Acquiring a General Dental Practice in King County, Washington: An SBA 7(a) Model Study

Model study: an illustrative feasibility analysis built on public data for King County, Washington; not a client engagement.

Project summary

All figures in this table are model results or assumptions, not market facts.

The modelled project is the purchase, by a licensed dentist, of an established general practice operating from leased space in suburban King County. The buyer acquires assets, not stock: goodwill and patient records, equipment, furniture, supplies and an assignment of the lease. The seller keeps pre-closing receivables, consults for six months to introduce patients and staff, then leaves. Every practice-level figure (collections, patients, expenses, price) is an assumption listed in the assumptions register; every county, workforce and program figure is cited.

The credit question

A lender is not mainly asking whether King County needs dentists. It is lending about $1.2 million against a business whose main asset, the relationship between a departing dentist and about 2,150 patients, cannot be pledged, cannot be owned by a non-dentist, and can leave. Four questions follow.

Are the seller's earnings real after paying a dentist at market? A dental tax return mixes pay for clinical work, return on ownership, and personal or one-time costs. SOP 50 10 8.1 tests debt service coverage at 1.25x for an Initial Acquisition on the last fiscal year or the two-year average, historical or adjusted, and does not let the lender rely on projections to meet the test [1]. Each add-back must be justified in the credit memorandum, and owner-compensation adjustments must pass a global cash flow test [1].

How many patients follow the practice to its new owner? The historical test looks back; the risk sits in the eighteen months after closing. With 6% attrition, as modelled, Year 1 coverage is 1.07x although history passes at 1.57x. With 15%, coverage falls below 0.5x.

Does the structure fit the 2026 rules? SOP 50 10 8.1 applies to applications issued an SBA loan number on or after October 1, 2026 [3]. It sets a 10% equity minimum that cannot be reduced for an Initial Acquisition, counts seller debt as equity only on full standby for the term of the loan, limits total debt including seller debt not on full standby to the business valuation, and limits amortization to 10 years [1]. Several common deal shapes fail at this price.

What does the lender hold if the practice fails? Discounted business collateral covers 12.3% of the loan. Washington lets persons who are not licensed dentists own a practice's equipment, furnishings and premises, but not its patient records [4], so goodwill is realized only by selling to another dentist. A loan request must not be declined solely because collateral is inadequate, but personal real estate and life insurance rules then apply [1]. There is no business real estate.

The short answer: the acquisition is financeable at $1,250,000 with 10% buyer cash and a 10% seller note on full standby, and not financeable at that price with 10% cash and no seller paper, because the 7(a) loan would exceed the valuation.

Location and county economy

Population and growth

Two official series measure King County's population. Census Bureau estimates put July 1, 2025 at 2,344,939 [5]; Washington's Office of Financial Management (OFM) put April 1, 2026 at 2,424,700 [6]. The gap of about 80,000 reflects different methods and dates, not a change in the county.

Source: Census Bureau county estimates [5]; growth rates computed.

Source: OFM April 1, 2026 estimates [6].

The county added 13,000 people in the year to April 2026, 8,164 by natural change and 4,836 by net migration; since 2020, migration supplied 107,574 of the 155,025 added [6]. King County also led the state with 14,160 new housing units in the past year, 35% of the state's housing growth [6]. Newcomers need a dentist, which supports the new-patient flow that offsets normal attrition. But 0.54% a year is slow growth, so the model holds the patient base below its pre-sale level until Year 6 and grows it 0.5% a year afterwards.

Income and payment capacity

Median household income rose 19.2% in five years to $121,984 [7], [8]. High incomes support restorative and elective work paid partly out of pocket, which is why 36% of modelled collections are fee-for-service and patient portions. They also mean high local wages, the practice's main cost pressure.

Employment base

Source: County Business Patterns 2023 [9]; shares and payroll per employee computed.

Health care is the largest private employer by headcount, but information firms paid about $273,000 per employee and professional services about $133,000 [9]. Those employers sponsor the PPO plans that dominate the modelled payer mix, and they are also the sectors most exposed to layoffs, because job losses end employer dental coverage. A suburban location close to where patients live suits a practice that draws its patients from nearby.

Market analysis

Dentist supply per capita

HRSA county workforce data could not be used: HRSA's data portal excludes AI agents in its robots policy. County supply is therefore built from Census and ADA Health Policy Institute data.

Washington had 5,630 professionally active dentists in 2025, 70.4 per 100,000 residents, against 60.0 nationally, where 205,088 dentists were active [12]. ADA does not publish counties, so this study applies King County's share of the state's dental offices (39.5%) and dental office employees (35.8%) [9], [10] to the state count, giving 2,015 to 2,222 dentists, or 86 to 95 per 100,000. The establishment count is direct: 1,434 offices in 2023, 62.8 per 100,000 residents, against 46.3 statewide and 40.3 nationally [9], [10], [11]. More than two-thirds of King County dental offices employ fewer than 10 people, and 73 employ 20 or more [9].

This is a well-supplied market: one office per 1,592 residents against one per 2,482 nationally. The practice holds patients through relationships, location and service, not scarcity, which raises the weight of the transition and lowers the weight of population growth.

DSO competition

The ADA reports that 16.1% of U.S. dentists were affiliated with a dental support organization (DSO) in 2024, up from 7.2% in 2015 [13]. More than one in four dentists up to 10 years out of dental school was affiliated with a DSO in 2024, and 73% of dentists were practice owners in 2023 against 85% in 2005 [13]. Washington allows persons who are not licensed dentists to own a practice's assets other than patient records and to provide business support and management services, but no corporation may practice dentistry [4].

DSOs affect this credit three ways: they compete for new patients, slowing the post-sale recovery (scenario 5); they compete for hygienists and assistants (scenario 3); and they are buyers of established practices, which supports the exit. The model prices no DSO premium; its exit capitalization rate is above the entry rate.

Payer mix

Modelled shares are assumptions; the benchmark column is from [14].

The mix is an assumption set near the ADA's 2025 national figures for general practice owners [14], tilted toward PPO for King County's employer base and away from Apple Health. Medicaid fees and eligibility can change with state budgets, so the model grows Apple Health fees at 0% and scenario 2 cuts them 15%. PPO schedules are the larger exposure: the model grows PPO fees 2.5% a year, fee-for-service 3.5%, and wages 3.25%, so margins compress unless volume grows.

Demand method: fair share of the trade area

• Trade area. An assumed 3-mile suburban trade area of 90,000 residents; a lender would replace this with a count from patient addresses.
• Competing offices. At 62.8 offices per 100,000 [9], [5], about 57 offices.
• Fair share. 1/57, or 1.76% of residents, about 1,580 patients.
• Size-adjusted share. The average King County dental office has 8.1 employees [9]; the practice has about 10, so its size-adjusted share is about 1,950 patients.
• Actual. 2,150 active patients: 1.36 times simple fair share and 1.10 times the size-adjusted share.

The practice holds slightly more than its share for its size, as a long-established owner should. The excess, about 200 patients or 9% of the base, is the portion most tied to the seller and most contestable. Modelled first-year attrition of 6% sits inside it; the heavy-attrition scenario (15%) goes beyond.

Collections per active patient

TTM collections of $1,820,000 over 2,150 patients give $847 per active patient ($835 in FY2025). At an assumed 2.0 visits per patient a year, about 4,300 visits yield $423 each. The ADA reports average gross billings per visit of $576 and a median of $481 for solo general practitioners in 2025 [14]; PPO write-downs keep collections below billings, so $423 fits a PPO-heavy practice. The owner's own dentistry, about $975,000 a year, is close to the national median gross billings of $995,100 per solo general practice owner [14].

Forecast

The patient base falls to 94% in Year 1, recovers to 100% by Year 6, then grows 0.5% a year, below county growth [6]. Blended fees rise about 2.7% a year. Collections fall 3.5% in Year 1 and exceed the TTM level from Year 2.

Site and technical

Premises and lease. About 2,600 square feet in a suburban retail or medical building, six operatories, sterilization, digital radiography. The SOP says the lease term including renewal options exercisable only by the borrower should equal or exceed the loan term, with an assignment of lease and landlord's waiver; without them the term must equal or exceed the loan term [1]. The modelled lease has five years left plus two five-year tenant options, 15 years against a 10-year loan, at $112,000 a year rising 3%. A lease that could not be assigned would be a deal problem: relocation costs operatories, time and patients.

Zoning and licensing. An asset purchase that keeps the same dental use normally needs no land-use approval. The buyer's Washington license and the practice's registrations were not checked for this model study and should be confirmed with the state's licensing authorities before closing.

Equipment. The budget funds $30,000 of hardware and $15,000 of software conversion. An orderly liquidation appraisal is budgeted because the SOP values used equipment at no more than 50% of net book value, or 80% with such an appraisal [1].

Schedule. About sixteen weeks from letter of intent to funding: data room and diligence (production by provider and procedure code, active-patient and recall reports, receivables aging, payer contracts, staff roster); lender-commissioned valuation, IRS transcripts and site visit [1]; SBA loan number, approval, lease assignment and payer credentialing; then closing, a joint patient letter and staff retention agreements. Credentialing is the critical path: late credentialing delays claims, and the reserve covers a 30-day lag, not 90 days. The schedule is a model assumption.

Acquisition budget and sources and uses

All amounts are model assumptions or results.

The price of $1,250,000 is 68.7% of TTM collections and 4.20 times FY2025 adjusted EBITDA of $297,720, a 23.8% capitalization rate. Goodwill, records and the non-compete are 78% of the price. The modelled independent valuation concludes at $1,300,000. Above a $350,000 business purchase price the SOP requires a valuation by an independent qualified source, prepared for the lender, and any excess of price over the valuation must be paid with equity [1].

All rows are model results.

The working capital reserve exists because the seller keeps the receivables: on day one the buyer has a payroll and no insurance receipts. With 64% of collections from third-party payers on an assumed 30-day lag, the Year 1 receivables build is about $92,400, and the Year 1 cash shortfall after debt service and capital spending is $11,102. Together they use about $103,500 of the $140,000 reserve.

Revenue build and operating expenses

Assumptions register

Seller's reported results

All rows are model assumptions standing in for the seller's statements.

The seller's FY2025 results show pre-tax net income of $277,950. Staff costs including payroll taxes are 36.8% of collections and supplies and laboratory 12.9%. Including the seller's salary and add-back items, expenses are 84.5% of collections, against an ADA average of 95.2% for incorporated general practice owners including shareholder salaries [14].

Normalizing seller earnings

All rows are model results.

Add-backs. The seller's salary and payroll taxes ($193,770), depreciation ($46,000) and equipment-loan interest ($9,000) are replaced by the buyer's pay, capital spending and debt service. A personal vehicle ($18,000), a family member on payroll with no role after the sale ($42,000), discretionary travel ($14,000) and one-time lease legal fees ($9,000) disappear with the seller. Each needs evidence, and the SOP requires the justification for each adjustment or add-back in the credit memorandum [1]. SDE is $609,720 in FY2025.

Market dentist. SDE is not available for debt service, because the buyer must be paid for the dentistry. Nationally, general practice owners averaged $228,980 of net income [14]. The model deducts $300,000 including payroll taxes and benefits, an illustrative assumption, because a full-time owner producing about $975,000 should be priced conservatively and because the SOP's global cash flow test checks that owner pay covers personal obligations [1]. A further $12,000 replaces a long-tenured hygienist paid below market.

Adjusted EBITDA is $277,001, $297,720 and $307,442 for FY2024, FY2025 and TTM. Against debt service of $190,104, historical DSC is 1.46x, 1.57x and 1.62x, so the SOP test passes on FY2025 (1.57x) and the two-year average (1.51x) [1]. The price is below the $3 million Quality of Earnings threshold, but the valuation's financial data must be verified against the seller's IRS transcripts [1].

Year-by-year revenue ramp

All rows are model results. The ramp includes no new services, added hygiene days or marketing gains; those would be upside.

Expense structure

Staff cost runs about 38% of collections, only about a third of it flexes when patients leave, and the buyer's pay (about 17%) is fixed. Supplies and laboratory (12.9%), card fees and B&O tax move with collections; rent (6.2% to 6.6%) and other fixed costs rise 3% a year. About 70% of any lost collections therefore falls through to EBITDA, which is why the margin drops from 16.6% in FY2025 to 11.6% in Year 1 before recovering to 14.9% in Year 3.

Ten-year pro forma

Model results in dollars. EBITDA serves as NOI. Year 5 capital spending includes a $90,000 equipment refresh. The Year 1 shortfall of $11,102 is covered by the reserve.

Year 1 is the weak year: attrition, the consulting fee and wage growth arrive together, and EBITDA of $204,002 covers debt service 1.07 times. By Year 3 EBITDA of $284,430 covers it 1.50 times, and by Year 10 collections reach $2,432,375 with the loan repaid.

Debt structure under SBA 7(a)

Guaranty and fee. Loans of more than $150,000 may receive a guaranty of up to 75% [2], here $908,580. The $31,800 upfront fee applies the SOP maximum chart, 3.5% of the guaranteed portion up to $1,000,000 [1], within the regulation's limit of 3.5% of the guaranteed portion for loans over $700,000 [2]. SBA may announce temporary fee changes for a fiscal year through an Information Notice [1], so the FY2027 fee needs confirming.

Rate. 9.75% is Prime (7.00% on November 9, 2026 [16]) plus 2.75%, under the maximum of Prime plus 3.0% for loans of $350,001 and greater [1]. A variable rate uses the prime rate in effect on the first business day of the month [2], so the starting rate depends on the month the loan closes.

Maturity. Loans that do not finance real estate or equipment with a useful life over ten years run ten years or less [2], and change-of-ownership loans may not amortize over more than 10 years outside special purpose property, and 7(a) loans may not have a balloon [1]. The 10-year term is the main reason debt service is high: over 25 years the same loan would cost about 32% less a year ($129,547 against $190,104), but the rules do not allow it here.

Use of proceeds. A 7(a) loan may finance the purchase of all or part of a business [2], including intangible assets such as goodwill, client lists and agreements not to compete when the financial due diligence requirements are met [1].

Seller note. The seller carries $151,430 subordinated and on full standby, accruing 5% and amortized after the 7(a) loan is paid in full; at Year 10 it totals $246,664 [1]. A seller note becomes eligible for refinancing only after it has been in place and current, not on standby, for at least 36 months [1], so this one stays for the full term.

Equity injection and its basis under the rules.

Rules from [1]; modelled figures are model results.

The Initial Acquisition minimum is 10% of total project cost and cannot be reduced; unborrowed cash is an unlimited source, and limited sources such as standby seller debt may supply no more than half [1]. The buyer's $151,430 meets the minimum alone. The seller note is needed for the valuation test, not the equity test.

Why the seller note is required

All rows are model results.

The SOP limits total debt, including seller debt not on full standby, to the business valuation [1]. At a $1,300,000 valuation, a 7(a) loan funding 90% of the project (E and F) exceeds it by about $66,600, and an amortizing seller note (C) counts toward the cap. Standby debt does not, so A and B are eligible. A lowers the loan to 93.2% of value and lifts Year 1 coverage to 1.07x. A seller who refuses to defer 10% of the price for a decade must accept structure B with more buyer cash, or a lower price. A lender should make the standby agreement a condition.

Guaranties, insurance and collateral

Advance rates from [1]; values are model assumptions.

Holders of at least 20% generally must guarantee the loan, and hazard insurance is required on all collateral for 7(a) loans over $500,000 [2]; the SOP requires an unlimited full guaranty from each individual owning 20% or more [1]. Under the SOP's discounts [1], business collateral totals $149,000, a shortfall of $1,062,440. The lender must then take available equity in the buyer's personal real estate, with liens that may be limited to the shortfall or to 150% of the equity, and need not take real estate whose equity is less than 25% of its market value [1].

As modelled, there is no real estate collateral: the practice leases, and the buyer, an early-career dentist, is assumed to have no home with 25% equity. That is allowed, because a loan request must not be declined solely because collateral is inadequate [1]. Life insurance in the amount of the collateral shortfall is required for a business dependent on one owner's active participation [1], about $1.06 million here. Disability cover is not an SBA rule, but for a dentist it is the likelier claim, and the model assumes the lender requires it.

DSCR by year and break-even

All rows are model results.

DSCR is EBITDA over SBA debt service, the SOP's historical definition [1]. Global DSCR adds 70% of the buyer's salary, deducts $120,000 of living costs, and adds $42,000 of personal debt service (assumptions).

The SBA test passes on history (1.57x), projected coverage dips to 1.07x in the transition year, and exceeds 1.35x from Year 2. After capital spending it is 0.94x in Year 1 and 1.05x in Year 5. Global coverage, required at 1:1 [1], is 1.67x historically and 1.29x in Year 1.

All rows are model results.

Year 1 breaks even at 1.00x if the practice keeps 92.9% of its patients, one point below base; it reaches 1.25x only at 96.5%. By Year 2 the base can fall to 90.2% before coverage reaches 1.00x. Historically, FY2025 EBITDA could fall $60,090 (20.2%), about $71,662 of collections, before DSC fell below 1.25x. The rate that would push historical DSC to 1.25x is 15.41%, far above the SBA cap, so rates threaten the projected years, not the approval test.

Returns

All rows are model results.

The unlevered IRR of 16.9% treats the practice as an asset bought for $1,514,300 and sold at a 25% capitalization rate on Year 10 EBITDA ($1,538,412). The levered IRR of 40.6% and 13.92x multiple measure the buyer's $151,430 after debt service and repaying the seller note. Both are measured after a market salary of $300,000 or more; they are what ownership adds to that pay. With 10% equity the levered figures swing widely: the combined downside cuts the levered IRR to 0.7%. For a lender the useful signals are the unlevered IRR, which shows the price is not excessive for the cash produced, and the 3.6-year payback of buyer cash.

Sensitivity and stress tests

Two-way grid: Year 2 DSCR, patient retention vs. Prime rate

Model results.

Four points of retention move Year 2 coverage about 0.29x; one point of Prime moves it about 0.06x. A plausible retention miss matters about five times as much as a one-point rate move. In Year 1 (not shown), base retention keeps coverage at or above 1.0x only with Prime at 8.00% or below, and any shortfall in retention takes it below 1.0x.

Downside scenarios

All rows are model results.

• Heavy attrition (1): coverage 0.45x and about $243,500 of negative cash over three years, beyond the reserve; the lender's protection is the transition plan and buyer liquidity.
• Fee pressure (2): a 15% Apple Health cut and three-year PPO freeze hold Years 2 and 3 at 1.09x.
• Wage shock (3): 10% higher staff costs take Year 1 to 0.71x; wages are set by the Seattle-area market.
• Rate (4): Prime two points higher lowers coverage 0.08x to 0.12x a year.
• DSO competitor (5): a stalled recovery holds Years 2 and 3 near 1.27x.
• Seller leaves at closing (6): saving the consulting fee does not pay for the extra attrition; Year 1 is 0.91x.
• Combined (7): coverage below 0.9x for three years, a default case without fresh equity.

The acquisition equivalent of a cost overrun is a low valuation: any excess of price over value must be paid in equity [1].

Program compliance

Risks and mitigants

Model determination

The modelled acquisition is financeable as structured. Normalized for a market dentist salary, FY2025 adjusted EBITDA of $297,720 covers SBA debt service of $190,104 1.57 times, clearing the 1.25x Initial Acquisition test with a 20% EBITDA cushion. Buyer cash meets the 10% minimum alone, and the 10% standby seller note keeps the loan at 93.2% of the valuation.

The weakness is Year 1: projected coverage of 1.07x and a small negative cash flow after capital spending, covered by the reserve, before 1.38x in Year 2 and 1.50x in Year 3. The SOP does not let a lender rely on projections for the coverage test, but requires it to evaluate them [1], so the conditions target that year:

1. A seller note of at least 10% of project cost on full standby for the life of the loan.
2. An independent valuation, prepared for the lender, at or above the price, and seller financials verified to IRS transcripts.
3. A working capital reserve of at least $140,000, with payer credentialing complete before closing.
4. A seller consulting agreement of six to twelve months, plus non-compete and non-solicitation covenants.
5. Evidence of patient retention: 24 months of active-patient, recall and provider production reports.
6. Term life insurance of about $1.06 million assigned to the lender, and disability cover.
7. Lease assignment and landlord's waiver, with at least 10 years including the buyer's options.
8. Hazard insurance on collateral and an unlimited personal guaranty.
9. Buyer liquidity outside the business to cover a Year 1 shortfall larger than the reserve.

Without the standby note the price fails the valuation cap; above about $1.3 million the historical cushion and Year 1 coverage both thin to the point where the file depends on everything going right. In this credit the price and the seller's willingness to defer part of it matter more than the rate.