How Do SBA Programs Apply to Dental Practices?
SBA 7(a): The Dental Workhorse
SBA 7(a) is the most commonly used program for dental practice financing. It covers:
- Practice acquisition (business + goodwill)
- Equipment (chairs, imaging, CAD/CAM, sterilization)
- Working capital and operating expenses
- Leasehold improvements and buildout
- Real estate (if included in the deal)
Maximum loan: $5 million. On a practice acquisition, the loan amortizes over no more than 10 years; only the real estate portion can go out to 25 years. Rates are usually variable, tied to Prime.[1]
SBA 504: For Building-Inclusive Deals
SBA 504 is designed for major fixed assets, primarily real estate and heavy equipment. The three-party structure:
- Conventional lender: 50% of project cost (first lien)
- CDC (Certified Development Company): Up to 40% (second lien)
- Borrower: 10% minimum equity
The CDC portion has a fixed rate locked at approval, protecting against rate increases over the life of the loan. Under SOP 50 10 8.1 a 504 project must show at least 1.15:1 debt service coverage on historical results (the last fiscal year or a two-year average), up from 1:1 under the prior SOP.[2]
Side-by-Side Comparison for Dental Practices
| Feature | SBA 7(a) | SBA 504 |
|---|---|---|
| Max Loan | $5 million | $5.5 million (CDC portion) |
| Min Down Payment | 10% | 10% |
| Interest Rate | Variable (Prime + spread) | Bank: Variable; CDC: Fixed |
| Term (Real Estate) | Up to 25 years | 20-25 years |
| Working Capital | Yes | No (fixed assets only) |
| Practice Acquisition | Yes | No (real estate/equipment only) |
| Equipment | Yes | Yes (heavy equipment) |
| Timeline | 60-90 days | 90-120 days |
| Best For Dental | Practice acquisitions, startups, mixed-use | Building purchases, major renovations |
When to Use Each Program for Dental
Use SBA 7(a) When:
- Practice acquisition only: Buying the business without the building
- De novo startup: Buildout, equipment, and working capital
- Speed matters: Tighter timelines than 504 allows
- Mixed purposes: Combining acquisition, equipment, and working capital
Use SBA 504 When:
- Buying the building: The practice space is a major component of the deal
- Rate protection: You want to lock in fixed rates on a significant portion
- Major renovation: Building out or renovating a dental office space
- Long-term hold: You plan to own the building for 10+ years
Combine Both When:
- Practice + building: 504 for the real estate, 7(a) for the business and working capital
- Multi-location expansion: Building purchase plus second practice acquisition
Example: Dr. Lisa's $1.52M Multi-Location Deal
In the FUNDED guide, Dr. Lisa Huang uses both programs for her expansion:
- SBA 504: $1,000,000 for building purchase ($850K) and renovation ($150K)
- SBA 7(a): $368,000 for second practice acquisition ($420K minus equity) and working capital
- Total equity: $152,000 (10%)
This structure gives her fixed rates on the building (the largest component) while maintaining flexibility for the practice acquisition and working capital. Under SOP 50 10 8.1, a second-practice purchase like this one is a Business Expansion when the buyer's existing practice has operated for at least two full fiscal years under current ownership and she buys 100% of a practice in the same industry group. That sets a 1.15:1 coverage floor on historical results (a first-time buyer faces 1.25:1). The 7(a) piece funds a change of ownership, so it amortizes over no more than 10 years, and the 504 has to be its own loan, since 504 can't be blended into a single 7(a).[3]