Updated
Dental practice financing should connect the purchase or expansion budget with collections the business can sustain after the change. Jaken Finance Group arranges conventional bank and SBA reviews through a bank relationship. Qualified bank-arranged requests can reach $12 million; the program and actual amount depend on the practice, borrower and proposed use.
A practice purchase, associate buy-in, equipment replacement and building acquisition have different cash requirements. Identify the transaction before assuming a down payment or a repayment term. The bank must confirm the acceptable uses and conditions for the particular file.
Request a dental practice financing review with location, requested amount, buyer experience, operating history and whether the premises are owned or leased. The bank and SBA overview explains the broader offering.
Separate the business, equipment and building
A practice’s price can reflect equipment, patient relationships, goodwill, furnishings and other business assets. A building may be part of the transaction or a separate purchase. The buyer also needs to fund closing costs and the transition period.
| Financing purpose | Records to prepare | Question to resolve |
|---|---|---|
| Practice acquisition | Proposed agreement, allocation and historical financial records | What earnings remain after the seller’s departure? |
| Associate or partner buy-in | Ownership terms, valuation and distributions | What debt and compensation will the buyer and practice carry? |
| Equipment or renovation | Quotes, installation plan and interruption budget | How much spending occurs before added revenue arrives? |
| Additional location | Operating plan, staffing and ramp-up assumptions | Can existing operations carry the startup period? |
| Practice plus real estate | Separate property price, use, occupancy and business records | Which financing structure fits both uses? |
Review the proposed price allocation with your tax and legal advisors. The IRS Form 8594 overview describes asset-acquisition reporting. Tax allocation, business valuation and the lender’s collateral analysis are separate tasks.
Conventional bank and SBA paths
Compare conventional bank financing with the applicable SBA option on the same transaction. Show the proposed amount, contribution, fees, payment schedule, maturity, collateral and guarantees. Confirm minimum size, geography and operating-history requirements with the lender.
The SBA 7(a) program includes eligible ownership changes and other business uses, subject to its rules. Its limit is separate from the bank-arranged channel. The existing SBA medical and dental practice guide covers that program-focused discussion.
A property component may warrant review under owner-occupied commercial financing or an eligible fixed-asset structure. Do not assume that a practice’s working capital or goodwill fits a property-only loan. Ask for the proposed uses in writing.
Reconcile production with collected cash
Request production and collection reports over consistent periods. Identify contractual adjustments, write-offs, refunds and amounts that remain unpaid. Compare the reports with financial statements, returns and bank activity requested for underwriting.
Review aging and subsequent collections. A large receivable balance is less useful if old accounts do not produce cash. Separate cash received for prior work from current-period performance so a one-time collection does not look like recurring growth.
Look at payer and procedure concentration, days open, provider schedules and whether the seller works unusual hours. A buyer planning fewer clinical hours may not reproduce the same revenue. Explain the operating schedule that supports the projection.
Normalize provider compensation and operating costs
List the clinical and management work done by the seller. If the buyer will perform that work, model a realistic compensation and personal cash plan. If an associate or manager will replace the seller, budget the replacement cost.
Review staff wages, benefits, lab costs, supplies, software, occupancy and equipment maintenance. Explain any claimed nonrecurring expense. A cost that must recur under the new owner is not available to repay acquisition debt just because the seller labels it an add-back.
The lender chooses the accepted cash-flow measure and adjustments. Keep recurring equipment replacement and changes in staffing visible. A ratio based on earnings before necessary reinvestment can overstate cash the buyer can actually distribute.
Worked illustration: a practice acquisition
The following is an invented planning example. It assumes no existing practice debt survives closing. Loan terms, cash contribution and accepted cash flow are assumptions, not an offer or a published equity requirement.
| Project uses | Amount |
|---|---|
| Practice purchase | $2,400,000 |
| Transaction and report costs | $100,000 |
| Starting working capital | $200,000 |
| Immediate equipment and buildout | $300,000 |
| Total uses | $3,000,000 |
Proposed sources are a $2,100,000 bank loan, a $300,000 seller note and $600,000 of buyer equity. The totals reconcile at $3,000,000. Seller debt must be accepted by the lender and documented consistently with the selected structure.
Assume annual cash available for debt service is $500,000 after accepted operating adjustments and provider compensation. At an assumed 8.5% fixed rate with ten-year monthly amortization, the bank loan requires about $312,444 annually. An assumed 8% interest-only seller note adds $24,000, producing total annual payments of $336,444.
Illustrated coverage is $500,000 divided by $336,444, or about 1.49×. If cash available falls to $400,000, coverage becomes about 1.19×. The figures do not establish a lender’s required ratio or guarantee proceeds. The seller note also has a $300,000 principal balance that needs a repayment plan at its maturity.
Stress collections and the provider transition
Run lower collections, a slower seller transition, a delayed associate hire and higher staff costs as separate scenarios. Then combine a reasonable downside case. Record the effect on monthly liquidity as well as annual coverage.
Use aggregate collection information in the financing model. Patient-level records are unnecessary for an initial inquiry. Follow the practice’s professional and privacy advice when handling any confidential records during diligence.
Document transition services and the buyer’s plan for scheduling, staffing and patient communications. Confirm with the appropriate advisors how licenses, professional ownership rules, payer arrangements and credentials affect the actual transaction. A purchase contract cannot substitute for those operating requirements.
Inspect equipment and occupancy obligations
List equipment that is owned, leased or subject to liens. Review condition, maintenance history, installation requirements, service contracts and immediate replacements. A quoted chair or imaging-system price may exclude installation, training or necessary building work.
If premises are leased, review assignment, term, renewals, rent changes and landlord consent. If the building is purchased, prepare its separate valuation and property review. Show how rent or ownership expenses change the practice’s cash flow after closing.
For renovations, include downtime and temporary operating costs. A budget that funds construction but omits lost collections can leave the practice short of payroll before the new rooms open.
Build a monthly transition budget
Start with available cash at closing. Add expected collections and subtract payroll, supplies, occupancy, debt payments, owner compensation and required project spending. Identify the lowest balance before the practice settles into the buyer’s operating plan.
Keep starting working capital separate from project contingency and lender-required reserves. Some balances may overlap only if the lender agrees the same funds can serve both purposes. State the assumptions instead of adding or subtracting the same dollars twice.
An approved operating line has its own availability and repayment conditions. Do not count the entire limit as permanent buyer equity. The acquisition needs a sustainable repayment source after the initial cash is spent.
Prepare the review package and compare written terms
Bring the proposed agreement, ownership structure, buyer resume, financial statements and returns requested by underwriting. Add production and collection summaries, aging, payroll, payer mix, equipment records, occupancy documents and the seller-transition plan. The business acquisition checklist organizes those records.
Ask for an itemized proposal covering approved uses, amount, contribution, fees, payment basis, maturity, guarantees, collateral and remaining closing conditions. For a practice and building purchase, reconcile both facilities and all recurring payments before evaluating coverage.
Read the conventional versus SBA acquisition comparison or submit your dental practice request. Call (833) 264-7776 to discuss the business and any accompanying property. Conventional bank and SBA options are arranged through a bank relationship. Program, industry, use, geography and borrower eligibility are reviewed for each request. SBA program limits apply separately.