Dental Practice Seller Financing: Terms and What to Expect in 2026

On a $300,000 seller note, the difference between the 3% rate your broker will tell you is "market" and the 9% the IRS will let you charge is about $108,500 in interest over ten years. Same practice, same buyer, same closing date, same risk that the buyer runs the place into the ground in year three. The only thing that changed is which side of the table kept the money.

Here's our view, and plenty of brokers will fight us on it: the seller note is the single most negotiable, most mispriced term in a dental practice sale, and sellers lose more money on note structure than they do on multiple. Owners spend six months arguing about whether the practice is worth 75% of collections or 82%, then hand back a quarter of the price at a rate that wouldn't beat a Treasury ladder. You spent thirty years being the dentist. On a seller note you're the bank, and banks don't lend at 3% to a borrower they met last spring.

Why Buyers Need Your Paper More Than They Did in 2005

The structural reason seller financing keeps showing up in dental deals is that the pool of buyers who can actually write a check has thinned. As of 2023, 73% of U.S. dentists were practice owners, down from 85% in 2005, according to the ADA Health Policy Institute. Fewer owners means fewer dentists who have already done a deal, carry equity in a building, or have a banker who knows them. The buyer across from you is more likely to be a five-years-out associate with student debt and a spouse's W-2, and that buyer needs structure, not just a loan.

Structure means you. In the typical dental acquisition, a bank funds 50% to 70% of the price and the seller carries the balance, and seller-financed notes in those deals commonly price at 3% to 5% while the bank debt sits at 6% to 8%. Read that spread again. The party with the second-position claim, no federal guaranty, no underwriting department, and no ability to sweep a lockbox is charging less than the party with all of it. That is not a market rate. That is a habit.

Rates on the senior debt have moved, and the published ranges disagree enough that you should ask your buyer's lender directly rather than trusting a summary. One dental lending desk reported SBA 7(a) dental acquisition pricing at 10% to 13% APR as of September 2026, with a minimum 1.25 debt service coverage ratio required. Another tracked variable 7(a) pricing around Prime plus 1.50% to 2.75%, roughly 8.25% to 9.50% with prime at 6.75% in December 2025. The gap is fixed versus variable, lender versus lender, and timing. What matters for you is that the senior lender is getting paid 8% to 13% for first position. Anything you carry behind that at 3% is a transfer, not a loan.

The $108,480 Question Hiding in Your Note Rate

Take a $1,200,000 practice. The bank funds 60%, or $720,000. The buyer brings 15% cash, $180,000. You carry 25%, $300,000, amortizing over ten years.

At 3%, your monthly payment is $2,897 and you collect $347,600 over the life of the note, of which $47,600 is interest. At 9%, the payment is $3,801 and you collect $456,100, of which $156,100 is interest. The monthly difference is $904. Over 120 payments that is $108,480.

Now test whether the buyer can actually carry the higher rate, because that's the argument you'll get. Bank debt of $720,000 at 11% over ten years runs about $9,918 a month, or $119,016 a year. Your note at 9% adds $45,612 a year. Total annual debt service: $164,628. If the practice throws off $300,000 after paying the owner-dentist a market associate wage, coverage is 1.82.

Drop your note to 3% and total debt service falls to $153,780, and coverage rises to 1.95. Both numbers clear the 1.25 minimum the SBA lender is underwriting to with room to spare. The six-point rate cut bought the buyer 13 basis points of coverage they did not need and cost you $108,480 you will never see. Lenders compute coverage differently, so run your buyer's actual lender formula, but the shape of the answer rarely changes: on a healthy practice, the note rate is not what makes the deal financeable. It's what makes the deal cheap.

Full Standby Is Not Financing, It's a Discount

The other structure you'll be offered is the standby note, and this one deserves harder scrutiny. SBA 7(a) rules require a 10% equity injection of total project cost, and a seller standby note can cover up to half of that, 5% of the project, only if it's held on full standby with no principal or interest payments for the term of the loan. Other lenders apply a shorter window, with seller notes counting toward the 10% down requirement if placed on standby for at least 24 months. That difference, ten years of silence versus two, is worth more than most sellers realize, and it's negotiable at the lender level before the LOI is signed.

Price the full-standby version honestly. A $60,000 standby note on a $1,200,000 deal, paid in a lump at year ten with no interest, is worth about $36,800 today at a 5% discount rate. You just took a $23,200 haircut on your sale price and called it seller financing. If the buyer defaults in year four, you're a subordinated creditor who has collected nothing and can't accelerate without the bank's consent.

We wouldn't take that deal without repricing it. If the lender demands full standby for the life of the senior loan, the standby portion should be treated as a price concession and offset in the purchase price or the earnout, not counted at face value in your net proceeds. If a 24-month standby will satisfy the lender, take the 24-month version and start amortizing in month 25.

What Most Sellers Get Wrong: Trading Rate for Price

The specific mistake, and it's made most often by owners in their early sixties working with a broker paid on headline price, is treating the seller note as the closing concession instead of the asset it is. The negotiation goes like this: the buyer's lender balks at the multiple, the broker proposes the seller carry 20% to 25% to bridge the gap, and the rate gets set at whatever keeps the buyer comfortable. The headline price is preserved. The broker's commission is preserved. The seller's actual return on the carried portion is gutted, and nobody prices the gutting because no line item in the closing statement is labeled "the $108,480 you gave away."

Our call: if you're carrying paper, the rate is not a courtesy and it is not a closing cost. It's the yield on the largest single-borrower, second-position, unsecured-ish loan you will ever make, and it should be priced above what the bank is charging for first position, not below. Every point you shave off the note is a point of purchase price you handed back after you already agreed on the number.

The 9% Ceiling and the Floor Under It

There's a legal boundary on both ends, and it's the reason "we'll just do 0% and add it to principal" is a bad idea. Under the installment sale and imputed interest rules, for seller-financed sales of $7,296,700 or less the test rate of interest is capped at 9% compounded semiannually, with the applicable federal rate as the floor. Charge below the test rate and the IRS recharacterizes part of what you called principal as unstated interest, which converts a slice of capital gain into ordinary income and changes your after-tax proceeds without changing a dollar of what the buyer pays.

So the practical range is clear. The AFR is your floor, 9% compounded semiannually is your ceiling on deals under that threshold, and the space between them is where the negotiation should happen. Most dental seller notes are written near the floor when they could be written near the ceiling. Interest on a seller note is ordinary income, and the installment method spreads your gain recognition across the payment stream, so run the rate decision with your CPA in the same sitting as the note term. A higher rate with a shorter amortization is a different tax outcome than a lower rate stretched over twelve years, and the difference is real money.

Terms We'd Sign and Terms We'd Walk From

Rate is one line in the note. These are the ones that decide whether you collect:

• Personal guaranty, signed by the buyer and the spouse. If the buyer won't guarantee the note personally, the buyer doesn't believe the projections either.
• Security interest in the practice assets and the patient records, subordinated to the bank but perfected, so a default gives you standing rather than a phone call.
• Life and disability insurance on the buyer, assigned to you, in at least the note balance. A single-doctor practice is one bad MRI away from a worthless note.
• Standby length defined in months, not "for the term of the senior loan." Negotiate this with the lender before the LOI, not after.
• Distribution covenant. No owner distributions above a stated salary while your note is outstanding and any payment is late.
• Cure period and cross-default language you've actually read. Know exactly what the bank can stop you from doing.
• Prepayment at par with no penalty. You want the buyer refinancing you out the moment a bank will take the whole balance.

Terms we'd walk from: an unsecured note with no personal guaranty, a rate at or below the AFR, a balloon later than year seven, and any structure where the "seller note" is really a contingency on post-close collections that you have no authority to influence. If you're carrying production risk without a chair, you sold a partnership and priced it as an exit.

Do This Before You Sign the LOI

Ask the buyer's lender, in writing, exactly what standby length they require and whether 24 months satisfies them. Get the current AFR from your CPA and set your note rate in the upper half of the range between that floor and the 9% ceiling, then hold it. Build the buyer's coverage ratio yourself at your rate, not theirs, so you can show them the deal still clears 1.25 with room. And price any full-standby portion at present value in your net proceeds spreadsheet, because that's what it's worth.

What we're watching next: whether senior pricing for dental acquisitions settles in the 8% to 9.5% band or holds in the 10% to 13% band through 2027, because a durable double-digit cost of senior debt is the thing that would finally force seller notes to reprice upward on their own. If bank money gets cheap again and seller notes stay at 3%, we'd revise the argument, not the conclusion: the note rate would still be the term nobody negotiates and everybody should.

Before you agree to carry anything, get a defensible number for what the whole practice is worth, since every dollar of note is a dollar of price you're financing yourself. Use the valuation calculator to run your own numbers on collections, adjusted cash flow, and the split between cash at close and carried paper, then hold the rate.