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Asset Based Loan

Does lack of Patient Insurance hurt Dental Practice loan requests?

Medical practices have been considered desirable by traditional funding sources for a long period of time due to the professional nature of the business and the low default rate.  Other factors for this include a consistent accounts receivable balance due to a high percentage of the patients having insurance.

However, this high percentage of insured patients applies primarily to traditional medical practices.   Dental practices and Chiropractor practices have a far lower level of insured patients than medical practices.   As a result, when Dental practices and Chiropractor practices apply for financing at traditional and some non traditional sources, the lack of patient insurance used for payment is considered in the loan request.

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When a Medical practice applies for financing, their accounts receivables may total in the hundreds of thousands of dollars.   Most Dental and Chiropractor practices will have Accounts receivables under $100,000 with most being below $50,000.   As a result, traditional financiers are not able to use and assign the practice’s accounts receivables as collateral for financing, which makes their asset position somewhat weaker in the financing request.

The root cause of this is that most individuals have health insurance but not as many have dental insurance.    Those that have dental insurance often elect the insurance through one of their workplace programs.    A very limited number of individuals have insurance that will cover treatment procedures at a Chiropractor.    However, there are more insurance policies available to cover dental work than chiropractor work.

As a result, when practices seek financing, such as a dental practice loan, they should be aware that they have one less significant asset available for the financing than a traditional medical practice.   One strategy that can make up for this is to work with their Accountant to make sure their financial statements are reported in an way that makes their bottom line more profitable.    There are some accounting options that businesses and their accountants can choose from that will more likely allow a practice to show a positive net income which will closely considered as part of the credit evaluation whether the practice can handle the additional debt service.