Buying a dental practice with an SBA loan

How do you evaluate a dental practice before you buy it?

Start with the numbers and the patient base, then look at the team, equipment and lease. This guide covers the purchase itself; for start-ups, equipment loans and refinancing, see SBA loans for dental practices.

Definition

Production vs. collections: Production is the value of the dentistry performed, at the practice’s fees. Collections are what the practice actually receives after insurance write-offs, adjustments and unpaid balances. Lenders and appraisers focus on collections.

What to review	What it tells you
Collections and production trends, several years plus year to date	Whether revenue is growing, flat or slipping, and how much of what’s billed is actually collected
Payer mix	How much revenue depends on PPO plans, fee-for-service patients or Medicaid, and which plans you’ll need to join
Active patients and new-patient flow	Whether the patient base can keep the schedule full. Practices count “active” differently, so ask how the number was calculated
Hygiene program	How full the hygiene schedule is and how well patients stay on recall, which drives repeat visits and restorative work
Equipment and technology	The age and condition of chairs, imaging and software, and what you’ll need to replace soon
Lease	The remaining term, renewal options, rent and whether the landlord will consent to an assignment

Also compare the seller’s procedure mix with your own skills. If the seller performs work you’d refer out, or refers out work you do, revenue may change after the sale.

How is a dental practice valued?

A practice’s value rests mainly on its cash flow: what it collects, minus operating costs and a market salary for the dentist doing the work. Appraisers then weigh the patient base, payer mix, location, equipment, lease and how much the practice depends on the selling dentist. There’s no single formula, and a broker’s asking price can differ from what an appraiser supports.

The SBA’s rules, SOP 50 10 8.1, add three checks:

• Purchases above $350,000 need an independent business valuation from a credentialed appraiser.
• Purchase prices of $3 million or more need a Quality of Earnings report.
• For a first-time purchase, the practice’s cash flow must cover all its debt payments with debt service coverage of at least 1.25x.

If the valuation comes in below the agreed price, expect to renegotiate or cover the difference with more of your own cash.

Can an associate buy the practice they work in?

Yes, and it’s often a smoother path to ownership. An associate already knows the patients, team and systems, and patients already know them, which can ease the transition and shows a lender you can run the practice. A few things to plan for:

• Price the practice independently. Rely on a current valuation, not a number agreed years ago.
• Read your associate agreement. Some include a purchase option or right of first refusal. Have an attorney who works with dentists review those terms before you negotiate.
• Decide between buying all or part. SBA rules for partial purchases differ from those for buying the whole practice, and a buyout staged over several steps isn’t eligible, so settle the structure with a lender first.
• Count your time in the practice. In an owner buyout, a buyer who has worked in the practice for less than 24 months can’t take majority ownership unless the loan is underwritten as an initial acquisition.

How do you keep patients after the seller leaves?

Much of a practice’s price is goodwill tied to patients’ trust in the selling dentist, so the transition matters as much as the financing. Steps that help:

1. Plan the seller’s role. Many sales include a period in which the selling dentist works alongside the buyer or stays on part time. When you buy the whole practice, the SBA limits how long and in what role a seller can stay, so agree on the terms with your lender before you sign.
2. Introduce yourself together. A letter from the selling dentist, followed by introductions at visits, tells patients the change is planned and welcome.
3. Keep the team. Hygienists and front-desk staff often hold the patient relationships you’re paying for. Meet them before closing if the seller agrees, and settle pay and roles early.
4. Keep what patients recognize. Hold the practice name, phone number, website and hours steady through the transition.
5. Start insurance credentialing early. If the practice participates in PPO plans, apply to join those networks as soon as you can. Credentialing can take time, and gaps can interrupt collections.
6. Get a non-compete. Buyers commonly ask the selling dentist to agree not to open a competing practice nearby for a period after the sale.

How much do you need to put down to buy a dental practice?

For a practice purchase, the SBA requires an equity injection of at least 10% of the total project cost, which includes the price, working capital and closing costs. Seller financing can help. A seller note on full standby can cover up to half of the injection. Full standby means the seller gets no principal or interest payments for the life of the SBA loan. The rest has to be your own money, and lenders verify its source.

If the seller wants payments during the loan, the note is still allowed, but it doesn’t count toward your injection and lenders include its payments when they check cash flow. For the full rules, see SBA loans to buy a business and our guide to SBA loan down payments.

Should you buy the building with the practice?

If the selling dentist owns the building, you may be able to buy it along with the practice or lease it from them.

• Buying it. The building can be part of the same 7(a) loan, with the real estate share repaid over up to 25 years while the practice share stays at up to 10 years. It can also be financed with an SBA 504 loan. Your practice must occupy at least 51% of an existing building, and the property adds an appraisal, title work and an environmental review.
• Leasing it. Lenders generally want the lease, including renewal options, to run at least as long as the loan. Negotiate the lease alongside the purchase, especially when the seller will be your landlord.

See SBA commercial real estate loans for the property rules.

How do partner buy-ins and buyouts work with an SBA loan?

Buying out a partner, fully or partly, is an owner buyout under SBA rules:

• The minimum equity injection is 10%, though the lender may reduce it when the practice is financially strong.
• A selling partner who keeps less than 20% must personally guarantee the loan for 2 years. A partner who keeps 20% or more remains an owner who guarantees the loan like any other.
• New owners must be co-borrowers on the loan.
• The interest has to be bought in one transaction.

If you’re buying into a practice as a new owner rather than buying out a partner you already share it with, ask lenders early how they’ll classify the deal, because the equity and guarantee rules depend on it.

What if a DSO is involved in the practice?

Dental service organizations (DSOs) can shape a purchase in a few ways:

• Competing offers. DSOs also buy practices, so a seller may weigh your offer against one from a DSO.
• Existing agreements. If the practice has a management, services or affiliation agreement with a DSO, read it closely. It can affect who controls the practice, how fees flow and whether the agreement survives the sale.
• SBA eligibility. The SBA looks at who owns and controls a business, so share any DSO agreements with lenders early. They review them case by case.
• Future plans. If you might affiliate with a DSO after buying, tell your lender, since loan documents can restrict changes in ownership or management.

How do you find the right lender for a dental practice purchase?

Practice lending is a specialty. Some lenders have teams that know how to read collections reports and value a patient base; others rarely lend to dentists. Starting with lenders that regularly fund practice purchases usually means fewer surprises in underwriting.

SBA Loan Connect ranks lenders using the SBA’s public 7(a) and 504 loan records, so you can see which lenders actually fund dental practices like the one you’re buying. Partner lenders are labeled. It’s free, and there’s no credit check. See how we rank lenders or get matched with lenders.