Funding considerations for dental practice acquisitions

Getting the funding right

Finding the right practice is only half the challenge. The other half is funding it in a way that works — not just to get the deal done, but to leave you with enough cashflow to run the business comfortably afterwards.

Most dental acquisitions involve some form of debt, and the funding structure you choose has a direct impact on your monthly obligations, your flexibility, and your risk exposure. This guide covers the key considerations.

Types of funding

There are several ways to finance a dental practice acquisition, and most deals use a combination:

• Senior debt — the primary bank loan, typically secured against the practice and repaid over 10 to 15 years. This is the backbone of most acquisition funding
• Goodwill loans — some healthcare lenders offer specific products to finance the intangible goodwill element of the purchase price
• Vendor finance — the seller agrees to defer part of the price, repaid over an agreed period post-completion. This can bridge a gap between what the bank will lend and what you need
• Personal equity — your own savings or family support. Most lenders expect you to contribute something, typically 10 to 20 percent of the purchase price
• Mezzanine or subordinated debt — a layer of funding that sits between senior debt and equity, sometimes used in larger transactions or portfolio builds
• Equity partners — bringing in a co-investor who contributes capital in exchange for a share of the business. More common in group acquisitions than single-practice purchases

Understanding LTV

Loan-to-value, or LTV, is one of the first things a lender will look at. It measures the total borrowing as a percentage of the practice's value. If you're buying a practice for £1 million and borrowing £800,000, your LTV is 80%.

Every lender has a maximum LTV they're comfortable with. In the dental sector, healthcare-specialist lenders tend to be more accommodating than high street banks, but there are still limits. If your LTV is too high, you'll either need to find more equity, negotiate a lower purchase price, or bring in vendor finance to fill the gap.

Understanding DSCR

The debt service coverage ratio, or DSCR, measures whether the practice generates enough earnings to comfortably cover its debt repayments. It's calculated by dividing the practice's EBITDA by the total annual debt service (principal plus interest).

A DSCR of 1.0x means the practice earns exactly enough to meet its loan repayments — with nothing left over. Lenders typically want to see a DSCR of at least 1.25x to 1.5x, meaning the practice earns 25 to 50 percent more than it needs to service the debt.

This matters because it determines not just whether you can get the loan, but how comfortably you can live with it. A tight DSCR leaves you vulnerable to any dip in revenue — an associate leaving, a quiet month, unexpected repairs. A healthy DSCR gives you breathing room.

How LTV and DSCR interact with valuation

This is where funding and valuation come together. If you overpay for a practice, your LTV goes up and your DSCR comes down. At some point, the numbers stop working — either the lender won't fund the deal, or you can fund it but leave yourself too exposed.

Smart buyers work backwards from the funding. They figure out what level of debt is serviceable, what equity they can contribute, and that gives them a ceiling on what they can afford to pay. The valuation then needs to sit within that range, not the other way around.

Choosing the right lender

Not all lenders are the same, and the difference in dental lending is significant. Healthcare-specialist teams at banks like AIB, BOI, and several UK lenders understand the sector and will structure loans around dental cashflows. They know that goodwill is the primary asset, that patient revenue is recurring, and that well-run practices are resilient businesses.

A generalist business lender may apply standard commercial property criteria, which can be a poor fit for dental. They might undervalue goodwill, require more security, or offer less favourable terms simply because they don't understand the sector.

It's worth speaking to multiple lenders and comparing not just the rate, but the overall terms — repayment period, covenants, arrangement fees, and how flexible they'll be if you need to adjust things down the line.

Vendor finance as a strategic tool

Vendor finance — where the seller agrees to defer part of the purchase price — is underused in dental M&A. For buyers, it reduces the amount you need to borrow from the bank and improves your LTV and DSCR. For sellers, it can unlock a higher headline price or make a deal viable that otherwise wouldn't be.

Typical vendor finance arrangements involve the seller deferring 10 to 20 percent of the price, repaid over two to three years post-completion, sometimes with a modest interest rate. The key is to align it with the seller's transition period — if they're staying on as an associate for a year, it gives both parties confidence that the handover will go smoothly.

Planning for day one and beyond

Your funding structure needs to work not just on paper, but in practice. After completion, you'll have loan repayments, staff costs, materials, rent, and all the other overheads of running a dental practice. On top of that, you'll want to pay yourself a reasonable salary.

Build a cashflow model that accounts for a realistic ramp-up period. Revenue might dip slightly in the first few months as patients adjust to new ownership. Factor in a buffer for the unexpected — equipment failures, associate turnover, or a slower start than planned.

The best-funded deals aren't just the ones with the lowest interest rate. They're the ones where the buyer has enough headroom to weather the inevitable bumps in the first year of ownership.

If you're at the start of your journey, our guide to buying your first dental practice covers the full process from start to finish.