What changes for a dental practice acquisition in 2026?
Most dentists buying a practice have been told to expect an appraisal, a tax transcript review and a lot of paperwork. From October 1, 2026 a dental practice acquisition funded by a larger SBA loan gains one more checkpoint, and it is the one most likely to change the number on your loan commitment.
Under the SBA’s SOP 50 10, a 7(a) change-of-ownership loan priced at $3 million or more now requires an independent quality of earnings report. We have written up SBA quality of earnings requirement in full separately. This article is about what it means specifically for a dental practice, where the adjustments are unusually predictable and unusually large.
Does the new rule apply to my dental practice purchase? 🦿
Only if the purchase price reaches $3 million. Many single-location practices sit below that line; groups and roll-ups usually do not.
The threshold is measured on the price stated in the purchase and sale agreement, less any owner-occupied real estate carried at appraised value. That distinction matters more in dentistry than in most industries, because selling dentists frequently own the building. A $3.4 million deal where $900,000 is the property can fall below the line, while a $3.1 million practice-only sale does not.
Owner buyouts — a partner buying out the other partner in a practice they already co-own — are exempt, as are ESOP and cooperative conversions. Below the threshold, no report is required, though a lender may still ask for one if the books are complicated. If you are unsure which side of the line your deal falls on, ask the lender to run the calculation early, because it determines the entire diligence timeline.
Which parts of a dental P&L actually get normalized? 📊
Owner compensation first, and then a short list of items that recur in almost every practice sale.
Normalization is the heart of the report. The analyst is not looking for wrongdoing — they are working out what the practice earns under a new owner who runs it at arm’s length. In a dental practice that produces a familiar set of adjustments.
| Item | Why it gets adjusted | Direction |
|---|---|---|
| Selling dentist’s compensation | Replaced with market-rate associate cost or the buyer’s own production | Either way, often large |
| Family members on payroll | Spouse or child paid above the role’s market value | Usually adds back |
| Personal vehicles and travel | Expenses that will not recur under the buyer | Adds back |
| Related-party rent | Seller owns the building and charges above or below market | Either direction |
| One-time equipment purchases | A CBCT or scanner bought in the period, not annual | Adds back |
| Deferred maintenance | Chairs and imaging the buyer will have to replace | Deducts |
| Lab fees and supplies | Tested against normal ranges for the case mix | Either direction |
For reference, a general practice usually runs total overhead at 60 to 65 percent of collections, with staff wages at 25 to 30 percent, dental supplies at 5 to 7 percent, lab fees at 8 to 10 percent and occupancy at 5 to 8 percent. A line well outside its range is not automatically an error, but it is a question the report will ask and the seller will have to answer with documents.
In our practice
The adjustment that most often moves the number is not an expense at all — it is what the buyer will have to pay to replace the seller’s chair time. A selling dentist producing four days a week and taking a modest salary makes the practice look far more profitable than it will be for a buyer who must hire an associate. That single substitution has repriced more dental deals than every other adjustment combined.
Why does the bank reconciliation matter so much in dentistry? 🏦
Because the report ties reported receipts and disbursements to actual bank activity over the trailing twelve months and two full fiscal years — and dental cash flow has timing gaps built into it.
Insurance receivables settle weeks after the treatment is delivered. Membership plan fees arrive in advance of the care they cover. Production and collections almost never move in step. None of that is irregular, but all of it has to be explained and traced when someone compares the practice management software to the bank statements line by line.
This is where practices with weak front-desk follow-up get exposed. A practice producing strongly but collecting at 92 percent of production has been quietly giving away margin, and the report surfaces it as a gap between what the schedule says and what the bank received. A healthy office collects 98 percent or more.
How does the report change my loan sizing? 💵
The lender applies the debt service coverage test to the report’s normalized earnings, not to the seller’s reported profit. The minimum for an initial acquisition is 1.25 to 1.
That sentence carries the whole consequence. If the seller’s package showed earnings that supported the asking price, and normalization brings that figure down, the loan is sized against the lower number. The gap has to be filled from somewhere: a larger equity injection, a seller note, a lower price, or the deal does not close. The 7(a) loan program does not offer a way around the coverage test.
The practical implication is about sequencing rather than paperwork. Knowing your normalized earnings before the letter of intent hardens gives you a negotiating position. Learning it in underwriting gives you a problem.
What should I do before the loan number is issued? 🗓️
Line up the provider while the application is still moving, and get the seller’s records into a state that can survive a bank reconciliation.
- Ask the lender to confirm whether your purchase price clears $3 million net of owner-occupied real estate
- Confirm the lender has a provider engaged — a signed engagement letter must exist when the loan number is issued
- Request twelve months of bank statements plus two fiscal years, and check they reconcile to the practice management reports
- Get the seller’s compensation history, and price what an associate would cost to replace that production
- Identify family payroll, personal vehicles and related-party rent before the analyst does
- Ask what equipment has been deferred — chairs and imaging are the usual answers
October 1, 2026
The requirement takes effect on October 1, 2026. Deals already in the pipeline that will receive a loan number on or after that date need a provider engaged at that moment, not later. If your practice purchase is likely to clear $3 million and you have not discussed diligence with your lender, that conversation is now the urgent one.
The short version
- Applies to 7(a) change-of-ownership loans of $3 million or more from October 1, 2026 — measured net of owner-occupied real estate
- The lender engages the provider; a seller-side report passed through a broker does not count
- Replacing the selling dentist’s chair time is usually the adjustment that moves the number most
- Normalized earnings feed a 1.25 to 1 coverage test, which sizes the loan
Frequently asked questions ❓
Q. Does every dental practice acquisition need an SBA quality of earnings report?
No. The requirement applies to 7(a) change-of-ownership loans with a purchase price of $3 million or more, effective October 1, 2026. A single-location general practice selling below that threshold is not caught. Multi-location groups, practices sold with substantial equipment and goodwill, and roll-ups frequently clear it. Purchase price is measured net of owner-occupied real estate carried at appraised value, so a deal that includes the building may sit lower than the headline number suggests.
Q. Who pays for the report, and who chooses the provider?
The report must be prepared by an independent financial professional engaged by the lender rather than by the buyer or the seller. Commercial arrangements on who bears the cost vary by lender, but the engagement direction does not: a report commissioned by the seller and passed through a broker does not satisfy the requirement regardless of the quality of the analysis.
Q. Which dental-specific items usually get normalized?
Owner compensation is the largest single adjustment, because a selling dentist may have been paying themselves well above or well below market, and the buyer will need to pay an associate or work the chair themselves. After that: family members on payroll, personal vehicles and travel running through the practice, one-time equipment purchases, deferred maintenance on chairs and imaging, and any related-party rent where the seller also owns the building.
Q. Why does the bank reconciliation matter in a dental practice?
Because the report must tie reported receipts and disbursements to actual bank statement activity across the trailing twelve months and the two most recent fiscal years. Dental practices carry timing gaps that make this harder than it sounds: insurance receivables settle weeks after treatment, membership plan fees are collected in advance, and production and collections rarely move together. A practice collecting well below production will see that gap surface in the report.
Q. How does the report affect how much I can borrow?
The lender must use the normalized earnings figure from the report in the debt service coverage test, and the minimum for an initial acquisition is 1.25 to 1. If normalized earnings come in below what the seller’s package implied, the loan is sized against the lower figure. That translates into a smaller loan, a larger equity injection, a seller note, a repriced deal, or no deal.
Q. When do I need to have a provider lined up?
Under the Preferred Lender Program the engagement must be signed and the vendor on record at the moment the SBA loan number is issued. The report itself can be finished afterwards, but the engagement cannot be arranged retroactively. In practice that means securing a provider while the application is still moving.
We work with dentists buying, selling and running practices across Los Angeles — see our dental practice CPA services. If you are weighing a purchase that may cross the threshold, get in touch before your lender issues a loan number rather than after.
