Can SBA 7(a) loans be used to buy a dental practice?
Yes. SBA 7(a) loans can be used to finance the acquisition of a dental practice, including the purchase price, equipment, and certain working capital needs. With loan amounts up to $5 million and flexible qualification standards, the SBA 7(a) program is a common option for dentists buying an existing practice who may not meet traditional lending requirements.
Let’s explore how SBA 7(a) loans work, what they cover, and common pitfalls to help you close successfully.
What Is an SBA 7(a) Loan?
An SBA 7(a) loan is a government-guaranteed loan where the SBA backs a portion of the debt, reducing risk to the lender and allowing borrowers to access capital they might not otherwise qualify for. Loan amounts can reach $5 million, and the funds can be used for many business purposes, including practice acquisitions, real estate, equipment, working capital, and refinancing existing obligations.
Unlike traditional bank loans, which may require collateral, SBA 7(a) loans are attractive because they offer lower down payments and longer repayment terms, making them especially useful for dentists buying an existing practice.
How SBA 7(a) Loans Work for Dental Acquisitions
A 7(a) loan can fund most aspects of a practice acquisition, including:
- Purchase of goodwill and intangible assets
- Equipment and fixtures
- Working capital related to the transition
- Owner-occupied real estate (when part of the purchase)
The SBA does not lend money directly. Instead, you apply through an SBA-approved lender, such as a bank, credit union, or specialty small-business lender. The lender underwrites and makes the credit decision, and the SBA guarantees a portion of the loan, encouraging lenders to finance small business buyers.
Typical Terms and Eligibility Requirements
While terms vary by lender and borrower profile, some typical SBA 7(a) financing features include:
- Loan size: Up to $5 million
- Use of funds: Practice acquisition, equipment, working capital, and real estate
- Repayment terms: Up to ~10 years for working capital/equipment; up to ~25 years for real estate
- Interest rates: Negotiated between borrower and lender (often competitive)
- Loan guarantee: SBA partially guarantees (not 100%) to reduce lender risk
- Collateral: Lender may require all available business assets as collateral
- Personal guarantees: Typically required from owners with ≥ 20% equity
- Eligibility basics: Must be a for-profit business located in the U.S., meet SBA size standards, and show ability to repay the loan.
For acquisitions where the loan exceeds $500,000, most lenders expect a minimum down payment of 10 to 20 percent of the purchase price, which helps demonstrate your financial commitment and reduces the lender’s risk.
Why SBA 7(a) Loans Are Often the Go-To Acquisition Option
There are a few key reasons SBA 7(a) loans stand out for dental buyers:
1. Flexible Use of Proceeds
Unlike some niche lending programs, 7(a) dollars can be used for both tangible and intangible parts of a practice purchase (such as goodwill), which is critical in many dental acquisitions where intangible value comprises a large portion of the total price.
2. Longer Terms and Lower Down Payments
SBA financing typically offers more extended repayment periods than conventional loans and requires less upfront cash, which can preserve your working capital and reduce immediate financial stress after closing.
3. Broad Lender Participation Because the SBA guarantees part of the loan, a wide range of lenders are willing to issue 7(a) financing, including some that specialize in healthcare practice lending or have dedicated SBA staff, improving your chances of approval.
Common Challenges and Things to Watch
Even with its advantages, SBA 7(a) financing comes with trade-offs:
- Lengthy Approval Process–The SBA application and underwriting process can take 30–90+ days, especially for larger or more complex acquisition loans. This means sufficient lead time and organized documentation are critical.
- Extensive Documentation–Expect comprehensive financial documentation — including personal and business tax returns, business plans with projections, and projected post-acquisition cash flow — as part of the underwriting process.
- Personal Guarantees and Collateral–SBA loans almost always require personal guarantees from major owners and may require collateral beyond the practice assets to secure the loan.
These factors make early planning and professional guidance especially valuable.
SBA 7(a) vs. Other Loan Options
Many dentists compare SBA 7(a) loans with other options like SBA 504 loans (which are more real-estate focused and often have lower fixed rates) or conventional bank loans. SBA 7(a) remains the preferred choice for general practice acquisition financing due to its flexibility, especially when goodwill and working capital are significant components of the deal.
Strategic Tips for Dental Buyers
Before applying for SBA 7(a) financing:
- Get a clear valuation of the practice you want to buy.
- Work with an experienced lender early to understand specific credit criteria.
- Prepare detailed financial projections showing you can service the debt post-purchase.
- Ask about pre-qualification before executing a purchase agreement to avoid surprises.
These steps can streamline approval and help align financing with your overall acquisition strategy.
Advising California Dental Practices on SBA 7(a) Loans
SBA 7(a) loans are a powerful tool for dentists acquiring an existing practice because they offer flexible use of funds, competitive terms, and relatively modest down payment requirements compared with conventional financing. They require planning, documentation, and time, but for many buyers, they are the most accessible path to ownership financing. That’s where Polished Legal can assist you. Contact us today for the informed guidance we provide.
