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How to finance your dental practice

As dental businesses are forced by the COVID-19 pandemic to go dark and even postpone some procedures, worried owners are desperate for financial aid to help them salvage the situation since they can’t survive for long without routine clients.

When any business is unable to get funds to make payroll, pay rent, buy equipment, or finance other activities, it might force them to cut costs, pause operations, or even lay off employees. That, in turn, could exacerbate the financial crisis that is now widely anticipated.

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It is safe to assume that this crisis is like none other experienced by dental business owners in recent times, and it’s unquestionably daunting trying to deal with all the unique problems it presents. Unfortunately, the uppermost voice business owners hear hasn’t provided much advice or specific steps to take on how to save their investments. 

However, the good thing is that there are a plethora of funding opportunities available that might help your dental business stay afloat during this period. For instance, Congress has been debating on a $1.8 trillion stimulus package, which would help small businesses pay their staff.

In this post, we have discussed various financing options that can make the difference in being able to keep your dental office doors open and calm your clients and employees, especially during this period of uncertainty.

SBA loan for dental practices

The Small Business Administration (SBA) has boosted its funding pool from $20B to $50B in response to the COVID-19.

Currently, it is availing low-interest disaster loans of up to $2M for small business ventures suffering losses due to the pandemic. Per the SBA, these loans can be used to cover payroll, pay debts, and other bills.

Once your state proposes a declaration of emergency, you can apply via mail or online. Also, you can reach out directly to your SBA district office or local Small Business Development Center (SBDC). If you already have an SBA-backed loan, contact them still to see what extra help you can get.

At best, it may take up to 2-3 weeks to receive these loans; therefore, do not think it’s a quick and straightforward form of financing. On the face of it, SBA loans may seem like a safe choice. However, bear in mind; this is still a form of credit that has to be repaid in time, just like other conventional loans.  

Also, some states like Florida have created their own SBA loan programs. Therefore, it is advisable to visit your state’s government website for more information on how you can apply. Denver, New York City, Los Angeles, Chicago, and other cities have also created relief programs to caution businesses.  

The Main Street Programs

  • The Main Street Business Lending Program — This is a new scheme introduced by the Federal Reserve to complement SBA efforts and further offer financing to eligible businesses.
  • The Main Street Emergency Grant Program — This is an imitative proposed by U.S senators Chris Van Hollen, Jeff Merkley, and Chris Murphy that would allow small businesses to apply and receive grants through the Treasury Department.  

Merchant cash advance

If your dental office accepts debit and credit card payments, you can turn this form of financing to your advantage during these desperate times. A merchant cash advance provides your dental practice access to quick credit based on the average of your monthly card sales.

For instance, if your dental clinic usually makes about $30,000 in monthly card sales, most likely, the amount you will receive will approximately fall in the same region. Also, this form of financing carries no usage restrictions, allowing dental practices to fund anything from marketing, working capital expenses, training, and employee wages to emergencies. 

Even though merchant cash advances are unsecured, lenders mostly focus on the reliability of your monthly card sales. Therefore, your dental office may still qualify even with a poor credit rating. Should your request be accepted, you will be subject to a Fixed Monthly Repayment scheme. Usually, this allows the lender to work hand in hand with your card processing firm and routinely intercept an agreed proportion of your future card-based sales up to when the amount has been fully repaid.  

Plus, this type of financing could be processed in as quickly as two days. Thus, if your dental office needs some quick form of financing, all you need to do is have your latest card-based sales reports ready. Then visit a lender who offers merchant cash advances.  When your loan is approved, plan to repay it as quickly as possible, as this is not a long-term financing strategy.

Community Development Financial Institutions (CDFIs)

Many CDFIs, for example, credit unions, give low-interest loans and other forms of financial aid during natural disasters. Mostly, these programs are dependent on federal funding, hence be on the lookout for stimulus relief bills being initiated at the federal level. You can check a list of certified CDFIs here if you are not sure which ones are available in your area.

Once you have identified your local CDFI(s), visit their website(s) to check the type of programs they are offering. Besides offering you a loan, some may be willing to provide you with financial advice relating to the undergoing COVID-19 disaster.  

Equipment financing and leasing

Working capital may be the priority for many dental practices affected by Coronavirus Pandemic; however, some may be in dire need of dental equipment. The alternative option may be equipment financing or leasing.  

By leasing dental equipment, you don’t, in reality, own it (the lender does). The risk exposure to the lender is minimal since they can always reclaim such equipment in the event your dental practice is not capable of servicing the lease payment.

Similarly, in equipment financing, equipment themselves are used as collateral, hence, getting you a lower interest rate. What’s more, repayment terms on equipment financing can be as lengthy as the anticipated life of the equipment.

The only shortcoming associated with equipment financing or leasing is that you might be needed to put down some down payment, and sometimes, it can be challenging to raise the cash for that. 

Professional loans

Dentists are top professionals and are eligible for this type of financing without much sweat. Professional loans attract interest rates below 10% and have repayment terms, which are quite reasonable. It’s also good to note that professional loans may be secured or unsecured. 

Life insurance

The value of your life insurance policy can be used to take out a loan to finance your dental office operations. The majority of banks will allow you to borrow up to 90% of the policy’s value. This can be quite a significant amount of money that you can use to expand your operations or upgrade your equipment.

Business interruption insurance

Some dental businesses have taken interruption insurance policies. With this uncertainty arising from the Coronavirus pandemic, now is the time to reach out to your insurance company to review your policy. Try to know the scope of your coverage in the event of an extended incident.  

401K

A large number of dentists have no idea that they can obtain financing from their 401K retirement plans to fund their practices. Actually, 401K holders can take an advance of up to $50, 000 from their savings. This loan, however, must be repaid with interest within a timeframe of five years. However, if you fail to pay back the loan within that period, it (loan) will attract an income tax and a penalty of 10% as an early withdrawal fee.  

Overdraft replacement

Overdraft replacement provides you with another convenient option of financing your dental business operations during these hard financial times. Presenting you with a line of credit (LOC), overdraft replacement gives you access to a lender-controlled financing facility from which you can conveniently withdraw an agreed allowance that is usually tied to your past revenues.

Carrying no usage restrictions, overdraft replacement can be used to support monthly expenses, uneven cash flow, emergencies, tax liabilities, or anything else that needs addressing. However, anything that you withdraw is charged some interest and needs to be paid back within 30-90 days. As such, overdraft replacement works similarly to a credit card and provides a protective buffer for your dental business. 

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SCORE

SCORE is the leading network of business advisors in America. During normal times they provide mentoring, courses on demand, and webinars. The good thing is that nearly all these things can still take place online as we try to stay at home and be safe from this pandemic.

While SCORE can’t directly finance your dental practice, they can advise you on the most practical ways to get financing for your business during these troubling times. So, if you need financial advice, SCORE is an excellent resource you can take advantage of without stepping foot outside. In fact, they are currently publishing plenty of COVID-19 related content on their website, therefore park your browser there for recent developments as the crisis unfolds.  

Conclusion

While it is quite certain that there will be instability in the lending sector for the foreseeable feature, financial institutions are usually some of the first institutions to get federal relief in moments like these. Appetite for risk may vary by the lender; however, many will likely be looking for dental practices that seem like a safe investment.

Note; we would strongly caution dental practices against seeking high-interest financial aid at this time; the consequences can be dire if you are not capable of keeping up with the payments. Auctioneers and debt collectors are the last people you would want to deal with right now.