Ask three startup dentists what their practice cost and you will get three numbers that are not comparable, because one included working capital, one did not, and one forgot the money they spent before the loan closed. The budget in this lesson has five parts, all of which have to be funded: pre-opening costs, buildout, equipment and technology, opening inventory and soft costs, and working capital.
The last one is where startups fail. Build it last, but never build it least.
What you will learn
- The five parts of a startup budget and a line-by-line worksheet for each.
- How to size working capital from a cash flow model rather than from a rule of thumb.
- How the common financing structures differ, including SBA 7(a) and 504 and the 2026 limit change.
- What lenders actually evaluate and the document package to have ready.
- Which loan terms matter more than the interest rate.
- How to build the month-by-month first-year projection your lender will ask for anyway.
Nothing here is financial, tax, or legal advice, and loan programs and terms change. Work with a CPA and an attorney who handle dental practices, and confirm current SBA program rules at sba.gov and with your lender.
Part one: pre-opening costs you pay before any loan funds
These come out of your pocket, usually months before closing, and they surprise people.
| Item | Notes |
|---|---|
| Entity formation and attorney fees | Entity setup, lease review, employment documents |
| CPA engagement and projections | Often required for the loan package |
| Architect test fits and preliminary design | Before you know whether a site works |
| Lease deposits and any rent during construction | Negotiate free rent during build, but assume you may pay some |
| Loan application and appraisal fees | Varies by lender and program |
| Licenses, registrations, and insurance binders | State license fees, DEA registration, business license, malpractice, business policies |
| Credentialing service or your own time | Starts long before opening |
Ask your lender early which of these can be reimbursed from loan proceeds at closing. Many can. Assume none will be until you have it in writing.
Part two: buildout
Construction is usually the largest single line and the one with the most variance. The buildout chapter covers cost per square foot ranges, where the money goes by trade, and how second-generation dental space differs from raw shell. Pull your own number from a real test fit and a contractor's preliminary budget, not from an article, because the range across markets and building conditions is wide enough that an average is useless for planning.
Budget these buildout-adjacent lines separately, because contractors often exclude them:
- Architectural and engineering fees, permit fees, and any plan review or radiation shielding review
- Cabinetry and millwork, if not in the construction contract
- Low voltage: network cabling, phones, security, access control
- Signage, including the permit, which can take longer than you expect
- Furniture for reception, consult, staff room, and offices
- A contingency of at least ten percent of construction, held separately and not spent on upgrades
The expensive mistake: treating the tenant improvement allowance as free money. A landlord funding allowance is usually recovered through rent over the term, is paid on a reimbursement schedule after work is complete, and may be conditioned on lien waivers and inspections. You will float the cost in the meantime. Model the timing, not just the amount. See lease terms that matter.
Part three: equipment and technology
Equipment is the line you have the most control over, because the new-versus-used decision is yours category by category. Our Buying Equipment for a New Practice course builds this budget in detail, and the operatory cost estimator and cost to equip an operatory give ranges to work from.
Two budgeting rules matter more than the individual prices. First, separate the equipment that must be new and installed by a dealer (anything under warranty you depend on daily, anything requiring certified installation) from the equipment where used is a reasonable risk. New versus used for new grads covers the tradeoffs by category. Second, budget the operatories you will actually use on opening day, and plumb and wire the rest for later. Building a fourth operatory you will not staff for three years costs money twice: once in construction and once in the loan payment on it.
Part four: opening inventory and soft costs
Lines people forget
- Initial clinical supplies and instruments, including enough instrument cassettes to run a full day between sterilization cycles
- Practice management software, imaging software, licenses, and implementation or conversion fees
- Server or cloud hosting, workstations, monitors, and backup (see dental office IT setup)
- Phone system and any call tracking (see phone systems and the front desk tech stack)
- Website, branding, signage design, and pre-opening marketing, which starts months before the doors open
- Uniforms, front desk supplies, office supplies, and break room basics
- Payroll before opening: your first hires start one to three weeks early for training
- Insurance premiums: malpractice, general liability, property, business interruption, workers compensation, cyber (see business insurance for dental practices)
- Membership dues, continuing education, and licensure renewals
- Bank account, merchant services setup, and payroll service onboarding
Part five: working capital, the line that decides everything
Working capital is not a percentage. It is the total cash shortfall the practice will run before collections exceed expenses, plus a buffer. The only way to size it is to model the ramp.
Build the ramp model
- Estimate new patients per month, starting low and climbing. Be conservative in months one through three, because marketing takes time to work and credentialing may not be complete.
- Estimate production per new patient in the first visit and over the following months as treatment gets scheduled.
- Add hygiene production once you have enough patients to fill hygiene days, which usually lags the doctor schedule.
- Convert production to collections with a lag. Patient portions collected at the visit come in immediately; insurance typically pays weeks later, and it pays nothing at all if credentialing is incomplete.
- List fixed monthly costs: rent and common area charges, loan payment, payroll and payroll taxes, insurance, software, utilities, phone, marketing, supplies, lab, accounting.
- Calculate monthly cash shortfall and the running cumulative total. The largest cumulative number is your minimum working capital. Then add a buffer.
Hypothetical example. A one-doctor startup opens with fixed and variable costs of about $38,000 a month including the loan payment but excluding owner draw. Collections come in at roughly $9,000 in month one, $16,000 in month two, $24,000 in month three, and keep climbing until they cross $38,000 in month nine. Adding up the monthly gaps across those nine months produces a cumulative shortfall well over $150,000 before the practice breaks even on cash. If the owner also needs $6,000 a month to live, and no other household income covers it, the requirement grows substantially. This is a made-up illustration, but the shape is typical: the cumulative gap is much larger than any single month's gap, and that total is what has to be funded.
Run the model three times: an expected case, a case where the ramp takes fifty percent longer, and a case where it takes twice as long. Borrow for at least the middle one. Dentists who borrow for the optimistic case spend year one managing a cash crisis instead of building a practice.
Credentialing is a cash flow item, not paperwork
If you intend to participate with PPO plans, every month you are not credentialed is a month of claims you cannot file in network or, depending on the plan, cannot file at all. Applications take time, effective dates are sometimes not retroactive, and the process starts with an NPI and a practice location you do not have until late in construction. Start as early as each payer allows and track every application. See the credentialing process and timeline, and decide your participation strategy alongside how to run PPO numbers and whether to take Medicaid.
The financing landscape
Most startup dentists use one primary lender and sometimes a second source for equipment. Compare structures, not just rates.
| Structure | Typically covers | Strengths | Watch for |
|---|---|---|---|
| Specialty practice lender (bank or nonbank lending to dentists) | Buildout, equipment, working capital, sometimes a living allowance | Understands dental startups, often finances the full project, faster underwriting | Prepayment terms, personal guarantee scope, covenants |
| SBA 7(a) | Buildout, equipment, working capital, and some soft costs | Longer terms and lower down payment than many conventional options; up to $5 million | Guaranty fees, more documentation, closing timelines, collateral and guarantee requirements |
| SBA 504 | Real estate and long-life equipment when you buy the building | Long fixed-rate financing on real property; up to $5 million | Not for working capital; requires eligible fixed assets and a structure with two loans |
| Equipment financing or leasing | Specific equipment | Can preserve the main loan for construction and working capital | Effective rates, end-of-lease terms, liens that complicate the main loan |
| Landlord tenant improvement allowance | Part of construction | Reduces borrowing | Reimbursement timing and recovery through rent |
On SBA programs specifically: the maximum individual 7(a) loan is $5 million and the maximum 504 loan is $5 million. As of July 2026 the SBA raised the cumulative limit for a borrower using both programs to $10 million, where previously the combined exposure was capped at $5 million. Eligibility, fees, and terms change, so confirm current rules with an SBA-preferred lender before you plan around them.
If you are also buying the building, read lease versus buy for a dental office before choosing a structure, because the financing question and the real estate question are decided together.
What lenders evaluate, and the document package
Underwriting a startup is underwriting you, because there is no practice yet. Expect scrutiny of five things: credit history, liquidity and net worth, your production history as a working dentist, the quality of the projections, and the market evidence for the site.
Loan package checklist
- Personal financial statement and two to three years of personal tax returns
- Credit report you have reviewed yourself for errors before they see it
- Current employment agreement or proof of income, plus your production history if you can obtain it
- Resume or CV, dental license, and DEA registration
- Business plan, including the market memo you wrote in Lesson 2
- Month-by-month first-year projection and a summary for years two and three, prepared with your CPA
- Itemized project budget: pre-opening, construction, equipment, soft costs, working capital
- Contractor's preliminary budget and the architect's test fit or plans
- Equipment quotes from the dealer or dealers
- Lease or letter of intent with the tenant improvement terms
- Student loan statements showing current balances and payments
Get quotes from more than one lender, and compare complete offers rather than headline rates. Ask each lender directly how much working capital they will fund, over how many months it is disbursed, and whether it includes any living allowance. The answer varies widely and matters more than a fraction of a point on the rate.
Loan terms that matter more than the rate
| Term | Why it matters | What to ask |
|---|---|---|
| Amortization period | Sets the monthly payment, which is a fixed cost during the ramp | What is the longest term available for this structure? |
| Interest-only or deferred principal period | Directly reduces cash burn in the months you have the least revenue | How many months of interest-only, and what is the payment before and after? |
| Fixed versus variable rate | A variable rate changes your fixed cost mid-ramp | If variable, what is the index, the margin, and any cap? |
| Fees | Guaranty fees, origination, and closing costs change the true cost | What is the all-in cost at closing, in dollars? |
| Prepayment penalty | Affects refinancing later, which many owners do | What is the penalty and how long does it last? |
| Personal guarantee and collateral | Determines what is at risk beyond the practice | Is a lien on the home required? Is a spouse's guarantee required? |
| Working capital disbursement | A lump sum and a monthly draw behave very differently | When is it available and on what schedule? |
| Covenants and reporting | Can restrict distributions or additional borrowing | What financial reporting is required and what ratios must be maintained? |
Have your attorney read the loan documents. The commitment letter is negotiable in more places than most first-time borrowers assume, particularly the interest-only period and the working capital schedule. The practice loan calculator lets you compare payments across terms.
Putting the budget together
Assemble one summary page with the five parts, a contingency, and the total. Then check three things against it.
- Does the projected mature debt service fit the projected mature collections? A common sanity check is to look at debt service as a share of collections at maturity alongside the rest of your overhead. Our overhead benchmarks guide shows where the other categories typically land, so you can see whether the loan payment leaves room for an owner income.
- Does working capital cover the pessimistic ramp? If not, either borrow more, cut the project, or extend your personal runway.
- Is there a contingency that is not already spoken for? Construction change orders and equipment surprises are normal. A contingency that gets spent on nicer cabinetry is not a contingency.
Read financing a practice startup and the first-year budget for a new dental practice alongside this lesson. Next, Lesson 4 covers buildout and the timeline, where the budget meets the calendar.
Try it
- Build the five-part budget worksheet. One spreadsheet tab per part, with a line for every item in this lesson and a source for every number (a quote, a contractor estimate, or a labeled assumption). Total it. Note which lines are quotes and which are guesses.
- Model the ramp three ways. Build twelve months of projected collections and fixed costs, then copy it twice: once with the ramp stretched by half, once with it doubled. Record the largest cumulative cash shortfall in each. That range is your working capital conversation with the lender.
- Get two lender conversations on the calendar. Ask each the same five questions: how much total will you lend on this project, how much of it is working capital, how long is the interest-only period, what is the all-in closing cost in dollars, and what collateral and guarantees are required. Write the answers side by side.
- Price the contingency honestly. Take ten percent of your construction number and set it aside as a separate line in the budget with a rule written next to it about what it may be spent on.
- Map the credentialing calendar. List every payer you intend to join, find each one's application lead time, and work backward from your target opening date. Mark any payer whose timeline means you would open without them, and decide now how that changes your first-year collections assumption.
Check yourself
1. Why is working capital sized from a cash flow model rather than a percentage of the project?
Because the amount you need is the cumulative gap between collections and expenses until the practice breaks even on cash, and that depends on your fixed costs and your ramp speed, not on what construction cost. Two practices with identical buildouts can need very different working capital if one ramps twice as fast.
2. Why can the tenant improvement allowance not simply be subtracted from the construction budget?
Because it is usually paid as reimbursement after work is complete and inspected, often conditioned on lien waivers, and it is typically recovered through rent over the lease term. You still have to fund the work while it is being done, so the timing of the allowance belongs in the cash flow model even when the amount is certain.
3. What are the current maximum SBA 7(a) and 504 loan amounts, and what changed in 2026?
The maximum individual 7(a) loan is $5 million and the maximum 504 loan is $5 million. In July 2026 the SBA doubled the cumulative limit for a borrower using both programs to $10 million. Program rules change, so confirm the current terms with an SBA-preferred lender.
4. Which loan term most directly reduces cash burn during the ramp?
An interest-only or deferred principal period, because it lowers the fixed monthly payment during exactly the months when collections are lowest. The length of that period and the size of the payment after it ends are both negotiable in many commitment letters.
5. Why is credentialing a budget item?
Because if you open before credentialing is complete, claims to those plans cannot be filed in network, and the collections in your projection do not arrive on schedule. The delay shows up as a larger cumulative cash shortfall, which means more working capital, so the credentialing calendar has to be built before the budget is finalized.
This guide is educational content and does not constitute legal, financial, tax, or clinical advice. Laws and regulations vary by state and change over time. Consult your own dental-specific attorney, CPA, and state dental board before acting.