Dental Practice Loans: How Financing Works

Few dentists pay cash for a practice. Whether you build or buy, the loan you choose shapes your monthly cash flow for a decade. This guide explains the main financing options, how lenders evaluate dentists, and the loan terms worth negotiating. It is general information, not a loan offer; terms change, so confirm current details with any lender.

Who Lends to Dentists

Lenders generally view established dentists as attractive borrowers, so several national banks and specialty lenders run dedicated healthcare lending groups. Local community banks in Northern Virginia also make practice loans, sometimes through SBA programs. The main categories:

• Conventional dental practice loans. Offered by healthcare lending divisions. Often finance a high share of project cost and may include deferred-payment periods for startups.
• SBA 7(a) loans. Made by private lenders with a partial SBA guarantee. Flexible uses: acquisition, build-out, equipment, working capital.
• SBA 504 loans. For buying or building real estate or long-lived equipment, structured as a bank loan plus a Certified Development Company loan.
• Equipment financing. From equipment vendors or finance companies, secured by the equipment itself.

SBA 7(a) Basics

According to the SBA’s lender guidance, standard 7(a) loans go up to $5 million. The SBA guarantees 85% of loans up to $150,000 and 75% above that. Maximum maturities are up to 25 years for real estate, up to 10 years for equipment (longer if the equipment’s useful life is longer) and generally 10 years or less for working capital. Variable rates are capped at a spread over a base rate that depends on loan size; for loans above $350,000 the cap is base plus 3.0%.

SBA rules also require an equity injection for startups and full changes of ownership. Under current SBA procedures that minimum is generally 10% of project cost, with limits on how much seller financing can count. SBA updated its procedures in 2025 and again in 2026, so ask your lender which version applies to your loan.

SBA 504 Basics

If you plan to buy a condo unit or building for your practice, a 504 loan may fit. The SBA describes 504 projects as typically financed with up to 50% from a private lender, up to 40% from a Certified Development Company (with loans from $25,000 up to $5.5 million) and at least 10% from the borrower, with fixed rates and 25-year terms for real estate.

How a Startup Loan Is Usually Structured

A common illustrative structure: a $750,000 startup loan, interest-only for the first 6 to 12 months, then fully amortizing over 10 years. At a hypothetical 8% rate, the full monthly payment would be roughly $9,100. Your cash-flow projection must show the practice can carry that payment when it starts. See dental practice cash flow.

Monthly Payments at Different Loan Sizes

This table shows what a 10-year fully amortizing loan costs each month at three hypothetical rates, plus the interest-only payment at 8%. Use it to check whether a quote is in the right range; your lender’s numbers will differ with fees and the exact rate.

Notice the jump when the interest-only period ends: on a $750,000 loan at 8%, the payment rises from $5,000 to about $9,100 a month. Total interest over the 10-year amortization at that rate is roughly $342,000, before fees. A longer amortization lowers the payment but raises total interest.

How Much Can You Borrow?

Lenders size practice loans around debt service coverage: the cash flow available to pay debt divided by the annual loan payments. Each lender sets its own minimum, and many want meaningful headroom above 1.0. For an acquisition, the calculation starts with the practice’s adjusted cash flow after paying a market salary for the dentistry you will do.

An illustrative example: a practice shows $250,000 a year of cash flow available for debt service. If a lender wants coverage of at least 1.25, annual payments can be up to $200,000, or about $16,700 a month. At 8% over 10 years, that payment supports a loan of roughly $1.37 million. If the lender wants 1.5 coverage instead, the ceiling drops to about $1.1 million. For a startup, lenders apply similar logic to your projections, which is why conservative assumptions and a strong working capital line matter.

Being approved for an amount is not a reason to borrow it. Size the loan to the plan, then check that your personal budget works with both the practice loan and your student loans.

Rates and Fees: What Drives the Cost

• Base rate and spread. SBA 7(a) variable rates are pegged to a base rate plus a spread, and the SBA caps the spread by loan size (base plus 3.0% for loans above $350,000). Conventional dental lenders price on their own terms, often with fixed-rate periods.
• Fixed vs. variable. A fixed rate protects your payment; a variable rate can start lower but will move with the market. Ask how long any fixed period lasts and how the rate resets.
• SBA guaranty fee. SBA charges an upfront fee on the guaranteed portion, which lenders usually pass to the borrower. For fiscal year 2026 loans above $700,000, SBA’s fee notice set it at 3.5% of the guaranteed portion up to $1 million plus 3.75% of any guaranteed portion above $1 million. On a $1,000,000 loan with a 75% guarantee, that is about $26,250. SBA publishes a new schedule each fiscal year, and fiscal year 2027 began October 1, 2026, so confirm the current figure with your lender.
• Lender fees. Origination, packaging, appraisal or valuation, and legal fees vary. Ask for all of them in the term sheet.

SBA Rule Changes Borrowers Should Know About

• Equity injection. Under SBA’s SOP 50 10 8, effective June 1, 2025, startups and complete changes of ownership generally need an equity injection of at least 10% of total project cost.
• Seller notes. A seller note generally counts toward that injection only if it is on full standby for the life of the SBA loan and covers no more than half of the required amount.
• Citizenship and residency. Since March 1, 2026, SBA requires that all direct and indirect owners of a 7(a) or 504 borrower be U.S. citizens or U.S. nationals with their principal residence in the United States. Lawful permanent residents are no longer eligible owners under the SBA programs.
• SOP 50 10 8.1. SBA folded these notices into a revised SOP effective October 1, 2026. Ask your lender which version governs your loan, since loans in process may straddle the change.

Conventional dental lenders are not bound by SBA program rules, so a borrower who does not fit SBA eligibility may still have options there.

What Lenders Look For

• Clinical track record. Years in practice and your production as an associate. Lenders often ask for associate production reports.
• Credit and personal finances. Credit score, student loan balances and repayment plan, personal debt-to-income.
• A credible business plan. For startups: a demographic study, a site, a construction estimate, an equipment quote and month-by-month projections. See our business plan guide.
• Historical cash flow. For acquisitions: tax returns and normalized earnings that cover debt service with room to spare.
• Equity. Cash or other assets you are putting in.
• Lease. A lease term, including options, that lasts at least as long as the loan is a common lender expectation.

Terms Worth Negotiating

1. Length of the deferral or interest-only period.
2. Fixed vs. variable rate, and for how long a fixed rate is locked.
3. Prepayment penalties if you sell or refinance early.
4. Origination, packaging and guarantee fees.
5. Personal guarantee scope and any requirement for a spouse to sign.
6. Life and disability insurance requirements, and whether you can assign existing policies.
7. Covenants: minimum cash, debt-service coverage, limits on further borrowing.

Common Financing Mistakes

• Borrowing to the maximum approved amount instead of the amount the plan needs.
• Skimping on working capital to keep the loan smaller, then running out of cash in month eight.
• Ignoring how student loan payments interact with practice debt in your personal budget. See student loan repayment options.
• Signing a lease before the loan is approved, or a loan before the lease is final.
• Comparing offers on rate alone without lining up fees, terms and covenants.

Documents to gather before you apply

• Two to three years of personal tax returns and a personal financial statement.
• Associate production reports or a letter from your current practice owner.
• Your dental license, DEA registration and malpractice history.
• A business plan with month-by-month projections (startup) or the seller’s tax returns and financials (acquisition).
• A signed or near-final lease or letter of intent for the space.
• Contractor budget estimate and equipment quotes, with a clear use-of-funds table.
• Student loan statements and your repayment plan.

Having these ready shortens underwriting and lets you request offers from several lenders at once. Ask each lender for a written term sheet so you can compare rate, fees, deferral period, prepayment terms, covenants and guarantees side by side, rather than relying on a phone conversation.

Tax Considerations

Interest on business debt is generally deductible, and equipment and improvements may qualify for accelerated depreciation. In an acquisition, how the purchase price is allocated between equipment, goodwill and a non-compete changes how fast you can deduct it. Federal limits changed in 2025 and Virginia does not follow every federal depreciation rule, so plan this with a dental CPA before closing. Our tax planning guide covers the basics.

Comparing Two Loan Offers

Rates get the attention, but the structure often matters more. Here is an illustrative comparison of two $750,000 offers:

Offer A has the lower rate, but full payments start six months sooner, when a startup is usually still ramping. Offer B costs more in interest over time but gives the practice an extra six months to grow into its payment, and its rate cannot reset. Which is better depends on your cash-flow projection. Put both into the same spreadsheet and compare cash on hand each month and total cost over the life of the loan.

One more planning point: personal guarantees are standard on practice loans, and lenders usually require you to keep life and disability coverage at least equal to the loan balance. Price those policies early, because underwriting for disability insurance can take weeks and the premiums belong in your personal budget.

Refinancing and Prepaying Later

Many owners refinance once the practice is established, to lower the rate, release a personal guarantee or consolidate equipment debt. Before you sign the first loan, read its prepayment terms. Conventional lenders may charge a declining prepayment penalty in the early years. SBA also charges a prepayment fee on 7(a) loans with maturities of 15 years or more if a large share of the balance is prepaid in the first three years, so ask your lender to show you the exact terms in writing.

Getting Ready to Apply

Lenders move faster when your package is complete: projections, quotes and a clear use of funds. Cisor Consulting helps dentists build lender-ready projections and compare loan offers line by line through our dental accounting and construction consulting services. Call (703) 345-0606.