How to finance a new dental practice

If you're thinking about opening a new dental practice, one of the first steps to consider is how your venture will be financed. Capital is essential for any start-up business and if you're an aspiring owner-practitioner, you'll no doubt have big plans for your clinic that will require some backing.

In this article we've covered what you need to know about securing money for your new practice to help simplify the process. While the upfront costs can seem unattainable, there is financial support available and the returns can more than outweigh the initial investments.

Dental practice for sale nz

Start with a plan

As the key decision maker, it's important that your first step is to develop a business plan that clearly outlines what you want to achieve, how you will get there and in what timeframe. This will help you understand and define the solution that will work best. You should also analyse the current market and consider how your practice will fit in. For example, where is a suitable location? What dental care will you specialise in? How big will your team be?

As this plan can be used when pitching to potential investors, you'll also want to include your set up costs, growth strategy, ideas for maintaining your cash flow and expected returns. The cost of setting up a dental practice from scratch can range anywhere between $150,000 to $550,000, which covers the design, fitout and equipment. Important factors such as the location and size of your practice will make a substantial difference to the overall set up cost.

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Financing options

There are plenty of different paths available for covering the costs of getting your new venture off the ground, which have been outlined below. The best option will depend on your personal goals, financial circumstances and business plans.

Personal funding

Starting close to home is always a good idea when it comes to financing. Utilising any personal savings that you have can help to minimise borrowing costs and shows other potential investors that you back yourself. The set-up costs of dental clinics can be high, therefore it typically isn't feasible to cover the whole amount yourself, especially if you're at the beginning of your career. However, using any savings you have access to can give you a solid head start on your journey!

You may also be able to bring on friends or family members as investors, however it's important that this is managed professionally to keep relationships intact. Initial investments in dental clinics can usually be recouped within 2-3 years.

Business loans

Obtaining finances can prove difficult for many new businesses due to the unknown market potential, however dental clinics are commonly known as being a low-risk and reliable investment. As dental care is deemed a necessity for many households, it is often protected from decreases in disposable income that may impact other industries.

However this doesn't necessarily mean that it's all smooth sailing. When applying for a business loan, you will need to do your homework and prove to lenders that your new practice is worth backing. The business plan will help outline the amount of money you require for each area of your new business, your goals, how you're going to spend the loan, and how you plan to meet your repayments.

When starting a business from scratch, bank lenders will need information about you including your credit history and may also require security for the loan, such as personal property. Usually still having a student loan is not a barrier to getting approved, however having excessive debt outside of this may impact your chances. While bank lenders are assessing you, it's also important to look carefully at them too. You should choose a lender with the best interest rates, rather than the one who is willing to offer you the most money.

Building a dental practice

Dental loans

There are financing options available specifically for dental fitouts and equipment. These are available for those registered with the Dental Council, including first-time borrowers. This can alleviate the requirement for personal investment and risk, with less upfront capital required.

DLL is a financial solutions provider that offers this option and is recommended by Dentec. They are able to provide credit limits of $500,000 for the utilisation of capital equipment where there is a registered medical professional noted as a director of the borrowing entity. These loan terms are typically up to 5 years, however this is subject to approval and credit checks and may differ depending on the equipment and supplier that are chosen.

Dental loans can include a 6-month repayment holiday upfront, which gives you time to establish the business and build up the patient base. This means your business's income can cover the loan repayment costs once it's operational. There are also flexible payment structures available, including deferral, skip, progress and step payments.

Along with operating and capital leases, they also offer bundled solutions (equipment, consumables, service and insurance payments), and more specific solutions, including software-only financing, inventory/consumable financing or Managed Equipment Services (MES).

Leasing equipment

Innovation is fast in the dental industry and there is an expectation for practices to use advanced technology and equipment to stay competitive and provide quality services. This not only ensures a great patient experience, but the ergonomics can also make the practice more efficient and improve staff wellbeing.

While equipment is a great long-term investment, it can also add to the financial load of those starting out. From the operating lights to your air compressors, dental equipment comes with a substantial cost. To reduce these initial expenses, you may like to consider leasing your equipment until some capital is freed up or choose a lease-to-own option.

Other considerations

Property Investment

Depending on the location of your new dental practice and financial circumstances, some owners will opt to buy or build a new property to operate their business out of, while others will prefer the lower upfront cost option of renting a premise. Purchasing the land or premise will be a longer term investment opportunity and result in a different property loan to be negotiated.

Buying an existing practice

As an alternative option from starting a new dental practice from scratch, you may want to consider purchasing an existing one. While this can have a more expensive initial cost, it has an established client base which means consistent cash flow from your first day. While you'll likely still need a loan to cover the upfront costs, you will also be able to review the profit and loss statements before taking over to see how the business has previously been performing. This will often assist your chance of getting a loan by proving market potential, alleviating some of the risk for lenders.

Buying a dental practice

Lenders generally find dentistry a strong industry with low-risk, therefore offer favourable, specific finance terms to qualified dentists who are ready to branch out into their own practice. While the upfront cost of a modern practice may seem daunting, it is a sound long-term financial investment worth seriously considering for those in the field.

Dentec has helped plenty of people through the process of arranging finances for the costs of setting up a new dental practice. If you're unsure and would like to discuss the process of setting up a dental practice with our experienced team, please feel free to contact us for a chat.

Thinking about setting up your own dental practice?

If you are looking for more information on the next steps, download our free 'Setting up a Dental Practice: How to go about it' guide. It covers some fundamental marketing, sales, and service principles so you can focus on the things that will make a big difference to your new practice.


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