Selling a dental practice is a complex, high-stakes event. As you prepare for your dental practice transition, a critical question often arises: Should I offer seller financing when selling my dental practice? Seller financing, or “carrying a note,” means the seller acts as a secondary lender, loaning the buyer a portion of the total purchase price. While this can seem like a straightforward way to bridge a financing gap and finalize a sale, expert advisors and dental practice brokers strongly urge sellers to proceed with extreme caution. Generally speaking, sellers should be wary of becoming the banker for their practice’s new owner.
The Golden Rule: Avoid Unsecured Loans
The overarching recommendation from industry professionals is to avoid uncollateralized loans to a buyer.
A common scenario involves a buyer who is approved for the majority of the loan but needs a small amount – perhaps for a security deposit or to meet working capital requirements – that the bank is unwilling to provide. By providing this loan, the seller assumes a significant, unmitigated risk. If the new owner faces financial difficulties, the seller will inevitably be the last one paid. The buyer’s priorities will correctly be their personal expenses (mortgage, food, rent) and critical operational costs (staff payroll, overhead) before they pay off a secondary, unsecured note to the former owner. This leaves the seller with no reliable recourse if the buyer defaults on their payments.
The Only Comfortable Exception: Real Estate and Collateral
There is one primary exception where expert dental practice brokers may be comfortable with the seller providing financing: when the sale includes the real estate in addition to the practice assets. If a buyer is purchasing the practice and the building together but is slightly short on the required down payment (which can be manipulated by the bank to some degree, the seller could potentially carry a note for that small shortfall (e.g., 10–15% of the real estate value). Crucially, this loan must be secured by a second mortgage on the property. Real estate provides essential collateral, giving the seller a legal recovery mechanism in case of default. While the seller remains second in line to the primary lender, the risk is dramatically mitigated compared to an unsecured practice loan.
Weighing the Risks of a Deal Collapse
In rare, extenuating circumstances – such as a practice located in a rural area with few potential buyers – a seller might consider providing an unsecured loan to prevent the entire dental practice transition from collapsing.
If a deal is 85% complete and the buyer needs a modest loan (e.g., $20,000–$25,000) to close, the seller must weigh the high cost of refusal. Walking away means restarting the entire process, which entails significant new legal fees (often $7,000–$8,000 or more) and the lengthy headache of finding and vetting a new buyer. The potential for staff uncertainty if a sale falls through is also a factor.
Conclusion: A Case-by-Case Evaluation
Ultimately, the decision of whether to offer seller financing is one that requires a careful, case-by-case evaluation. It is not a choice to be made lightly or without professional guidance. Always consult with your dental practice broker and an experienced attorney to analyze the specific risks and rewards of your transaction. By prioritizing collateral and understanding the potential financial exposure, you can ensure a smooth, profitable sale of your practice.
