While opening a new dental practice in the United States is exciting, raising capital can be difficult because of tight collateral conditions set by traditional banking systems. Revenue-based loan management provides a more intelligent option by focusing on your potential revenue, not your assets. This type of loan management can be a more viable option for new owners who need quick funding without sacrificing equity.
Why Traditional Loans Create Barriers for New Practices
Traditional lenders typically consider three factors when looking to loan money: Collateral, credit history, and time in business. New dental practices may not have commercial property or a long business history, or have a substantial amount of cash. Many new dental practices may find it very difficult to obtain any form of a loan from traditional lenders. It can take several months to get approved by a traditional lender, which delays payroll, equipment setup, and marketing plans. The use of revenue-based loan management eliminates those obstacles by evaluating the potential of the practice’s revenues rather than its assets.
What is Revenue-Based Loan Management?
In revenue-based loan management, repayment of the loan is directly linked to the monthly revenue of your practice. A set instalment would be replaced, instead, by a percentage of sales that is automatically deducted until the total amount is repaid. This approach considers projected and actual revenue performance as the main source of repayment, rather than physical collateral. Hence, this type of loan management is highly appealing to startup dental practices that have a good patient flow in the initial days or have clear growth projections. The main characteristics include:
- Any physical collateral is not necessarily required
- Flexible repayment schedule based on the revenue
- Faster approval timelines
- No ownership dilution
Revenue-based loan management is a way of financing for new dental practices in the US that safeguards their control and equity.
How Revenue-Based Loan Management Evades Collateral Problem
For traditional banks, asset-backed lending is used as a risk-reduction strategy. In case of default, they can seize collateral. But new practices do not have assets large enough to meet traditional underwriting criteria. Revenue-based loan management evades this issue. Instead of assets, they consider:
- Monthly recurring revenue
- Insurance reimbursement
- Patient acquisition trends
- Appointment pipeline
- Merchant processing data
Repayment is adjusted based on actual income. This is a major difference from traditional term loans. In slow months, repayment slows down, while in high-revenue months, repayment speeds up. This makes revenue-based loan management less stressful for early-stage practices with seasonal variations.
Time is of the Essence for New Practice Owners
Getting your practice up and running requires hitting tight timelines and incurring a lot of start-up costs. Within just a matter of days, you can get decision approvals on revenue-based loan management, as they have much shorter approval times than conventional bank loans. Using a broker for revenue-based loan management will provide you with a competitive deal based on your particular funding needs in a fast and efficient manner. For example, if you want to have access to rapid working capital, consider revenue-based loan management to help you gain access to funds within a fraction of the time it would take you to go through a traditional bank.
Non-Dilutive Financing That Protects Equity
Equity giving is one of the ways through which you are reducing your long-term control as well as profit. Revenue-based loan management offers a non-dilutive alternative by which business owners can get capital and yet retain full ownership of their business. In other words, this type of loan management, without the need for investor or board interference, makes it possible for the practice owner to have complete decision-making power.
Supporting Working Capital and Growth
New dental practices require additional funds to cover payroll, marketing, and technology expenses, as well as delayed insurance claims. The revenue-based loan management can provide additional cash flow support to new dental practices. When properly structured, it can rank as one of the best revenue-based financing alternatives for healthcare entrepreneurs.
When is Revenue-Based Loan Management Most Appropriate?
Practices that have consistent monthly revenues, electronic payments, and a clear plan for growth will benefit from a revenue-based loan management approach. This type of loan should be used for short to mid-term working capital needs rather than long-term financing for real estate. When partnering with a broker for a revenue-based loan, the repayment terms will be structured with consideration to your cash flow and growth capability.
Conclusion
When opening a new dental practice in the United States, it is now possible to do so without pledging personal assets or giving up ownership. A revenue-based plan delivers flexible, non-dilutive capital that depends on the revenue potential instead of collateral. With the fast approval and flexible repayment terms, a revenue-based loan management plan allows new owners to finance the operations, keep the cash flow at a good level, and expand, all the while continuing to take full equity and having full control. In the current highly competitive healthcare market, a revenue-based loan management plan demonstrates that, indeed, no collateral means no problem.
