Dental Practice Financing: What Lenders Want to See Before They Say Yes

Dentistry is one of the best businesses to finance. Patient bases are loyal, revenue is predictable, margins are solid, and the product is recession-resistant. Insurance reimburses. Patients show up.

The quick answer: dental practice lenders evaluate three key metrics — EBITDA trends (most healthy practices run 25-35%), patient retention (80-95% year-over-year), and debt service coverage ratio (1.25x or higher). Hit those numbers, and approval becomes straightforward.

But "attractive to lenders" doesn't mean "automatic approval." I've worked with dentists who understood deal structure and sailed to closing, and others who fought every step because they didn't know what lenders actually evaluate.

The difference isn't luck. It's knowing the metrics that matter.

I've closed practice acquisitions across medicine, oncology, and general business. The lending framework is the same everywhere. But dental practices have specific pain points and specific metrics that underwriters lean on. This is what you need to know before you start shopping for financing.

Why Dental Practices Are Attractive to Lenders

Let's start with why dentists have it easier than most practice buyers.

Dental practices generate predictable, recurring revenue. Patients come back. You're not dependent on a single transaction or a volatile market. Insurance pays, and it pays the majority of the bill. The profit margins are strong — 20-35% EBITDA is normal for a healthy practice. Equipment is standard across the industry. Patient files are transferable.

From a lender's perspective, a dental practice acquisition checks a lot of boxes. The business model is proven. The cash flow is visible. The risk profile is lower than a business acquisition with no track record.

That's the good news.

The bad news: dentists are popular acquisitions right now. Corporate consolidators — Aspen Dental, Small Smiles, DSO chains — are buying up independents at increasing valuations. That means more competition for good practices, which means tighter margins on your deal and higher prices you're bidding against.

It also means the lender sees a lot of dental deals. They know what good metrics look like. They know what red flags are. You can't bluff your way through.

Which Financing Option Is Right for Your Dental Practice?

Most dental practice buyers have two main paths: SBA (usually 7(a)) or conventional banking.

SBA Loans (7(a) is the standard)

Pros:

• Lower down payment — commonly 10-15%, sometimes lower
• Longer amortization on the business portion (up to 10 years)
• Can bundle goodwill, working capital, and equipment into one package
• Lenders are accustomed to practice acquisitions; underwriting is predictable
• Genuine flexibility on seller transition structures

Cons:

• SBA guarantee fee typically 2-3% of the loan
• Longer timeline — 60-90 days is standard
• Personal guarantee required (and frankly, all the red tape that comes with SBA)
• Slower to close than conventional if you're in a time crunch

Conventional Loans (Bank Direct)

Pros:

• Faster closing — 30-45 days for a clean deal
• No SBA guarantee fee
• More flexibility on structure if the lender is comfortable with practices
• Potentially better rate for strong borrowers with substantial equity

Cons:

• Higher down payment — 20-30% is normal
• Lenders are pickier; fewer banks specialize in dental acquisitions
• Less appetite for goodwill-heavy valuation
• Tighter on working capital loans

My take: For most first-time dental buyers, SBA is the path. The lower down payment preserves cash for working capital, associate recruiting, and the operational buffer you'll need during the transition period. If you're buying your third practice and have deep liquidity, conventional might save you 20-30 basis points on rate and accelerate the timeline. But that's not your typical buyer.

What Are the Metrics That Actually Move the Needle?

Here's what underwriters actually care about when you walk in with a dental practice deal:

EBITDA and Profit Margin Trending

Lenders want to see 3 years of tax returns for the practice you're buying. They're looking at:

• Absolute EBITDA. What's the profit after you pay reasonable owner compensation? Most healthy dental practices run 25-35% EBITDA.
• Trend. Is EBITDA growing, flat, or declining? A practice with declining EBITDA is a red flag, even if the absolute number is decent. It suggests you're buying someone else's problem.

This is where you need to be precise. The sellers' accountant will adjust the financials to show "owner benefits" or "add-backs" — like a car payment, or the owner's kids on payroll. Some of those are legitimate. Some are nonsense. You need a forensic understanding of what adjustments are real and which are the seller padding the numbers.

Patient Retention and Attrition Rate

This is the metric that separates a good practice from one with hidden risks.

A strong dental practice retains 85-95% of its patient base year-over-year. If the retention rate drops to 75% or lower, you need to understand why. Is the dentist retiring and patients are following them? Is the practice losing patients to a competitor? Is the neighborhood changing?

Lenders want you to model a conservative post-acquisition retention rate. If the seller claims 90% retention, plan for 80% in your projections. That's not paranoia — that's experience. Ownership changes, management changes, and the selling dentist leaving all create friction.

Ask the seller for a patient count by year for the last 3 years. Ask for insurance aging reports. Ask how many patients have transferred to the dentist's new practice (this is common when a retiring dentist keeps a small practice going). The real patient base is smaller than the "active patient" count looks.

Payer Mix and Insurance Dependency

Not all revenue is created equal. A practice that's 60% insurance-dependent and 40% cash-pay is very different from one that's 100% insurance.

Insurance reimbursement is lower but predictable. Cash-pay patients yield higher margins but also higher risk — they're more likely to skip appointments or delay treatment in an economic downturn.

Lenders want to see the breakdown: what percentage is PPO vs HMO vs cash-pay? If you're heavily dependent on a single insurance company (like if 40% of revenue is Delta Dental), that concentration risk matters.

The payer mix affects your working capital needs, your cash flow timing, and your margin sustainability. A practice that's too cash-heavy or too insurance-dependent may require a bigger working capital reserve.

Equipment Condition and Real Estate

Dental practices are equipment-intensive. Operatories, x-ray systems, CBCT scanners, sterilization equipment — it adds up fast.

Lenders want a clear picture:

• Age and condition of existing equipment (is a $50K chair replacement imminent?)
• Lease terms if the practice rents space
• Remaining term on the lease (is it 1 year or 10 years?)

If you're buying a practice with aging equipment and you'll need to replace critical gear in year 2, that comes out of your post-acquisition cash flow. Budget for it, disclose it, and don't pretend it won't happen.

And here's the lease issue: if the practice rents and the lease has only 2 years left, that's a refinancing risk. You need either a long-term lease renewal as a condition of closing or enough cash flow to absorb a potential move.

The Seller Transition: Your Biggest Transition Risk

Most dental practices require the selling dentist to stay on — at least for a transition period. This might be:

• Employment agreement — seller is an employee for 6-12 months at a predetermined salary
• Consulting contract — seller transitions out gradually, available for specific patients or referrals
• Associateship — seller becomes an associate, contributing production but with no management role

The structure matters to the lender because it affects your day-one operational risk.

If the seller walks at closing and you're left managing the practice, your cash flow at risk. If the seller stays but resents the new ownership, they'll take patient relationships with them. If the seller becomes an associate and their production drops, your revenue drops.

Lenders want clarity: how long is the transition? How is the seller compensated (fixed salary, production-based, hybrid)? What's the non-compete agreement? What happens if the seller violates it?

This is where a good employment attorney is worth the money. A sloppy transition agreement costs more than legal fees.

Common Dentist Mistakes on Transition Structure

Not tying compensation to the transition timeline. If the seller stays on for a year but the practice is stabilized after 6 months, are they still paid for 12 months? Build in milestones and contingencies.

No non-compete. If the seller can open a practice down the street 6 months after you buy theirs, you've made a terrible deal. Non-compete needs teeth.

Relying entirely on the seller for patient relationships. Some patient attrition is normal. Plan for 10-15%. If you're banking on 100% retention with the seller's magic touch, you're in trouble.

Typical Deal Structure: What It Actually Looks Like

Here's how a typical dental practice acquisition is financed:

SBA 7(a) loan: 70-75% of the purchase price, amortized over 10 years (B2B goodwill) Seller note: 10-15% of the purchase price, held as backup security, may be subordinate to SBA Down payment: 10-15% cash from buyer Working capital line: Separate revolver for operations, typically 3-6 months of debt service reserve

Total cash at closing: 10-15% of the deal price + closing costs (roughly 2% more) + 6-month debt service reserve

Example: $1.2M practice acquisition

• SBA 7(a): $900K
• Seller note: $150K
• Down payment: $150K
• Closing costs: ~$25K
• Working capital reserve (6 months): ~$30K
• Total cash needed: ~$205K (17% of deal price)

Most lenders will roll closing costs and initial working capital into the loan, reducing your cash at closing even further.

Common Buyer Mistakes I See

Not verifying patient attrition post-transition. The seller tells you patient count. You don't actually know if those patients stay. Get insurance aging data, not just a patient count.

Underestimating buildout and equipment needs. You're assuming the practice is move-in ready. Then you find the HVAC is dying, the sterilization equipment is failing, or the patient files are a mess. Budget 5-10% of practice value for remediation.

Skipping an independent valuation. The seller's broker gives you a number. Sometimes that number is inflated. Get an independent valuation from someone who understands dental practice economics. It costs $2K-5K and can save you hundreds of thousands.

Choosing a lender who doesn't specialize in practices. A bank that does great SBA loans for restaurants may be completely lost on a dental practice. If your lender hasn't closed dental deals before, your deal is their learning experience. You don't want that.

Ignoring the employment agreement. I said this above and I'm saying it again. How the transition is structured affects everything — your cash flow, your patient retention, the lender's comfort level. Don't skip this.

The Real Metrics Behind the "Yes"

Underwriters run the numbers, but here's what actually drives the decision:

• DSCR of 1.25x or higher (debt service coverage ratio — annual cash flow divided by annual debt service)
• LTV of 70% or lower (loan value vs. total practice value)
• Patient retention at 80%+ post-acquisition (conservative estimate)
• Stable or growing EBITDA over the last 3 years
• Owner operator with relevant business experience or healthcare background
• Clear transition plan with seller involvement and specific duration

Hit these metrics, show your work, and the lender's job becomes easy. Miss them, and you're asking the lender to take a leap of faith. Don't ask that.

The Bottom Line

Dental practice financing is straightforward if you know what lenders care about. The metrics are clear. The lending programs are mature. The process is repeatable.

But "straightforward" isn't the same as "easy." It requires discipline: independent valuation, realistic patient retention projections, a solid employment agreement with the selling dentist, and a clear understanding of your working capital needs during transition.

I've structured practice acquisitions across medicine, dentistry, and specialty practices. The framework is the same everywhere. But the specific metrics and transition risks differ, and missing those differences costs you time and money.

For practice-specific financing, also review medical practice financing and SBA loan programs to understand your full range of options. If you're ready to move on a practice acquisition, understanding how to finance a business acquisition will set you up for the conversation with a lender.

If you're buying a dental practice, let's talk before you sign a letter of intent. I can review the deal structure, the financing options, and your transition plan. One call might save you from a costly mistake.