margins, with margins improving as you implement efficiencies and the patient base grows.

How do I increase revenue in my dental practice?

To boost revenue in your dental practice:

1. Add services: Introduce high margin services like implants or clear aligners.

2. Recall system: Encourage regular check-ups and preventive care.

3. Marketing: Use digital marketing and local SEO to attract new patients.

4. Scheduling: Minimise gaps and no shows.

5. Staff training: Improve treatment acceptance rates and patient communication.

6. Technology: Invest in CAD/CAM systems for same day restorations.

7. Payment options: Offer payment plans or partner with third party financiers.

8. Patient experience: Positive experiences lead to referrals and retention.

About the Author

Nadine Connell is a highly experience business loan broker and business planner, with more than 14 years experience securing small business loans. She has assisted many medical professionals, including dentists, secure financing for practice purchases.