Practice Acquisition Loans for Dentists: Process and Lenders

The Dental Practice Acquisition Roadmap

Dentists going through an acquisition must follow a clear process to lower risks and improve results. Each stage builds on the previous one, providing financial clarity and operational stability. Missing or hurrying through a step can result in unexpected costs or challenges later on.

The roadmap generally includes:

• Valuation. Establishing the worth of the dental practice based on cash flow, patient base, and goodwill.

• Due diligence. Reviewing financial records, liabilities, staff contracts, and operational health.

• Financing. Exploring loan types, repayment terms, and deal structuring options.

• Negotiation. Drafting a letter of intent and finalizing the purchase agreement.

• Closing and transition. Coordinating with the selling dentist, integrating staff, and maintaining patient retention for a seamless transfer.

Valuation: Determining the Worth of a Dental Practice

Valuing a dental practice correctly helps buyers avoid overpaying and ensures lenders can support the financing request. Financial performance is important, but non-financial factors such as demographics and goodwill also affect long-term success. A complete approach looks at both measurable cash flow and intangible value.

Key elements of valuation include:

• Cash flow and profitability. Review earnings before interest, taxes, depreciation, and amortization (EBITDA) to gauge financial health.

• Patient base and demographics. Evaluate the size, age, and insurance coverage of the existing dental practice's patients.

• Real estate, goodwill, and receivables. Factor in property value, brand reputation, and outstanding accounts receivable.

• Specialty and location. Consider how specialized services or practice location demographics affect long-term profitability.

The Due Diligence Process

Due diligence allows practice owners to confirm that the financials and operations of the practice match what has been presented. It reduces surprises after closing and protects against hidden risks that could undermine profitability. This step requires careful review of contracts, compliance, and day-to-day operations.

Important areas to evaluate are:

• Financial health and liabilities. Review tax returns, debt obligations, and ongoing financial commitments.

• Patient retention and non-compete agreements. Assess loyalty trends and verify any limits on the selling dentist's future practice activities.

• Insurance coverage and existing staff. Verify contracts with insurers and evaluate whether team members will remain post-sale.

• Office space and equipment. Inspect the practice's physical location, lease terms, and condition of dental technology.

Financing Options for Dental Practice Acquisitions

Loans vary in terms of borrowing limits, repayment schedules, and eligibility requirements, which means the best fit depends on both the dentist's financial profile and the practice's purchase price. Matching loans to long-term goals ensures that new practice owners can balance affordability with growth potential.

Dentists typically finance acquisitions through several common sources:

• SBA 7(a) loans for flexible use and higher borrowing limits.

• SBA 504 loans for lower fixed interest rates on property or equipment.

• Seller financing for reduced upfront costs and customized repayment terms.

• Conventional bank loans for competitive interest rates and faster approvals when credit is strong.

The following sections explain each financing option in detail and highlight which scenarios they serve best.

SBA 7(a) Loans

The SBA 7(a) loan is one of the most popular practice acquisition loans for dentists because of its high borrowing limits and broad eligibility. Dentists can use these loans for nearly any aspect of an acquisition, including the purchase price, working capital, or practice transitions.

• High borrowing limits. Loans can reach up to $5 million, making them ideal for acquiring large or multi-location practices.

• Flexible terms. Repayment terms of up to 10 years for working capital and 25 years for real estate help manage monthly payments.

• Broad use cases. Funds can be applied toward practice purchase costs, goodwill, or even practice renovations after acquisition.

SBA 504 Loans

An SBA 504 loan is best for acquisitions involving substantial real estate or large fixed assets. It is structured differently from the 7(a), with two lenders sharing the financing responsibility, typically a conventional lender paired with a Certified Development Company (CDC).

• Lower interest rates. The 504 often carries lower fixed interest rates compared to other practice acquisition loans.

• Real estate focus. Funds are designed primarily for property and equipment, rather than intangible assets like goodwill.

• Best use cases. Ideal for dentists purchasing practices with significant real estate holdings or building out new office space tied to the acquisition.

Seller Financing

Seller financing occurs when the selling dentist provides part of the purchase price as a loan to the buyer. This option reduces the amount of third-party financing needed and creates a more flexible structure.

• Lower upfront costs. Buyers often need a smaller cash down payment, making acquisitions more accessible.

• Flexible repayment. Terms can be negotiated directly in the purchase agreement, allowing for creative solutions that fit both parties' needs.

• Relationship-driven. Because the seller retains a financial stake, they may be more invested in helping the new owner succeed during the transition.

Conventional Bank Loans

Conventional bank loans are still a good choice for practice owners with strong credit and good financials. They may not provide the same guarantees as SBA programs, but they do offer quicker approvals and simpler processing.

• Faster approvals. Banks may process applications more quickly than SBA programs, especially for lower loan amounts.

• Competitive rates. Borrowers with strong credit scores and financial statements often qualify for some of the best available interest rates.

• Best use cases. Well-suited for dentists with established financial history who want straightforward financing without SBA requirements.

Top Lenders for Dental Practice Loans

Finding the right lender is just as important as selecting the right practice. While many banks and lenders provide small business financing, only a few specialize in supporting dental professionals. Here are several options with publicly available details.

Clarify Capital

Clarify Capital helps dentists access both SBA loans and alternative financing tailored to dental practice acquisitions.

• Typical credit score requirements: 640 or higher, though some alternative lenders accept scores as low as 575.

• Debt Service Coverage Ratio (DSCR): Varies; some lenders expect at least 1.20.

• Loan amounts: Up to $5 million for qualified borrowers.

• Time to fund: Varies by lender, but Clarify emphasizes fast online applications.

Commercial Real Estate Loans / Janover

This lender focuses on dental and medical office financing, especially for real estate.

• Typical minimum credit score: Around 660.

• DSCR requirement: Usually 1.30 or higher.

• Loan terms: Fixed-rate options available with amortizations up to 25-30 years.

• Time to fund: Not disclosed.

Capital Investors Direct

Capital Investors Direct works with dental and medical office loans, often structured as SBA 7(a) or 504 financing.

• Typical minimum credit score: About 660.

• DSCR requirement: Around 1.30.

• Rates: Described as "competitive," but not publicly listed.

• Time to fund: Not disclosed.

1st Source Bank

A traditional bank that offers dental and health care practice loans.

• Interest rates: Typically between 4% and 12%, depending on borrower profile.

• Credit score requirements: Not specified, but strong credit is needed.

• DSCR threshold: Not publicly disclosed.

• Funding timeline: Varies by loan size and borrower strength.

Why Clarify Capital Stands Out

Among these lenders, Clarify Capital offers the broadest set of financing solutions for dentists. With options for borrowers who may not meet strict traditional credit thresholds and a focus on simplifying the process, it is a flexible choice for practice acquisition loans for dentists.

Real-Life Acquisition Scenario

One example of a successful dental practice acquisition comes from a case study where a dentist purchased an existing dental practice, along with the building, for $925,000. With only 10% down and bank financing for the remainder, the buyer was able to secure both the practice and the real estate in one transaction.

In the first year, the practice generated nearly $980,000, and by the second year, revenue had grown to approximately $1.8 million, nearly doubling the initial performance. This deal shows how merging practice with property acquisition can lead to immediate patient flow and growth in equity over time. This results in a very profitable transition.

How To Prepare for a Practice Purchase: Step-by-Step Guide

A successful dental practice acquisition begins long before closing day. Preparation helps buyers secure financing, avoid costly delays, and enter ownership with confidence. By taking the right steps early, dentists can streamline the purchase process and position themselves for long-term success.

• Get lender pre-approval. Start by approaching lenders familiar with dental practice loans. Pre-approval gives clarity on how much financing is available and makes negotiations with the selling dentist more credible.

• Gather documentation. Lenders typically require at least two years of tax returns, a letter of intent, and a draft purchase agreement to evaluate the loan. Having these materials ready reduces processing delays.

• Consult with a CPA. A dental CPA can review financials, flag risks, and provide tax strategy advice that directly affects profitability after the acquisition.

• Plan integration financing. Beyond the purchase price, budget for staff retention programs, patient outreach, and practice upgrades to ensure a smooth transition into ownership.

Maximizing ROI: Illustrative Financing Scenarios

One of the most important decisions in buying a dental practice is determining how much to finance. The loan structure affects monthly cash flow, long-term profitability, and overall ROI. To illustrate, consider a $1 million purchase with two different financing scenarios:

• Scenario A: $800,000 loan. Higher leverage allows a dentist to preserve liquidity for working capital or renovations, but monthly payments are larger. Strong patient flow and efficient management are critical to covering debt service.

• Scenario B: $600,000 loan. Lower leverage reduces monthly payments, easing cash flow strain. However, the larger down payment requires more upfront capital, which may limit flexibility in post-acquisition investments.

Dentists who invest in patient flow improvements, such as expanding hygiene capacity, or adopt stronger practice management systems, often see quicker ROI. These upgrades help offset financing costs by boosting collections and increasing profitability.

Transition Tips for New Practice Owners

Closing a deal is just the start. The first six to 12 months after acquiring a practice are crucial for keeping patients, ensuring staff happiness, and creating a strong base for growth. Taking action early helps the acquisition lead to a successful practice.

• Maintain strong communication with team members. Meet with staff early and often to reassure them about continuity and share your vision for the practice.

• Retain existing patients. Send welcome letters, update patients in person, and maintain continuity of care to build trust.

• Nurture referrals. Strengthen relationships with other dental professionals to sustain and expand patient flow.

• Optimize practice management. Review scheduling, billing, and insurance processes to reduce inefficiencies and boost profitability in the new dental practice.

Key Rules and Formulas Every Dentist Should Know

Running a successful dental practice means applying proven business rules to guide decisions. These formulas help practice owners balance expenses, identify profitable patients, and maintain patient relationships over time.

• 80/20 rule (Pareto's principle). A well-known economic principle that states that 80% of the effects come from 20% of the causes. In other words, roughly 20% of patients generate 80% of profitability. Recognizing and nurturing this patient group ensures consistent cash flow and strengthens long-term success.

• Rule of 7. Patients typically need at least seven positive interactions with your business before they commit to long-term care. Applying this principle to marketing and outreach supports strong patient retention.

Why Buying a Dental Practice Is Worth It

Acquiring a dental practice offers advantages that startups can't match. A purchase delivers an immediate patient base, existing goodwill, and established staff, all of which shorten the time it takes to reach profitability. Unlike starting from scratch, a dental practice acquisition leverages an existing reputation in the community and creates a faster path to financial stability.

For new practice owners, goodwill and a loyal patient base are just as valuable as the equipment or real estate. Patients are already accustomed to visiting the office, referrals from other dental professionals continue uninterrupted, and the ADA recognizes the importance of continuity in care when practices transition.

Clarify Capital specializes in financing solutions that help dentists move from associates to practice owners with confidence. With flexible loan programs and experience supporting dental professionals, they make practice ownership more accessible. If you're ready to begin your acquisition journey, apply today with Clarify Capital.

FAQs About Dental Practice Acquisitions

Dentists considering ownership often have the same financial and operational questions. Here are clear answers to the most common concerns about financing and valuation.