Dental practice financing: loans, DSCR and what lenders approve

Financing is the part of a dental office project where people stop asking "what does it cost?" and start asking "what will they lend me?" That is backwards. The lender's number tells you what a bank is willing to risk. It does not tell you what your practice can carry. This guide walks through how dental practice loans actually work, the coverage math underwriters run, and how to show up with your own numbers so you are choosing between offers instead of hoping for one.

A quick note on what this is. I'm an independent budget planner, not a lender, broker, attorney or CPA. Nothing here is a rate quote, a loan recommendation or tax advice. The rates and limits below come from the SBA, the Federal Reserve and published lender pages, and every one is listed in the Sources at the end. The 8.25% and 15-year figures are planning assumptions from the Alithos estimator [12], not an offer from anyone.

What types of loans finance a dental practice?

Most dental projects use one or two of six structures. A startup in leased space usually needs only the first, or the first plus a line of credit. Buying or building real estate, or buying an existing practice, brings the others into play.

For a de novo startup, the practical choice is usually between a dental practice loan from a lender with a dental group and an SBA 7(a) loan. Both can fund the full startup package. They differ in fees, rate structure, collateral and paperwork, which I compare further down. If you are still deciding between opening from scratch and buying, read startup vs. acquisition first, because the financing changes with that decision.

A word on what the loan pays for. The project budget is the loan request. If you have not built the budget line by line (space, construction, equipment, imaging, cabinetry, technology, soft costs and working capital), you do not yet know what to ask for. The dental practice startup costs guide breaks that budget down category by category.

What is DSCR and why does 1.25x matter?

DSCR stands for debt-service coverage ratio. It is the single number that most shapes a dental loan decision. In plain terms, it asks: for every dollar you owe each year, how many dollars of cash flow do you have to pay it?

There are two versions, and it helps to know which one a lender is using.

• Business DSCR divides the practice's net operating income by the practice's annual debt payments. This is the standard definition used across commercial lending [11].
• Global DSCR adds you, the owner, to the picture. It divides the practice's cash flow by every obligation it has to support: the practice loan, your student loans, your mortgage or rent, car payments and your household living costs. Dental lenders lean on this version because the practice is your paycheck.

The formula for the global version is simple:

DSCR = annual cash flow available ÷ (annual practice debt payments + annual personal debt payments + annual living costs)

A ratio of 1.00x means every dollar is spoken for. Anything below that means the plan cannot pay its bills on paper. Lenders want a cushion above 1.00x for the months when collections run slow, a hygienist leaves, or a piece of equipment fails. A dental lender writing in ADA News in 2026 describes a global coverage ratio of at least 1.25 as a common guideline, while noting it is a guideline and not a strict minimum [7]. That is why the Alithos estimator tests every scenario at 1.25x.

A worked example

Here is the worked example from my post on what dental lenders want to see. The projected practice cash flow was $247,500 a year. Total obligations, meaning the new practice loan, personal debts and living costs, came to $202,116 a year.

$247,500 ÷ $202,116 = 1.22x.

That is close to the 1.25x benchmark but under it. A lender might still approve it, depending on the borrower's credit, reserves and production history. It also means there is very little room. One oversized equipment package or a few more months of ramp-up and the ratio drops below where most lenders are comfortable. The fix is usually not a better lender. It is a smaller loan, a lower monthly cost, or a more realistic cash-flow projection.

To test your own numbers, use the DSCR calculator. It takes your projected cash flow and obligations and tells you where you land against 1.25x.

How much will the monthly payment be on a dental practice loan?

The table below uses the estimator's planning assumption of 8.25% over 15 years (180 monthly payments). It is not a quote. For context, the bank prime loan rate was 7.00% in the Federal Reserve's H.15 release of October 30, 2026 [4], and the SBA's cap on a variable-rate 7(a) loan over $350,000 is the base rate plus 3.0% [2], which works out to about 10.0% at that prime rate. That is a ceiling, not a typical rate. Your rate depends on your lender, your credit and the market on the day you lock.

Two things stand out. First, every $100,000 adds about $970 a month, or about $11,600 a year. That is the cost of "while we're at it" upgrades: the extra operatory you might use someday, the premium cabinetry, the second monitor in every room. Second, the "cash flow to cover this loan at 1.25x" column covers only this loan. Your living costs and personal debts sit on top of it.

The rate matters too, and more over a long term. On a $1 million loan, the same 8.25% runs about $12,265 a month over 10 years and about $7,885 over 25 years. A longer term lowers the payment and raises the total interest. Try different rates and terms in the dental loan payment calculator.

For a sense of scale, the Alithos model puts a 4-operatory startup in leased space at standard finish at about $784,800 at its point estimate, including $85,000 of working capital (published range $746,000 to $824,000). Financed in full at the model's terms, that is about $7,614 a month. That is planning math, not a quote, and the full table is on the cost benchmark.

How much can you borrow to open a dental practice?

Borrowing capacity comes from cash flow, not from the project wish list. The lender starts with what your practice can reasonably produce, subtracts what your life costs, and works out what loan payment fits underneath at a safe coverage ratio. The project has to fit inside that number. Not the other way around.

You can run the same math yourself in four steps.

1. Estimate annual cash flow available for debt and living costs. Use a conservative projection for your first full year, not your year-three goal. One dental lender writing in ADA News describes overhead in a well-run general practice as typically 58% to 68% of collections [7], which gives you a reality check on how much of each collected dollar is left.
2. Divide by 1.25. That is the most your total annual obligations can be while staying at the benchmark.
3. Subtract living costs and personal debt payments. What remains is the annual payment the practice loan can take.
4. Convert the payment to a loan amount. At 8.25% over 15 years, each $970 of monthly payment supports about $100,000 of loan.

An illustration with round, hypothetical numbers: say your projected cash flow is $300,000 a year, your household living costs are $90,000 and your student loan payments are $30,000 a year.

These are illustrative inputs, not benchmarks. The point is the shape of the math: in this example, $30,000 a year of student loan payments takes about $258,000 off what the practice can carry. Living costs work the same way. A bigger house before the practice opens shrinks the practice you can build.

Notice, too, that capacity is not the same as advice. A lender may be willing to lend you the full amount the math allows. That does not mean you should borrow it. I'd rather see a plan that sits comfortably above 1.25x in a slow year than one that hits it exactly in a good one.

What do lenders need to see before they approve a dental loan?

Dental lenders look at a fairly predictable set of things. Each lender sets its own thresholds, so ask each one for its specific requirements in writing. In broad terms they weigh:

• Debt-service coverage. The ratio above, built on a projection they believe.
• Credit. Payment history and amounts owed together make up about 65% of a FICO Score (35% and 30%), according to myFICO [9]. Both improve with time, so start early.
• Liquidity. Cash you can reach if the first year runs slow. Reserves show you can absorb a bad month without missing a payment.
• Production history. Your production as an associate is the evidence behind your projection.
• The plan itself. A line-item project budget, a space and equipment budget, a working-capital plan and ramp assumptions that hold up to questions.

The detail on each of these, plus what tends to sink applications, is in what dental lenders want to see. If you are using an SBA loan, add one more item: equity. Under SBA SOP 50 10 8, effective June 1, 2025, startups generally need an equity injection of at least 10% of total project cost, according to law-firm summaries of the SOP [5]. That rule applies to SBA loans. Conventional dental lenders set their own terms.

How do interest-only periods and draw schedules work?

A startup loan does not hand you a check for the full amount on day one. During construction, the lender releases money in stages, called draws, as work is completed and invoices come in. Each draw usually needs some combination of a contractor's pay application, lien waivers and sometimes an inspection or sign-off. Interest is charged only on the money that has been drawn, so your early payments are small and grow as the project progresses.

Some dental term sheets also include an interest-only period or a graduated payment that starts low and steps up. The logic is that a new practice needs time to build a patient base before it can carry full principal and interest. Here is what that looks like at 8.25%:

That breathing room is real. So is the catch: interest-only months do not reduce the balance. When the period ends, the full payment arrives, and on some structures it is higher than it would have been because the principal must be repaid over fewer remaining months. Ask each lender three questions: how many interest-only months, what the payment is the month after they end, and whether the amortization term starts at closing or at the end of the interest-only period.

The draw process matters for your timeline too. If draws are slow, your contractor waits, and a contractor who waits finds other work. Ask who approves draws, how long approval typically takes, and what documents each one needs. You can model the payment jump at the end of an interest-only period in the loan payment calculator.

Can working capital be financed?

Yes. Working capital is the cash that pays rent, payroll, supplies and your own living costs while the schedule fills and insurance collections catch up with production. Insurance payments arrive after the work is done, so even a busy new practice can be short of cash early on.

Working capital can be part of a dental practice loan. Bank of America Practice Solutions, for example, advertises startup financing that covers design, construction, equipment and working capital, subject to credit approval [6]. SBA 7(a) loans list short- and long-term working capital as a permitted use [1]. SBA 504 loans do not allow it [3].

The Alithos estimator assumes $85,000 of working capital as a flat planning default. Your real number depends on your overhead, your ramp and your personal costs. The mistake I see most is treating working capital as a rounding error and trimming it to make the project total look better. Underwriters read a thin working-capital line as ramp risk, and they are right. How to size it properly is in working capital: the budget line that decides whether you sleep.

One structural point: a line of credit is a useful backstop, but it is a poor substitute for working capital built into the term loan. Lines are usually variable rate, can often be reduced or called by the lender, and are easiest to get when you need them least. If you plan to rely on one, find out its renewal terms before you sign.

SBA 7(a) or a conventional dental practice loan?

Both can finance a dental startup. The SBA does not lend directly under 7(a). It guarantees part of a loan made by a participating lender, and in exchange it sets limits on the loan's terms. A conventional dental practice loan is the lender's own product, on its own terms. The SBA side of this table comes only from sba.gov. The conventional side varies by lender, which is the point: you have to ask.

Which is better depends on the offer in front of you, not the label. An SBA loan can make sense if a conventional lender won't lend the full amount, if the SBA rate cap protects you, or if the real estate piece benefits from the longer term. A conventional dental loan can make sense if it needs less equity, closes faster or carries fewer fees. The only way to know is to put two or three written offers side by side, which is what the term-sheet table below is for.

One practical point: SBA's 7(a) term limits mean equipment and working capital are generally capped at 10 years unless the equipment's useful life is longer [2]. A 10-year term has a much higher payment than 15. If a 7(a) offer looks cheap, check the term before you compare monthly payments.

How do you finance a dental office building?

Buying or building your own office adds real estate financing to the practice loan. The usual options are a conventional commercial mortgage, an SBA 7(a) loan used for real estate (up to 25 years) [2], or an SBA 504 loan.

SBA 504 basics, from sba.gov [2][3]:

• It provides long-term, fixed-rate financing for major fixed assets, such as buying, building or renovating buildings or land, and long-life equipment.
• Loans run from $25,000 to $5.5 million.
• Maturities are 10, 20 or 25 years. The rate is pegged to an increment above the current market rate on 10-year U.S. Treasury issues.
• The borrower contributes at least 10% of the project cost.
• A Certified Development Company (CDC) originates the loan alongside a senior lender.
• It cannot be used for working capital or inventory, or for speculation or investment in rental real estate.

The bigger question is whether to own at all. A ground-up build costs far more up front than a lease. In the Alithos model, a 5-operatory ground-up office at standard finish comes to about $1.45 million at its point estimate before land, against about $934,000 for the same five operatories in leased space. That is roughly $14,086 a month against $9,056 at the model's loan terms. Owning builds equity. Leasing keeps cash and capacity free for the practice. Model both before you tour anything. The building a dental office guide covers the ground-up path, and build, lease, or condo sets out the three-column comparison.

Should dental equipment be financed separately?

You can fold equipment into the main practice loan or finance it on its own through an equipment loan or lease. Neither is automatically better.

Whatever you choose, the equipment payment counts in your debt-service coverage. Splitting it across two lenders does not make it smaller. It just makes it easier to miss.

Section 179 often comes up here, and it is a tax timing question, not a financing one. For tax years beginning in 2026, the federal Section 179 limit is $2,560,000, reduced dollar for dollar once qualifying purchases exceed $4,090,000 [8]. California, for example, limits Section 179 to $25,000 and phases it out above $200,000 of qualifying purchases, and it does not follow federal bonus depreciation [10]. Other states have their own rules. Whether equipment is financed or bought with cash generally does not decide whether it qualifies, and the deduction reduces the equipment's tax basis, so it often shifts when you pay tax rather than whether you pay it. This is educational only; confirm how it applies to you with your CPA. The Section 179 calculator shows the timing for an illustrative purchase.

How should you compare dental loan term sheets?

The interest rate is one line on a term sheet. It is often not the line that costs you the most. Get at least two written term sheets, ideally three, and compare them on the same ten terms.

Put the answers in a spreadsheet, one column per lender. Then calculate the total cost over the period you actually expect to keep the loan, not just the monthly payment. A lower rate with a heavy prepayment penalty can cost more than a higher rate if you plan to refinance or sell in seven years.

Lender staff can be helpful, and they work for the bank. That is not a criticism; it is just whose interests they are paid to protect. Bring your own budget and your own coverage math to the conversation. Have your attorney review the loan documents before you sign; I don't give legal advice on loan terms.

How do student loans affect dental practice loan approval?

Student loans count. In a global coverage calculation, your student loan payment sits in the obligations line next to the practice loan and your living costs. In the illustration above, $30,000 a year of student loan payments reduced borrowing capacity by about $258,000.

A few things to settle before you apply:

• Know which payment the lender will use. If you are on an income-driven plan, in deferment or in forbearance, your current payment may be lower than what the lender counts. Ask each lender how it calculates the student loan payment in its coverage ratio.
• Plan for the payment to change. An income-driven payment rises when your income rises. Build the higher number into your own projection even if the lender uses the lower one.
• Don't refinance on impulse. Refinancing student loans can lower the payment, but it can also change protections that come with federal loans. That is a decision for you and a qualified adviser, made deliberately, not in the middle of a practice loan application.

Student debt does not have to end the conversation. It just has to be in the math from the start.

What goes in a lender-ready package?

A lender-ready package is the set of documents that lets an underwriter say yes without a dozen follow-up requests. Each lender has its own list, so ask for it early. Most will want some version of the following.

• A line-item project budget: construction, equipment, imaging, cabinetry, technology and furniture, soft costs and working capital
• A space and equipment budget tied to a specific operatory count and square footage
• Cash-flow projections with stated ramp assumptions, plus a debt-service coverage calculation
• A personal financial statement and recent personal tax returns
• Recent production reports from your current position
• A credit report you have already reviewed, with any errors disputed
• The lease letter of intent or purchase contract for the site
• Contractor estimates and equipment quotes that match the budget
• Your CV, license and any entity documents
• For SBA loans, proof of the equity injection and the SBA's own forms

The budget and projections are the part most borrowers underbuild. "About $800,000" is not a budget. Underwriters approve documents, and a package that answers their questions before they ask moves faster. Building that package is part of the Budget Plan ($7,500 to $10,000, flat fee, with the exact fee and scope set in writing before work starts). If you want a quicker go or no-go first, the Feasibility Check ($2,500 flat, credited toward the Budget Plan) includes a DSCR pre-check against the 1.25x standard.

If you are earlier than that, the how to open a dental practice guide puts financing in order with site selection, design and construction, so you know when the lender conversation should happen.

Dental practice financing FAQ

Start with your own number. Run the cost estimator to see your project total, monthly payment and the collections needed at 1.25x. When you want the full lender-ready version built on your production, book a free Project Fit Call. For more, browse all the planning guides or the glossary of financing terms.

How we research and update this page: every rate, limit and figure here comes from a primary source or a named publisher listed below, or is labeled as an Alithos planning assumption. Rates and SBA limits change; we re-check them when the page is updated. Read the editorial policy.

Sources

1. U.S. Small Business Administration, "7(a) loans" (accessed 2026). sba.gov/funding-programs/loans/7a-loans
2. U.S. Small Business Administration, "Terms, conditions, and eligibility" (accessed 2026). sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility
3. U.S. Small Business Administration, "504 loans" (accessed 2026). sba.gov/funding-programs/loans/504-loans
4. Board of Governors of the Federal Reserve System, "H.15 Selected Interest Rates" (release of October 30, 2026). federalreserve.gov/releases/h15
5. Starfield & Smith, "Best practices: a review of equity injection requirements under SOP 50 10 8" (2025). starfieldsmith.com
6. Bank of America Practice Solutions, "Dentist loans" (accessed 2026). bankofamerica.com
7. ADA News, M. Jerkins, "Ask the Expert: How much debt is too much when buying a dental practice?" (2026). adanews.ada.org
8. Internal Revenue Service, Rev. Proc. 2025-32 (2025). irs.gov/pub/irs-drop/rp-25-32.pdf
9. myFICO, "What's in my FICO Scores" (accessed 2026). myfico.com
10. California Franchise Tax Board, 2025 Instructions for Form FTB 3885A (2025). ftb.ca.gov
11. Bankrate, "What is DSCR" (accessed 2026). bankrate.com
12. Alithos Advisory, cost estimator and benchmark model (planning assumptions: 15 years at 8.25%, 1.25x coverage, $85,000 working capital; 2026). alithos.co/#benchmark