Proper selection of sources of funding is significant for dentists who are willing to establish, grow, or acquire a practice. Two common sources of funding used by dentists for dental practice financing to finance their businesses include Small Business Administration loans and regular bank loans. These types of loans have distinct characteristics with regard to application time, repayment process, qualifications required, and overall expense.
What Is SBA Dental Practice Financing?
SBA loans are loans supported by the government, aimed at aiding small businesses to get funding with less difficulty. The Small Business Administration (SBA) guarantees a portion of the loan, so lenders have less risk and are more likely to give loans to business owners with less experience. Besides, many dentists decide on SBA-based dental practice financing because it normally offers lower down payments and higher repayment periods. Besides, these loans may be utilized for practice purchase, office expansion, equipment buying, refinancing, and working capital. In particular, SBA finance is great for first-time practice owners without significant savings or an established financial track record.
What Is Traditional Dental Practice Financing?
Financing for dental practices through more conventional sources- such as banks, credit unions, and private lenders-is typically obtained directly from those sources and does not involve government involvement in the loan agreement. The majority of borrowers usually seek out these types of loans if they have good credit ratings and consistent incomes, as well as strong overall financial performance history. Lenders may provide competitive interest rates and offer pre-approval within shorter timeframes than other potential lenders under similar circumstances. Many lenders will also offer specific lending programs that are targeted to the healthcare industry (dentists’ and doctors’ offices). Some banks may provide dental office loans, which are loans that incorporate all of the costs associated with purchasing capital equipment as well as covering operating expenses in one loan transaction.
Interest Rates and Repayment Terms
There are many factors that distinguish between the two financing types, but interest rates and repayment terms represent important ones. Small Business Administration-financed dental practice financing usually comes at lower interest rates and longer repayment terms, even reaching up to 25 years. Long-term repayment will lead to lower monthly payments for growing dental practices. Traditional dental practice financing will involve different interest rates and repayment periods. Although monthly payments might be high, the total interest paid over time would be less. It is crucial for dentists to consider their total borrowing costs when choosing a lender.
Eligibility Requirements
On one hand, best SBA lenders tend to be more accommodating towards applicants who have very little or no experience in business ownership. On the other hand, granting a loan will require the submission of a lot of paperwork. Typical requirements include:
- Business plans
- Financial projections
- Tax returns
- Credit reports
- Revenue estimates
Conventional lenders usually ask for fewer documents, but the borrowers are expected to have good credit scores and low debts. If dentists decide to apply for a business loan, it will be helpful if they have well-kept financial records so that the chances of approval become higher and the processing can be done faster.
Timeline for Getting Approved and Need for Making a Down Payment
The downside to SBA dental practice financing is that they have a longer approval time because the loan is approved first by a lender, then the SBA, which can take many weeks before funding occurs. Normally, traditional financing has a much quicker process than SBA lending, and if you’re a very qualified buyer, you could receive funding from a lender in a matter of days, while SBA loans will usually require you to have lower down payments, which makes them ideal for new practice owners. In addition, the amount of the down payment that traditional lenders will ask for will vary depending on the credit determination for the borrowing dentist. Dentists must carefully read the loan’s terms and conditions before signing for any dental loan in order to understand the amount of required loan repayments, fees, and how much collateral will be required to secure the loan.
Advantages and Disadvantages
Advantages of SBA Financing
- Low down payments
- Longer payment periods
- Looser qualifications
Disadvantages of SBA Financing
- Slow approval times
- Increased paperwork
Advantages of Traditional Financing
- Faster money receipt
- Less complicated paperwork
Disadvantages of Traditional Financing
- Tighter qualifications
- Higher down payments in certain cases
Conclusion
Depending on the capabilities of the dentists regarding finance, experience, and their need for funding, the best source of capital for their practices will vary. For instance, SBA loans would be the perfect source for new business owners, given that they provide flexible payment plans and lower start-up expenses. However, traditional loans would be the ideal source for individuals who would prefer easy approval processes. Scrutinizing factors such as interest rates, payment periods, and requirements from lenders can go a long way in securing financing for dentists.
