If, however, the bank is unwilling to release a departing owner from the debt owed by the practice (and why should it?), you should negotiate an indemnification from your former partners as part of your exit strategy. An indemnification arrangement among the parties typically provides that the practice and the remaining owners agree to “stand in the shoes” of the departing physician-owner—to assume the departing physician-owner’s financial responsibility. While this internal indemnification is not nearly as safe as a direct release from the bank and, importantly, the bank is not bound by the indemnification agreement reached by the owners, it does provide the departing physician-owner some peace of mind and the right to collect from the remaining owners, if necessary.
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Explore This IssueNovember 2012
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While a line of credit and/or a term loan will provide financing to take your practice to the next level of success, it is equally important to consider the potential risks that accompany the benefits. Before you and your partners sign on the dotted sign, consider (and negotiate) the various banking options discussed above. The last thing you want to be on the hook for is a “what if” scenario that you thought would never arise.
Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins, LLC. He may be reached at [email protected].
Loan Consideration Checklist
Is your practice seeking a loan, new line of credit, or increased line of credit? Here are some key concepts you must consider (and will likely need to negotiate) before you and your partners sign on the dotted line:
- Personal guaranty
- “Burn off” personal guaranty
- Joint and several liability
- Several liability
- Several liability with a cap
- Guaranty post departure