Financing

Financing the acquisition of an existing dental practice

The price is one number in the transaction. What the purchase actually requires in cash, and what the practice produces after debt service, are the numbers that decide whether it works.

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The price is not the total uses of funds

A $900,000 practice is not a $900,000 transaction. The purchase needs the price, plus the expenses of doing the deal, plus whatever the practice needs to keep running from the day you own it. Set out as uses of funds, a realistic picture looks more like this:

Purchase price for the practice itself, excluding any property.
Transaction expenses: your lawyer, your accountant, a valuation if you commission one, lender and SBA fees, escrow and filing costs. These are real cash and they are frequently underestimated.
Initial improvements and equipment: whatever you have decided must change in the first months, a piece of equipment at the end of its life, software, signage, a room that needs work.
A working capital reserve: cash to run the practice through the transition while collections catch up with the payroll you are now responsible for.

Total uses less the loan is the cash you personally need. Nothing about that arithmetic is controversial, and it is where most purchase plans first go wrong.

The reserve is the item people cut first

A reserve is not a contingency you can economise on. Ownership changes hands on a Friday and payroll arrives regardless; the seller's pre-closing receivables usually belong to the seller; some patients wait to see whether they like you; some team members leave. A cushion sized from a few months of actual cash outgoings is a rough figure, not a forecast, but having a rough figure is much better than having none, and a lender will ask what it is.

The reserve is a use of cash at closing. It is not an additional annual operating expense, and counting it twice makes a workable purchase look impossible.

Two separate reviews are happening

A lender reviews you: credit history, experience, production history, personal financial statement, personal debt, and often your household cash flow. It separately reviews the practice: collections history, payer mix, provider-level production, the lease, the equipment, the accounts and the tax returns.

These can reach different conclusions. A strong borrower can be declined on a weak practice, and a strong practice can be declined on a weak borrower profile. When something goes wrong late in a process, it is worth knowing which of the two reviews raised it, because the fix is completely different.

A conversation is not a commitment

An early conversation with a lender is not an approval, even an encouraging one, even one that quotes a rate. Between there and funded money sit credit approval, a valuation or appraisal the lender accepts, landlord consent to assign the lease, licensing in the state, insurance, entity formation, and a set of closing conditions that each have to be satisfied.

Ask specifically what remains outstanding and who is responsible for each item. “We are just waiting on a couple of things” is not a schedule. Knowing which questions are still open is the difference between a timeline and a hope.

Work out the numbers before the conversation

Model total uses, buyer cash, coverage and what is left after debt service in the acquisition calculator. Test what the practice earns once owner pay is treated as pay in the valuation calculator. Then compare the financing structures you are offered in the loan calculator. If the building is part of the transaction, the practice real estate page covers what changes.

Run the numbers first

Dental practice loan calculator

What would this loan cost, and how does it compare with another structure?

Scheduled payments, amortization, balloon balances, interest through maturity and up to three side-by-side scenarios.
Dental practice acquisition calculator

How much cash would this acquisition require, and what remains after debt service?

Uses of funds, buyer cash, owner pay treated as pay, debt coverage, cash-on-cash and downside collections cases.
Dental practice valuation calculator

What does this practice earn once owner pay is normalized, and what do multiples imply?

A normalized-earnings bridge, then separate earnings-based and collections-based value scenarios that are never averaged together.

What to ask a lender

Take these into the first conversation. A lender that answers them plainly is telling you something useful; one that will not is also telling you something useful.

What percentage of the purchase price will you advance, and what else will you finance, transaction expenses, working capital, initial equipment?
Is this conventional or SBA financing, and what does that change about fees, guarantees, timeline and the documents required?
What cash will I need at closing that the loan will not cover?
How do you calculate cash flow coverage for this practice, what do you add back, and what coverage do you require?
Will you review my personal income, personal debt and living costs as part of a global cash flow test?
What is the rate, is it fixed or variable, what is the amortization, and is there a balloon before amortization ends?
What is the prepayment penalty, and on what schedule does it fall away?
Who must guarantee this personally, and for how long does the guarantee survive a later sale?
What collateral do you take, and will you require a life insurance assignment?
What conditions remain before funding, appraisal or valuation, landlord consent to the lease assignment, licensing, insurance, environmental review?
What is your realistic timeline from application to funding for a practice like this one?
What would make you decline this specific practice, rather than this specific borrower?

These are questions to ask, not a set of criteria this site evaluates. Nothing here is a credit assessment or an indication of what any lender will do.