How to Finance an Orthodontic Practice: Startups vs. Acquisitions

By Jill Allen | Hey Docs! Podcast with Matthew Kroeker of Bank of America

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Owning an orthodontic practice is a major professional milestone, but deciding how to get there involves more than finding the right location or purchasing an existing business. Before signing a lease, negotiating an acquisition, or applying for financing, doctors need to understand what practice ownership will require financially.

For many orthodontists, the first major decision is whether to build a practice from the ground up or acquire an established office. Both paths offer opportunities, but they come with different financial considerations, lending requirements, and expectations for the first several years of ownership.

On this episode of the Hey Docs! Podcast, Jill Allen welcomes back Matthew Kroeker of Bank of America to discuss the financial side of orthodontic practice ownership. Drawing on Matt's experience working with doctors through startup and acquisition financing, they explore what lenders evaluate, how personal debt influences borrowing decisions, and why financial planning should begin well before a doctor is ready to open or purchase a practice.

Whether you're an orthodontic resident exploring your options or an associate preparing for ownership, understanding the financial requirements can help you make a more informed decision about your next step.

Should You Start an Orthodontic Practice or Buy an Existing One?

One of the first decisions prospective practice owners face is whether to pursue a startup or an acquisition. While financing is an important part of that decision, Jill and Matt emphasize that doctors should also consider the type of business they want to own.

A startup gives an orthodontist the opportunity to build a practice around their vision. From choosing the location and designing the office to establishing systems, hiring employees, and developing the brand, the owner has greater control over how the business takes shape.

That flexibility comes with financial responsibilities. A new practice must establish its patient base, build referral relationships, and develop consistent production and collections while managing the expenses associated with opening and operating the office.

An acquisition offers a different starting point. Purchasing an established orthodontic practice may provide an existing patient base, employees, operating systems, and historical financial performance. Those factors can make it easier to evaluate the business's current position, although they do not eliminate the risks associated with ownership.

The right decision depends on more than which option appears easier to finance. Doctors should evaluate their personal goals, financial readiness, willingness to manage uncertainty, and the opportunities available in their market.

JA&A Insight: The best ownership path is not necessarily the one with the lowest initial investment. It is the one that aligns with the doctor's long-term vision, financial capacity, and ability to manage the business successfully.

What Do Banks Look for When Financing an Orthodontic Practice?

Before approving financing, lenders need to understand both the doctor's financial position and the financial viability of the proposed practice.

Matt explains that a lender's evaluation goes beyond the amount a doctor wants to borrow. Personal financial obligations, existing debt, available resources, and the anticipated performance of the business all influence the financing conversation.

For prospective owners, this means personal financial decisions can affect their ability to move forward with practice ownership.

Student loans, car payments, mortgages, credit card balances, and other recurring obligations are all part of the financial picture. Lenders want to understand whether the borrower can reasonably manage existing responsibilities alongside the financial demands of owning a practice.

This does not mean doctors must eliminate every personal debt before pursuing ownership. Instead, they should understand how their current obligations influence their financial flexibility and what adjustments may improve their position before applying for financing.

It is also important to recognize that lending decisions are individualized. A doctor's income, financial history, proposed practice, and overall business plan may all influence the financing options available.

How Does Student Loan Debt Affect Orthodontic Practice Financing?

Educational debt is a reality for many orthodontists, particularly those preparing to transition from residency or associateship into ownership.

With significant student loan balances, doctors may wonder whether they need to pay down their educational debt before considering a practice loan.

Matt discusses the importance of evaluating debt strategically rather than assuming every balance should be paid off as quickly as possible.

High-interest credit card debt, for example, may deserve more immediate attention because of its cost and the effect it can have on monthly financial obligations. Student loans may offer repayment structures that allow doctors to manage their balances over a longer period while pursuing other financial goals.

However, the right approach depends on the individual's interest rates, repayment terms, income, and overall financial position.

Doctors should understand their monthly obligations and consider how additional personal expenses could affect their ability to invest in practice ownership.

Maintaining reasonable personal living expenses can provide greater flexibility during the early stages of ownership, when the business may still be developing consistent cash flow.

How Does Financing Work for an Orthodontic Startup?

Financing a new orthodontic practice is different from purchasing an established business because there is no existing practice revenue to evaluate.

Instead, lenders must consider the proposed business plan, projected financial performance, startup costs, and the doctor's financial qualifications.

Matt explains that startup financing is often structured around the different stages of opening a practice. Funds may be distributed as construction progresses, equipment is purchased, and other approved business expenses arise.

This makes planning particularly important because the timing of expenses does not always align with the timing of incoming revenue.

Before opening, an orthodontic startup may need financing for construction, equipment, technology, furniture, and other initial investments. Once the office begins seeing patients, the practice also needs sufficient working capital to cover ongoing operating expenses while patient volume and collections develop.

Jill emphasizes the importance of planning beyond opening day. Doctors need to understand what the first year and second year of ownership may look like financially, particularly as expenses become more consistent and revenue gradually increases.

A realistic financial plan should account for both the cost of launching the business and the resources needed to support its early operations.

Why Working Capital Matters for Orthodontic Startups

Working capital is an important part of startup financing because opening an orthodontic practice does not immediately create predictable monthly revenue.

Even when a practice begins attracting patients and starting treatment, collections may develop over time. Meanwhile, expenses such as payroll, rent, utilities, software, and other operating costs continue.

Doctors should understand how much working capital is included in their financing arrangement, what expenses those funds are intended to cover, and how long their available resources may support operations.

Planning for the early stages of practice growth helps owners make more informed decisions about hiring, spending, and financial commitments.

JA&A Insight: Opening an orthodontic practice and financially sustaining it through its early growth are two different responsibilities. Your startup plan should account for both, including how expenses will be managed while collections develop.

How Do Banks Evaluate an Orthodontic Practice Acquisition?

When financing an acquisition, lenders have an existing business to evaluate. This creates an opportunity to review historical revenue, expenses, and financial performance rather than relying primarily on projections.

However, purchasing an established orthodontic practice does not automatically make financing simpler or guarantee that the business will support its purchase price.

Matt explains that lenders examine whether the practice's financial performance can reasonably support the proposed debt and ongoing operating expenses.

This includes evaluating historical revenue, expense patterns, financial trends, and the overall sustainability of the business.

A practice may appear attractive because of its patient volume or production, but those numbers need to be considered alongside its financial obligations.

Prospective buyers should also evaluate whether the practice's current performance is likely to continue after the ownership transition.

For example, changes in staffing, compensation, patient relationships, or operating expenses may influence the financial outlook under new ownership.

A thorough financial review helps doctors understand not only what they are purchasing, but also what the business may require from them after the transaction is complete.

Which Expenses Should You Review Before Buying an Orthodontic Practice?

One of the most important parts of evaluating an acquisition is understanding the practice's operating expenses.

Matt encourages doctors to look closely at fixed costs and financial trends rather than focusing exclusively on revenue.

Rent, employee compensation, and other recurring financial obligations can significantly influence how much cash remains available to operate the business and meet loan payments.

A buyer should understand whether those expenses are reasonable for the practice's current performance and whether they are likely to change following the acquisition.

It is also important to identify unusual fluctuations in financial reports. A significant change in revenue or expenses may have a reasonable explanation, but prospective owners should investigate those differences before making financial commitments.

Historical performance provides valuable information, but it should be evaluated in context. Doctors need to understand what contributed to past results and whether those conditions are likely to continue.

This is where working with experienced financial and practice management advisors can be especially valuable. A lender may evaluate whether the transaction meets financing requirements, while other advisors can help the doctor understand the operational and financial implications of ownership.

Why Personal Financial Planning Matters Before Practice Ownership

One of the biggest financial mistakes prospective practice owners can make is assuming that obtaining a practice loan means all their financial needs are covered.

Practice financing is generally intended for approved business purposes, and doctors still need a plan for managing their personal financial obligations.

This is especially important for orthodontic startups, where the practice may take time to generate sufficient cash flow to support the owner's desired compensation.

A doctor who enters ownership with substantial personal monthly expenses may have less flexibility if the business grows more slowly than anticipated.

Jill and Matt emphasize the importance of understanding the relationship between personal finances and practice finances before making the transition.

Prospective owners should evaluate their household expenses, existing debt obligations, available savings, and anticipated personal income during the early stages of ownership.

Having a financial safety net can provide additional flexibility while the practice develops, although the appropriate amount will vary depending on the individual's circumstances.

The goal is to avoid placing unnecessary pressure on the business to immediately support personal financial commitments that may not align with its early cash flow.

Build the Right Advisory Team Before You Buy or Start a Practice

Financing is only one part of the practice ownership process. Doctors also need to understand how their financial decisions connect to the operational responsibilities of running an orthodontic business.

Jill and Matt reinforce the value of surrounding yourself with knowledgeable advisors who understand the specific challenges of dental and orthodontic practice ownership.

A lender can help evaluate financing options and explain the requirements associated with borrowing. A financial advisor or accountant can help assess personal financial readiness and the potential tax and financial implications of ownership.

Practice management consultants can help doctors evaluate the operational side of a startup or acquisition, including staffing, systems, budgeting, and planning for growth.

These perspectives are especially valuable when decisions overlap. A practice may qualify for financing but still require careful operational planning to support its long-term goals.

Building an advisory team early gives prospective owners an opportunity to evaluate their options, identify potential concerns, and make decisions with a clearer understanding of the financial and operational commitments involved.

Frequently Asked Questions About Orthodontic Practice Financing

How do you finance a new orthodontic practice?

Financing a new orthodontic practice typically involves applying for a business loan that may cover approved startup expenses such as construction, equipment, technology, and working capital. Lenders evaluate the doctor's personal financial position, business plan, projected performance, and ability to manage the proposed debt. Loan terms and funding arrangements vary by lender and borrower.

Is it easier to finance an orthodontic startup or an acquisition?

Neither option is automatically easier to finance. Startup financing relies heavily on projected performance and the doctor's financial qualifications, while acquisition financing allows lenders to review an existing practice's historical revenue and expenses. The strength of the business plan, financial outlook, and borrower qualifications all influence the decision.

Can you get an orthodontic practice loan with student loan debt?

Yes, orthodontists may be able to qualify for practice financing while carrying student loan debt. Lenders consider educational debt alongside income, monthly obligations, credit history, and the proposed practice's financial outlook. The impact depends on the borrower's overall financial position and the lender's requirements.

What financial information should you review before buying an orthodontic practice?

Prospective buyers should review historical revenue, expenses, financial trends, and recurring obligations such as rent and payroll. They should also investigate unusual fluctuations in financial performance and consider whether the business can support its operating costs and proposed acquisition financing after the ownership transition.

What is working capital in an orthodontic startup loan?

Working capital refers to funds available to support eligible ongoing business expenses while a new orthodontic practice establishes patient volume and collections. These expenses may include payroll, rent, utilities, and other operating costs. The amount and permitted uses of working capital depend on the financing arrangement.

How should orthodontists financially prepare for practice ownership?

Orthodontists should review their personal debt, monthly living expenses, savings, and anticipated financial obligations before pursuing ownership. They should also understand startup or acquisition costs, evaluate financing options, and work with qualified advisors to develop a realistic financial plan for the early stages of operating the practice.

Final Thought

The decision to start or acquire an orthodontic practice is an important step toward ownership, but the financial preparation should begin long before a doctor signs a purchase agreement or opens the doors to a new office.

Startups and acquisitions offer different opportunities, and each requires an understanding of how financing, operating expenses, personal debt, and future cash flow fit together.

For prospective owners, the most important first step is understanding their current financial position and how it aligns with the practice they hope to build or purchase.

Working with experienced lenders and advisors can help doctors evaluate their options, prepare for the financial responsibilities ahead, and develop a plan that supports the long-term sustainability of the business.

Practice ownership is a significant investment, and thoughtful financial preparation can make that transition more manageable. Whether you choose to build from the ground up or purchase an established office, the goal is to enter ownership with a clear understanding of your numbers, your responsibilities, and the financial strategy supporting your future practice.