If you have a growing dental practice, you're probably starting to think about small-business loans. On one hand, your waiting room is full of patients. On the other, you're starting to hear complaints about wait times. It isn't only the little kids who can bite you; success can, too.
So naturally, you're starting to think about buying more dental chairs and hiring more hygienists. But unfortunately hygienists won't work for free, dental equipment is expensive and those toothbrushes you hand out to every patient need to be paid for.
In other words, you may need to talk to somebody about small-business loans for your dental practice.
You wouldn't be alone. According to 2019 research from Dun & Bradstreet and Pepperdine Graziadio Business School, 33 percent of small and mid-sized businesses "reported raising or attempting to raise financing for growth or expansion in the past three months." (The research analyzed 592 completed responses between January 24 and February 4, 2019.)
But getting small-business loans or dental financing can take a lot of preparation—and your lenders may need some convincing first. Just as your patients need to brush their teeth and floss daily, in order to get a good report from you, you may have some work to do for awhile, too, to get high marks from lenders.
After all, lenders won't give out money to just any dental practice.
So if you're looking for financial strategies to help make your dental practice bigger and better than ever, you may want to consider these ideas.
1. Understand what type of loans are out there—and what your needs are.
Not every project needs a major loan—or maybe any small-business loans. But if your dental practice does need dental financing, there are a variety of loans you may want to try.
For instance, you may just need a conventional business loan, which tend to be smaller and might help with updating your waiting room or keeping you in toothbrushes for years to come. You may want a working capital loan, which can help with cash flow.(Generally, these loans have the lender paying your vendors, and then later, you pay the lender.) Or you may want a merchant financing loan, which are for the bigger projects.
Whatever you go with, starting or running a dental practice isn't cheap.
Nana Dickson, a dentist in Merrifield, Virginia and a spokesperson for Dentistry.com, started her practice in 2015. She needed $450,000 to get practice going: $75,000 of which was allocated for working capital, $250,000 for leasehold improvements and $125,000 was for equipment and supplies.
Since she didn't have $450,000 lying around, Dickson decided to take out a loan.
Remember, 'It's not what you make. It's what you keep.' The fewer people you owe money to, the better you financial outlook.
—Nana Dickson, dentist
“I leased a shell space with nothing in it. I planned for an office that would have six operatories knowing that we would not build them all out at once," Dickson says. “We started with two operatories that would be fully furnished and the other four would be plumbed, but not equipped.
"We had all of the essentials for a high-tech two-operatory office," she continues. "A typical operatory cost approximately $50,000 to fully furnish with chairs, computer equipment and cabinets. Over the next three years, we've built five out of the six operatories with plans to finish the last one this year."
It's a testament to how her dental practice has fared since she opened, and how small-business loans may be able to help your own practice.
“We won't be financing the last operatory but using cash on hand," she says.
2. Keep your business credit score in mind (and high).
Everybody's familiar with a personal credit score, such as a FICO score, where your credit score may range from 300 to 850.
But there's also a business credit score, with three major business credit bureaus—Dun & Bradstreet, Experian and Equifax—calculating a company's creditworthiness. Business scores tend to range from zero to 100.
“If your practice needs to be able to take out a line of credit or a loan to assist with loss of income due to unforeseen circumstances, a strong business credit profile can help," says Amber Colley, a senior vice president at Dun & Bradstreet.
As you would imagine, most of the work involved in getting a healthy business credit score simply involves paying your bills on time. But if you haven't been in business for long, and you're trying to look more attractive to lenders, Colley suggests asking your payees to submit trade references on your behalf to Dun & Bradstreet.
“You can also make sure your business information is complete and submit financial statements to help influence your credit scores," she says.
3. Make sure you have the right documentation for a loan.
And what sort of paperwork do you need for dental financing and small-business loans?
As you can imagine, plenty, especially if your dental practice is new.
“If you haven't been in business long, we would like to see cash-flow worksheets—standard for your accountant—as well as financial statements for each month," says Adam Marlowe, the principal experience officer for Georgia's Own Credit Union, a credit union in Atlanta.
“In addition, we would want to review your business tax returns if you have filed them."
As much as possible, Marlowe says, try to keep your personal financial life separate from your business life. In other words, it's better to not use a personal credit card for business expenses—and likewise, don't use a business credit card for personal use.
“[It] terribly complicates the financial reporting abilities," he says.
Meanwhile, Alex Shvarts, CTO of FundKite, a New York City-based fintech company, suggests having previous bank statements ready to show a lender.
That can vary by lender, of course, but plan on at least three or four months. To be prudent, you may want to collect a year's worth.
4. Have the right reasons for small-business loans.
If you need money, you need money, but lenders like to see that you're asking for a loan, so you can make more of the green stuff and not because you're trying to patch a hole in a leaky dinghy.
“We often see that dentists are in a need of capital. In general, dentistry profit margins are low and collections are slow. Therefore, there are gaps in working capital they need to fill," Shvarts says. “As with any business one should first review and analyze if they really need a loan. If it's for expansion, then it might be a good idea, but if it's to catch up on bills or payroll, one should also look carefully at the overall business model and see if it's sustainable."
If you've been diligent in doing your small-business loans research, you probably have nothing to worry about, according to Dickson.
“Loans for business professionals are very straightforward and easy. For the most part, banks throw money at you," she says.
But you'd do well to do the research that you need to do to get the right loan and find the right lenders, Dickson emphasizes.
"Practice owners should shop around to get the best interest rate and pay down the higher interest rate loans first. Although loans are easy to come by, it's imperative to keep your debt to income ratio low because at the end of the day, you don't want to be owing money at every turn," Dickson says.
"Remember," she says, "'It's not what you make. It's what you keep.' The fewer people you owe money to, the better you financial outlook."
In other words, lining up small-business loans for a dental practice is a little like brushing your teeth. If you put in the effort beforehand, you'll probably be pretty happy with the outcome. If you try to secure a dental loan carelessly, it may be as fun and expensive as getting a root canal.
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