There is a reason dental practices show up on nearly every SBA lender’s preferred industry list. Recurring revenue, sticky patient bases, real equipment you can put a value on, and margins that hold up across economic cycles. From a lending perspective, it is about as clean as acquisitions get.
But “lender-friendly” does not mean the deal is simple. How dental practice acquisitions get structured, what underwriters actually care about when they open your file, and the mistakes that kill deals before they reach the closing table are worth understanding before you write an LOI.
Here is how using an SBA loan to buy a dental practice business actually works, and where most buyers get it wrong.
Common Mistakes That Kill Dental Practice Deals
Worth leading with this, because we see the same errors on repeat.
The most common mistake is buying based on revenue instead of cash flow. A dental practice doing $1.8M in collections sounds impressive. But if overhead is running at 70%, adjusted SDE is $540K before the owner’s market salary. After you pay yourself, you might be working with $350K to $400K for debt service. That changes the math in ways that surprise people who anchored on the top-line number.
Run the cash flow model first. Then see if the price makes sense.
And honestly, SDE itself can be misleading. We discount reported SDE by 15% to 50% depending on how the seller’s books look, because the number on the listing almost never tells the full story. If it does not tie to proof of cash (bank statements matching tax returns, line by line), the SDE number is just a suggestion. Walk if it does not tie.
The second most common mistake: not accounting for the transition period. Dental practices transfer patient loyalty to the new owner gradually. If the selling dentist leaves on day one and takes their goodwill with them, your revenue projections are wrong. Build the transition plan into the deal before LOI. A 12 to 24 month overlap period, ideally with the seller on an employment or consulting agreement, protects the revenue base the lender is counting on.
Third mistake: underestimating working capital. SBA loans can include a working capital component, but it has to be part of the original loan request. Going back to the lender post-close for additional funds is not how this works. Account for 3 to 6 months of operating expenses in your initial loan request. This is non-negotiable.
Why Lenders Love Dental Practice Deals
Banks that do SBA 7(a) deals see dental practices as low-risk. A few reasons.
Revenue is sticky. A patient who has been going to the same practice for 8 years does not leave because the owner changed. Patient retention rates above 85% are common, and lenders know it. That kind of recurring relationship is hard to find in most small business acquisitions.
The cash flow is predictable. Dental practices generate consistent monthly billings, insurance reimbursements, and out-of-pocket payments. No seasonal collapse, no single customer concentration problem, no volatile B2B contract that can disappear in a quarter.
The assets have value. Dental equipment, chairs, sterilization units, X-ray machines, and the physical buildout back the loan in a way that a service business or consulting firm simply cannot. The tangible asset base reduces lender risk in a meaningful way, and it shows up in how underwriters model the deal. Side note: this tangible asset base is also why dental practices tend to get better loan terms than, say, a marketing agency doing the same revenue. The collateral picture is just fundamentally different.
All of that makes SBA underwriters more willing to approve, more willing to offer full loan terms, and occasionally more flexible on deal structure.
What SBA 7(a) Financing Actually Covers
An SBA 7(a) loan can cover up to 90% of the acquisition price. Minimum equity injection is 10%.
On a $1.5M dental practice, that is $150K out of pocket. The SBA loan covers the remaining $1.35M, up to the $5M program maximum. The loan can also cover:
- Working capital for the first 6 to 12 months of operations
- Equipment replacements or upgrades identified during due diligence
- Licensing and transition costs
- Closing costs and soft costs associated with the acquisition
One thing worth noting: dental practices are often sold as asset purchases. When that is the structure, SBA financing applies directly to the assets being acquired, including goodwill. Goodwill can represent 40% to 60% of the total purchase price in a dental deal, and SBA 7(a) will finance it.
Most conventional bank loans will not touch intangible assets like goodwill at all. That single fact is one of the biggest reasons SBA financing dominates dental practice acquisitions.
What Underwriters Actually Look at in a Dental Practice
Getting approved comes down to three things: the practice’s cash flow, your equity injection, and your background.
Cash flow first. The lender needs to see that the practice, after debt service, still generates enough income to cover loan payments with room to spare. The standard benchmark is a 1.25x debt service coverage ratio. We target 2.0x when we source deals, and we consider 1.5x acceptable if there are clear synergies. Anything below 1.25x is a hard conversation with the lender, and in our experience, it usually means the deal is not right at that price.
To calculate DSCR for an SBA acquisition, lenders take the seller’s discretionary earnings, adjust it for an owner’s salary at market rate, then divide by the annual debt service on the SBA loan.
Say you are looking at a practice doing $600K in SDE with a 3.0x valuation, so a $1.8M purchase price. After paying yourself $150K, adjusted earnings are $450K. Annual debt service on a $1.62M SBA loan at roughly 10% over 10 years comes to about $256K. That gives you a 1.76x DSCR. Solid, though we would still want to stress-test that SDE number against proof of cash before getting too excited.
Your equity injection. Minimum 10%, no exceptions. It can come from personal savings, a ROBS (that is a 401k rollover business startup) structure, a home equity line of credit, or gifted funds with proper documentation. What it cannot come from is another loan that shows up on your personal credit report. If the bank sees you borrowed your equity injection, they will pull the deal.
Your background. You do not need to be a dentist to buy a dental practice, but you do need a plan. Most SBA lenders are comfortable with non-dentist buyers as long as you demonstrate a credible transition plan (typically retaining the selling dentist for 12 to 24 months) and have relevant management experience. If you have run other businesses, managed teams, or have a finance or operations background, document it thoroughly.
So That Covers the Financing Side. The Deal Structure Is a Different Conversation.
Most dental acquisitions involving SBA financing include a seller note as part of the deal structure. The reason is practical: SBA guidelines require the seller note to be on full standby during the loan term if it counts toward the equity injection. The seller does not get paid on that note until the SBA loan is paid off.
What we push for on nearly every deal is a 10-year full standby seller note at 0% interest. Zero interest. Zero payments. For 10 years. We get that structure on over 90% of our deals. For the seller, it is a trade-off: they get a higher purchase price and a clean exit. For the buyer, it lowers cash required at close and eliminates a second debt service obligation during the life of the SBA loan.
With the right structure, buyers can get to roughly 5% cash out of pocket at close. That is achievable when you combine the SBA loan covering 90% with a properly structured seller note covering part of the remaining equity requirement.
Not every seller will accept full standby. Older sellers with retirement on the line will want some cash upfront. That is where deal structure becomes a negotiation, and our position is consistent: meet them on price, win on terms. INTERNAL LINK: how to structure a seller note in an SBA acquisition
The Timeline from LOI to Close
The process from LOI to close typically runs 60 to 90 days for a dental practice with clean financials.
- Sign the LOI. Get exclusivity. Start gathering 3 years of tax returns, P&L statements, patient count trends, insurance payor mix, and equipment lists.
- Submit to a preferred SBA lender. A preferred lender with PLP status can approve loans in-house without SBA review. This matters for speed more than most buyers realize.
- Lender runs underwriting. They order a business valuation, review your personal financials, check your background, and run the DSCR model.
- Receive the commitment letter. The lender issues terms. Review them carefully. Interest rates on SBA 7(a) loans are variable, typically tied to prime plus a spread.
- Complete due diligence. Equipment appraisal, lease review, credentialing review, state licensing verification. Your attorney reviews the asset purchase agreement.
- Close. Funds wire, documents get signed, and you own the practice.
Most delays come from incomplete seller financials or a lease that needs landlord approval for assignment. Start the lease conversation early. You would be surprised how many deals die right here, not because the landlord says no, but because nobody asked until week six.
Valuation Benchmarks for Dental Practices
Dental practices typically sell at 3x to 5x EBITDA, or 60% to 100% of annual gross collections, depending on the size, specialty, and market.
General dentistry practices in mid-sized markets tend to come in at the lower end of that range. Specialty practices (oral surgery, orthodontics, implant-heavy practices) can push toward the upper end or beyond, because specialty cash flows are higher and demand from buyers, including dental service organizations, keeps multiples elevated.
But here is the part that matters more than the multiple: from an SBA underwriting standpoint, the price needs to support the DSCR regardless of what comparable practices sold for. A fair market valuation ordered by the lender will either confirm the purchase price or flag that you are overpaying. If the appraisal comes in below the purchase price, you either renegotiate or cover the gap with additional equity injection.
One more thing on valuation. Remember that brokers represent the seller, not you. The listing price is the seller’s starting position, not a fair market assessment. Having experienced advisors reviewing deals before you go to LOI saves significant time and money, because the valuation conversation is much harder to have after you have already committed to a number. INTERNAL LINK: how to evaluate a business acquisition before LOI
Frequently Asked Questions
Can you use an SBA loan to buy a dental practice if you are not a dentist?
Yes. SBA guidelines do not require the buyer to hold a professional license in the acquired business’s field. However, lenders will want to see a credible management plan, typically a transition agreement keeping the selling dentist on staff for 12 to 24 months, plus evidence of your operational or business management background. The practice still needs a licensed dentist to operate day to day.
How much do you need down to buy a dental practice with SBA financing?
The minimum equity injection for an SBA 7(a) loan is 10% of the acquisition price. On a $1.5M dental practice, that is $150K. The equity can come from savings, a 401k rollover via a ROBS structure, a home equity line of credit, or gifted funds. It cannot come from a borrowed source that creates a separate debt obligation.
What is the maximum SBA loan amount for buying a dental practice?
The SBA 7(a) program caps at $5M. That means SBA financing works well for dental practice acquisitions up to roughly $5.5M in purchase price, covering 90% with a 10% equity injection. For larger practices, buyers typically layer in additional conventional financing or bring more equity to the table.
How long does it take to get an SBA loan approved for a dental acquisition?
Working with a preferred SBA lender, approval typically takes 3 to 6 weeks from complete application submission. Total time from signed LOI to close is usually 60 to 90 days. Deals with messy financials, lease complications, or credentialing issues can stretch longer.
Do dental practices qualify for SBA 7(a) loans with goodwill?
Yes, and this is a key reason SBA financing dominates dental acquisitions. SBA 7(a) loans finance goodwill and other intangible assets, which often represent 40% to 60% of a dental practice’s total purchase price. Conventional bank loans rarely finance intangible assets at all, which is why most dental deals are structured through the SBA program.
Ready to Acquire a Dental Practice?
Regalis Capital works with buyers pursuing acquisitions in service-based industries, including dental practices. We source the deals, run the cash flow models, negotiate deal terms, and manage the SBA process from LOI to closing table.
If you are serious about buying a dental practice and want a team that reviews 120 to 150 deals per week to find the ones that actually pencil, start here.