Obtaining Loans for Purchasing or Expansion

When a prospective purchaser of a dental office or a dentist wishing to expand his or her practice or open a second site, the first thing that is essential to gain control of is how it will be financed. It is important to present an informational package and business plan to the loan officer of the bank or whatever entity provides the financing.

The business plan for the expansion or new practice should be professionally done, and will go a long way towards convincing the loan officer you visit. It should be complete with an introduction and request for funds, a resume and business history, a strategic practice plan, balance sheets, both for prior businesses or the present practice and prospective balance sheets, five years of practice and personal income tax returns, a personal financial statement, a list of possible collateral, a list of references and assets you intend to purchase to get the practice going (like dental equipment and supplies).

The strategic practice plan is the most important part of the package, since it shows that much thought has gone into planning for the viability of the practice for several years to come.   A mission statement for the practice with general objectives is a good introduction to this plan. Summarizing the detailed financial analysis to follow can be done as a part of this first section of the plan.

The entity structure and how the practice will be managed is also necessary to include as a separate part of the practice plan. For instance, how much of the management of the practice will be undertaken by the clinical dentists involved, and how much will be done by a business or office manager?   The dentists can be involved as much or as little as desired, but there are management requirements of various laws having to do with privacy, infection control, and employment that either an employee designated as the manager or the owner must take responsibility for.   How does the entity chosen (S corporation, LLC, LLP or corporation) cover potential liability issues?   The loan officer needs to know answers to these questions.

How many ]and which types of employees will be working for the practice need to be included within the strategic practice plan, along with their proposed salaries and job descriptions.   Salaries are often a big part of the operating costs of the practice, and the loan officer will want to see how much the labor will cost as well as how much the dentist-owner is expecting to pay himself or herself in the first year, second year, third year, etc. of the new or expanded practice.

Real estate issues should be resolved before submitting any practice plan, including costs of rent or mortgage, taxes, and other aspects of this significant part of the budget. The practice plan should indicate how the location was chosen and why, depending on how patients will be attracted to the practice and what kinds of patients are being sought. The marketing plan should be well laid out, with consideration being given to the present patient base as well how much and how quickly the patient base will be expanded to meet revenue needs.   Will there be advertising or will the practice rely on word of mouth for new patients?

Prospective yearly balance sheets are one of the most essential components of the strategic practice plan to be presented to a loan officer, for then the officer can see how realistic the plan to repay the loans with future revenues is. Operating costs and revenues should be forecast for about three to five years. Will the initial cash flow need to be financed and for how long before the revenue stream is established are questions to be answered.

The collateral the owner is expecting to provide the bank for its loan must be a part of the informational package. Some banks will provide capital based on security in the dental practice assets alone, while others need to have personal collateral securing the loan, or a certain amount of upfront cash may be requested as well.


Purchasing or expanding a dental practice is an expensive proposition, but financing is most often achieved with a thorough and professional presentation of realistic objectives of the practice based on sound financial analysis in a strategic practice plan.