DISCLAIMER: I’m not an attorney, I’ve spent millions on legal fees, and I stayed at a Holiday Inn Express last night. This is not legal advice!
We are seeing a pronounced uptick in financially distressed private practices of all sizes and varieties across the country.
There is no singular smoking gun. The most common driver seems to be outsized debt service obligations – educational, practice loans, mortgages, cars, merely existing in this world, etc.
It would appear there are endless opportunities for dentists to borrow as much money as they want. Cynical, but it seems as though the fundamental “Why?” in practice lending is the bet against an individual doctor’s willingness to pursue bankruptcy. That’s it, full stop. These are cash flow/enterprise value loans – i.e. there is minimal hard asset/collateral value relative to the amount owed.
As a reformed lender myself, I learned the term “Lender Liability” early and often. Yes, lenders, vendors, landlords, and other creditors can be held accountable for overextending credit to individuals and businesses that do not fundamentally merit it.
Creditors often salivate over dentists and other doctors for “full wrap” relationships – credit for all facets of life – personal, business, family, etc. If they are secured by everything, they will often lend anything. The wager being a bet against the doctor’s willingness to declare bankruptcy in a downside scenario.
If you are experiencing financial duress due to debt obligations, it could behoove you to request a sit down with your creditors and have a candid conversation. They know their loans are “airball” loans that will see minimal recovery in a bankruptcy or liquidation scenario. Leases can get either rejected outright or substantially adjusted through a bankruptcy process. So, each of these parties has a lot of skin in the game to work with dentists to minimize losses and maintain their PR. They may put on a strong mask, but they also know they are most likely looking at a full write-off in an adverse downside scenario.
When to contact them? Naturally, this varies. If you are not yet in payment default, they may not be noticing or caring. Are payroll runs anxiety inducing? Are vendor terms getting stretched to the point of COD? Are you able to extract at least a market associate wage from the practice you own? How much of your time and energy are being consumed by financial duress?
The best time to catch a falling knife is before it gets too close to the edge of the counter. Once things turn adverse with creditors, it can be difficult to stop the momentum, let alone reverse course. If you are underwater by tens or hundreds of thousands of dollars on your practice, it may necessitate a more aggressive approach to get the debt monkey off your back and stabilize financial matters for yourself, your family, and your practice. Bankruptcy laws exist for good reason.
So, if you are feeling the pinch financially, yesterday may likely be a great time to reach out to key creditors for a level-setting discussion.
Please LMK if you have any questions! Always happy to troubleshoot scenarios.
Best,
Sean