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Pros And Cons of An External Financing Arrangement For Dental Offices

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Pros And Cons of An External Financing Arrangement For Dental Offices

Every dental practice needs a financial arrangement to provide the treatment the patients need instead of what they can afford. And it is a myth that getting an external financing arrangement for dental practice is easy.  

So, before you consider looking for external financing, here are a few uses of dental loans, like working capital infusion, acquiring an existing dental practice, renovation, business expansion, and purchasing or upgrading equipment that helps financial endeavors. This blog shares insights about the pros and cons of financing a dental practice. 


Pros of an External Financing Arrangement for Dental Offices: 

External financing allows you to use internal sources of finance for other purposes. In this way, the dental office can preserve the resource as nobody wants to run out of cash in case of an issue. The options available such as crowdfunding, private investment, and securing a business loan, are the most common ways to use external financing for business operations. 

External financing arrangement expands the opportunity to finance growth projects that are otherwise not possible on their own, and that is why it is a part of the reason why dental practices use external funding. For instance, if the dental practice needs more space to accommodate the demand and keep pace with existing and new patients or invest in large capital equipment, external financing can help in addition to facilitating growth. 

External financing arrangements can be functional in terms of advice and expertise you get in an area over-saturated by doctors. For instance, the banker, third party, or technology investor has funded other businesses and can help you avoid the pitfalls that create problems for others. 

Cons of an External Funding for Dental Offices: 

When looking for an external financing arrangement, such as investors, shareholders, etc., compromise with the ownership. The dental practice may get 100% financing to launch a  new product/equipment, but part of the investor agreement would demonstrate that now the financing investor has a say in the company’s decisions. The independence gets compromised with other strategic goals. 

External funding wants their return on investment. For instance, banks and investors expect their money to develop in a direction through either interest on the loan, rate of return,  dividends, or profit sharing. Banks forecast using EBITDA (earnings before interest, tax,  depreciation, and authorization) before funding to have security. 

Getting the external financial arrangement seems like a full-time job, where you identify the potential investors, prepare a business plan and presentation, call dozens of people, and try to arrange a meeting with the potential investors. It includes a lot of time and no guarantee that you will get the funding. 

Sources of Finance: 

Owner’s investment 

Personal finance, like cash on hand, is the source of funding. That means no repayment schedule, no interest accruing, and no meetings with strangers asking for funding. However, putting personal finance at risk means you can lose all your savings, putting plans at risk and jeopardizing personal relationships in case of bootstrapping.

Investors and Banks 

Investors and banks are other sources of financing to expand or start a business. Wealthy individuals or firms that cover a large part of the finance needs all in one go to get back to the business operations.  

Bank loans are a convenient source of business funding. Discuss a loan with a bank. The bank expects detailed cash flow projections and timely repayment. While deciding on a bank for external financing for a dental office, it is imperative to check on each of the following so that you do not limit the success. 

  • Worth of loan 
  • The bank rate on the loan 
  • Loan period 
  • Early reimbursement charges 
  • Arrangement fees 
  • Whether the loan covers the equipment 
  • Collateral needed 
  • Late fees and 
  • Additional service 

Crowd-Sourced funding 

A most recent type of business funding is where thousands or hundreds of small investors make a  small contribution that sums to the total that a large investment bank/firm can provide. The funders expect a quick return on investment once the funding process gets completed. The downside, with all types of expectations, you might not be able to deliver what you promised.