Before a dental practice lender finances your practice acquisition, it evaluates two things: your financial health and your clinical capability. Knowing what banks look for and preparing for it early can be the difference between a smooth pre-approval and a stalled deal.
This article breaks down the requirements dental-specific lenders place on buyers, including liquidity, debt, production history, skill match, and when a co-signer or seller note may come into play.
The Metrics Lenders Evaluate
Specialty dental lenders look at five primary metrics to judge whether a buyer can take on and repay a practice acquisition loan.
| Metric | What the lender is looking for |
|---|---|
| Personal liquidity | Cash and stock you can access. 401(k) and Roth IRA balances do not count toward liquidity. |
| Production history | The number of years you have been producing clinically. |
| Production capacity | How much you can produce annually. |
| Total personal debt | Credit cards, mortgage, auto loans, and student loans combined. |
| Credit score | A minimum score of 700. |
Together, these metrics show the bank whether you have the financial cushion to weather surprises and the clinical track record to keep the practice producing after you take over.
How Banks View Student Loan Debt
Student debt is factored into your total debt profile when you apply for pre-approval. The bank wants to confirm you can handle your existing student loan, car, and house payments in addition to the new practice loan payment.
Many recent graduates worry that student loans will keep them from securing practice financing. In reality, specialty dental lenders anticipate this debt, and for most borrowers, it will not prevent approval.
That said, how your debt is structured can create challenges. Speak with a dental-specific lender early in the process so you understand your options before you start shopping for a practice.
How Much Liquidity You Need
Most banks want a buyer to hold personal liquidity equal to 10% of the loan value. On a $1 million practice loan, that means roughly $100,000 in accessible funds.
Liquidity includes cash and stock. Retirement accounts, including 401(k) and Roth IRA balances, do not count toward this total.
Importantly, this is not a down payment. The bank will not require you to put these funds into the deal. Instead, it wants assurance that you have backup funds available in case of an emergency after closing.
Demonstrating Skill Match and Production Capability
Most banks prefer to see at least two years of production history. This gives them a reliable picture of your clinical capabilities and your production capacity.
When you are acquiring a high-producing practice, lenders want to know two things: that you can perform the procedures the practice currently offers, and that you can sustain its existing production levels.
If the practice’s production exceeds what you have demonstrated as an associate, a strong business plan becomes essential. Lenders will want answers to questions like these:
- Will the seller stay on for 6 to 12 months after the transition to support continuity of care and help you ramp up production?
- Will you retain an existing associate, or bring on a partner, to maintain current patient volume?
Banks are often willing to accommodate these situations when you present a credible plan showing how the practice will maintain production and profitability throughout the transition.
When a Co-Signer or Seller Note Comes Into Play
Co-signers
A lender may require a co-signer in two situations:
- The borrower’s financial strength is not sufficient for the requested loan amount.
- The borrower wants to borrow more than the bank is comfortable lending.
A co-signer adds their financial strength to the application, which can make an otherwise borderline loan approvable.
Seller carryback notes
A seller carryback, also called a seller note, is a financing arrangement used when a lender cannot finance the full purchase price of a practice. This commonly happens in two scenarios:
- The dental practice and its real estate are being acquired at the same time.
- The bank’s valuation comes in below the purchase price the buyer and seller agreed on.
In these cases, the seller may agree to finance the difference. For example, if a practice sells for $1 million but the bank will only finance $900,000, the buyer borrows $900,000 from the bank and finances the remaining $100,000 directly through the seller. The buyer then makes monthly payments to the seller under mutually agreed-upon terms.
Seller financing can bridge valuation or financing gaps and keep a transaction moving, as long as the arrangement works for the primary lender.
Preparing Before You Apply
The strongest applicants walk into a lender conversation already knowing where they stand. Before you begin the pre-approval process:
- Confirm your credit score is 700 or higher.
- Calculate your liquid assets (cash and stock only) and compare them to 10% of your expected loan amount.
- List all personal debt, including student loans, mortgage, auto loans, and credit cards.
- Gather at least two years of production history.
- If the target practice out-produces you, draft a transition plan covering seller involvement and associate or partner support.
Most importantly, talk with a dental-specific lender early. They understand the profession, anticipate challenges like student debt, and can help you structure a deal that works.