The best credit in small business, and the slowest money
Lenders like practices. A dentist with a full book of patients defaults less often than almost any other kind of borrower, and the industry knows it. A dental practice with two years of history can borrow for a CBCT scanner at rates a restaurant will never see. The irony is that the same practice can be short of cash on the 28th of the month, because the money it earns arrives on a schedule set by insurers, not by the practice.
A crown placed on the 3rd is billed on the 5th, adjudicated by the 25th, paid in the following month, and sometimes denied and resubmitted. A practice billing $120,000 a month can carry $150,000 to $250,000 in receivables at any moment. Payroll, rent, supplies and the equipment lease do not wait for the adjudication. That gap, not profitability, is the reason most practice owners come to us.
Equipment: finance the machine on the machine
Equipment financing is where practices get the best terms in the market. A digital panoramic X-ray at $40,000, a CBCT at $90,000 to $150,000, a dental chair package at $25,000 a room, an ultrasound at $30,000 to $80,000, a laser at $60,000: lenders in our network finance these over three to seven years at annual rates from about 7 percent for an established practice with clean credit to the mid teens for a newer practice. The machine is the collateral. Deferred first payments of 60 to 90 days are common, which lets the equipment start producing before the first installment.
Two things to check. Whether the quote includes installation, training and the service contract, since bundling them into the financing keeps cash in the practice. And whether the lender funds the vendor directly, which most do, so the practice never carries the purchase on a card.
The buildout and the second location
A new operatory costs $60,000 to $100,000 built and equipped. A second location, $350,000 to $700,000 depending on the market and the square footage. This is SBA territory. The 7(a) program finances buildouts, equipment, working capital and even the acquisition of another practice over ten years, and healthcare files are the ones SBA lenders like most. The process takes six to ten weeks and a tax return based underwrite, so it is the instrument for a planned expansion, not for an emergency.
Practice acquisition loans, where a younger dentist buys the practice of a retiring one, are a specialty with its own lenders, who will finance up to 100 percent of the purchase price on the strength of the practice's collections history. We place those files with the three or four lenders who do them well.
Working capital for the lag
For the insurance gap itself, three instruments. A bank or non-bank line of credit of $50,000 to $250,000, drawn when receivables pile up and repaid when they land, is the cleanest. Medical receivables financing, which advances against the insurance claims themselves, works for larger practices with clean billing. And a revenue-based advance, which is fast and expensive, is for the practice that needs $75,000 in a week because the associate left and the schedule has to be covered.
Advances in healthcare are priced better than in most industries, because the deposits are predictable. They still cost more than a line, and a practice paying daily debits on an advance while waiting for insurers is paying twice for the same lag. We place them when the timing demands it and say so when it does not.
What funders look at in a practice file
Three months of business bank statements, the provider's license and NPI, the practice's tax ID, and for larger amounts the last tax return and a production report from the practice software. Lenders look at collections per month, the payer mix (a practice that is 70 percent PPO looks different from one that is 70 percent Medicaid), and existing equipment leases.
What helps: a practice management system that produces clean reports, a separate operating account, and a credentialing history without gaps. What hurts: commingled personal expenses, more than one advance already in place, and a practice less than six months old without an established patient base.
A plain recommendation
Equipment on an equipment loan, never on a card or an advance. The buildout or the second location on SBA, planned a quarter ahead. A line of credit for the insurance lag, opened before it is needed, because a line is approved on a good month and drawn on a bad one. An advance only for a specific, short, high return need, and only one at a time.
Every offer we present shows the amount, the total repayment, the payment schedule and every fee on one page. A practice owner who can read a treatment plan can read that page in a minute.