Investing in a dental practice for sale is very different from buying a typical small business or residential property. You’re not just purchasing a space; you’re acquiring an established healthcare operation with patient relationships, consistent revenue, specialised equipment and strict compliance requirements.
Because of this, lenders assess these deals using industry-specific factors like cash flow stability, patient retention, and the overall strength of the practice. To learn more about this, we’ve outlined some strategies you can use when you’re thinking about buying a dental practice.
Dental Practice for Sale: Why Is the Finance Different?
When you see a dental practice for sale, you’re seeing more than just a collection of assets that you can purchase. You’re seeing an established local reputation, the goodwill of existing clients and a solid platform for future profits. Essentially, you’re purchasing a proven income stream, not just a shop fit-out.
But with added value comes added complexity. Lender assessments are more nuanced, and the dental practice valuation and income structure will be heavily scrutinised. That’s why it’s crucial that anyone contemplating a dental practice for sale gets the right financing strategy.
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What Makes Dental Practices for Sale Unique to Finance?
Dental acquisition financing is unique because most lenders view buying a dental practice as a very different scenario from buying a typical business. This is because a dental practice for sale offers:
- The promise of strong, stable cash flow in a reliable industry.
- Borrowers who fit the preferred professional income profile.
- A lower level of perceived risk.
However, this doesn’t mean obtaining a loan will necessarily be easy. Lenders also view this kind of acquisition as being:
- Heavily reliant on the goodwill of customers.
- Risky during the initial transition phase (as some dentists may choose to leave the practice, and patient retention is not guaranteed).
Because of this, financing the sale of a dental practice may be very different to financing the purchase of a café (even though they may operate with similar levels of profit). The key is to ensure you’re getting the right finance to suit this very unique situation.
Understanding Dental Practice Valuation Before You Borrow
When a dental practice is for sale, one of the most important elements will be the official valuation. The valuation will generally focus on two key elements:
1. Hard Assets: This includes buildings, equipment, vehicles, etc.
2. Goodwill: This includes less tangible elements, such as the brand, reputation, location and existing list of patients.
Lenders will typically assess the loan risk based on what percentage of the valuation is for hard assets and what percentage is goodwill. According to the Bank of Queensland, goodwill can, on average, account for 60-80% of a practice’s total value.
5 Smart Dental Acquisition Financing Strategies
How can you ensure you get the best finance solution to suit your needs? Start by considering the following 5 key strategies:
1. Leverage High-LVR Lending Where Available
Loan-to-value ratio (LVR) is the amount you need to borrow compared to the value of the asset you’re buying. The finance industry default is to consider any loan with an LVR of 80% or more as “high risk”. However, this is often not the case with dentists.
Some lenders are willing to offer dentists LVRs above 80%, due to their high earning potential and low default rates. This means you may be able to secure finance with a lower deposit (leaving you with more cash in your pocket).
2. Structure Around Cash Flow, Not Just Purchase Price
Your finance needs to be structured so that the repayments align with the anticipated practice income. This means you need to assess not only the current practice income but also the expected earnings once the sale is finalised.
3. Plan for Working Capital and Transition Costs
When assessing a dental practice for sale, many buyers forget to factor in transition costs. These can include equipment upgrades, marketing fees and even staff changes. Building a transition buffer into your finance strategy will allow for a temporary dip in cash flow without causing financial strain.
4. Consider Flexible Structures When Buying a Dental Practice for Sale
A flexible structure (such as a staged buy-in or vendor support) can minimise risk for both the buyer and the seller. This often takes the form of a gradual ownership transition and is the preferred structure for some lenders.
For example, rather than taking over complete ownership on the day of sale, you start by buying a portion of the practice (maybe 60%). The original owner stays on with the practice for a set time period (perhaps 6-12 months) to assist with the transition, at the end of which you purchase the remaining portion of the practice.
5. Align Finance with Long-Term Dental Transition Planning
It’s important to think beyond the initial purchase and transition phase. What are your plans for growing the practice in the future? Do you want to upgrade equipment? Open a second practice? Have a retirement exit strategy?
Having the right loan structure from the very beginning will make it easier for you to achieve your goals in the future.
Why Specialist Dental Acquisition Financing Matters
The finance industry caters to a broad range of clients and scenarios across multiple sectors. As a result, not all lenders understand the goodwill-heavy valuations and staged buy-in structures that can work in your favour when purchasing a dental practice for sale.
A generic finance approach can leave you saddled with:
- A lower borrowing capacity
- Poor loan structure
- Missed opportunities (such as LMI waivers or higher LVRs)
This is why a specialist finance broker with the right industry experience is so invaluable.
Dental Practice for Sale: The Right Strategy Can Change the Outcome
If you’ve been considering dental practices for sale, the first thing you need to do is gain a complete understanding of your borrowing power and structuring options. At JS Medical & Dental Finance, we offer tailored advice and access to dentist-specific lender policies designed to help you achieve your practice goals.
If you’ve seen a dental practice for sale and you’re ready to take the next step, book a strategy call with JSMDF today, and get ready to move forward with clarity.
Jason Savage is the Director of JS Medical & Dental Finance, a specialist brokerage dedicated to helping medical, dental, and allied health professionals navigate both personal and business lending. With over 25 years in banking and more than 20 years focused on healthcare finance, Jason provides tailored lending solutions across home loans, practice finance, and commercial lending.
Through his work, Jason helps healthcare professionals structure their finances to support long-term career growth and wealth creation. By combining deep industry knowledge with a personalised, relationship-driven approach, he simplifies complex financial decisions and supports clients at every stage: from first home to practice ownership and beyond.