Acquiring a Practice: How Much Can You Borrow?
An acquisition loan is sized by the practice's ability to service the debt after acquisition — the DSCR test. The post-acquisition P&L has to cover the new debt service plus owner draw at a comfortable ratio. Here's the math lenders actually run.
DSCR — the gating ratio
DSCR = (annual net operating income) / (annual debt service). Specialty dental lenders typically require 1.20x minimum and price aggressively at 1.30x+. NOI is normalized — owner comp, family payroll, non-recurring expenses get added back. The addback schedule, prepared by a dental CPA, is the most consequential document in the file.
Valuation multiples by practice profile
General dentistry, fee-for-service or PPO-heavy, healthy equipment: 65–80% of trailing-twelve-month collections (goodwill component). Heavy Medicaid or DSO-style insurance mix: 50–65%. Specialty practices (ortho, OS, endo) with healthy referral patterns and modern equipment: 75–100%.
Goodwill + bill-of-sale equipment value + AR = total practice value. Lenders cap LTV against this appraised value, not against the contract price.
Working math
Practice doing $1.2M in collections, 60% multiple (PPO-heavy general), $400K equipment value, $50K AR. Appraised value: $1.27M. Lender funds up to 100% of appraised value on credit-strong files = $1.27M acquisition loan capacity.
Buyer paying $1.4M contract price: lender funds $1.27M; buyer brings $130K equity (or seller finances the gap on a sub-note).