Financing a Practice Startup: What First-Time Owners Should Know
Startups are financed differently from acquisitions, and the difference catches first-time owners off guard.
Buying an existing practice and building one from scratch are both financeable, but lenders view them differently. An acquisition comes with existing cash flow a lender can evaluate. A startup comes with a projection, which is a weaker thing to lend against.
Why dentistry gets favorable terms
Relative to most small businesses, dental practices have predictable revenue, strong demand, and comparatively low failure rates. Lenders know this, which is why dental-specific lending exists as its own category and why terms are generally better than a comparable loan in another industry. Your student debt, which feels like an obstacle, is normal and expected in this context.
What a startup actually costs
Startup financing typically has to cover more than equipment:
- Buildout, usually the largest single line, covering construction, plumbing, electrical, and finishes
- Equipment, new, used, or a mix
- Technology, including practice management software, imaging, and networking
- Initial supplies and instruments
- Marketing to generate patients before you open and through the first months
- Professional fees for attorney, CPA, architect, and consultants
- Working capital, discussed below
The number people get wrong
Working capital. A startup has no patients on day one and no accounts receivable. Meanwhile payroll runs, rent is due, supplies get ordered, and you have personal living expenses. Insurance credentialing can take months, and until it completes, revenue from insured patients is delayed even after you have seen them.
This means the gap between opening and reaching sustainable cash flow has to be funded. Underestimating this is the most common and most avoidable cause of serious trouble in a startup's first year. Build a realistic runway into the loan rather than planning to cover it personally and hoping.
Lender types
- Dental-specific lenders understand the model, often finance a high percentage of project cost, and move faster because they are not learning your industry from scratch.
- SBA loans can work well for startups, sometimes with lower down payment requirements, at the cost of more paperwork and a longer timeline.
- Conventional banks vary enormously depending on whether they have dental experience.
- Equipment financing can be separated out from the main loan, which sometimes improves overall terms and sometimes complicates them. Worth modeling both ways.
What lenders evaluate
Your credit history, your production history as an associate, your business plan and its assumptions, the demographics and competition of your chosen location, and increasingly, whether you have realistic expectations. A plan projecting rapid growth with no supporting reasoning is read as inexperience.
Before you talk to lenders
- Have a specific location or at least a specific market with supporting demographic analysis
- Have a real buildout estimate from someone who has built dental offices
- Have an equipment list with actual quotes rather than round numbers
- Have conservative revenue projections you can defend
- Have a dental-specific CPA involved before you are committed rather than after
If you are weighing startup against acquisition, our practice acquisition track covers the other side of that decision, and the real estate track covers site selection and buildout.
Educational content only, not financial advice. Loan terms, rates, and lending standards vary by lender, market, and borrower. Consult your own CPA, attorney, and lender before making financing decisions.