Borrower Beware: Understanding the ramifications of emergency practice financing

March 22, 2020
I was hoping I'd be writing about what you could expect personally from pending Coronavirus Aid Relief and Economic Security Act, but it looks like tomorrow will be the earliest we'll know anything and I will send out a special summary when it's released. However, I know a lot of doctors' heads are racing this weekend about what's next and there are a few current matters worth addressing now. My email below isn't particularly uplifting, but it looks like our current environment might be our reality for awhile yet, so we all might as well be prepared.

Read this before you borrow money- even from your IRA
Today I want to remind doctors who are considering financing options about personally protecting their assets. In a worst case scenario where your practice cannot survive and you struggle to pay your personal bills, keep in mind that some assets you own are almost always legally protected from bankruptcy:

1- Your home, so long as you can make any payments on liens against it
2- Your personal belongings (to the extent they are normal- good luck protecting a Picasso from creditor!)
3- Retirement accounts like IRAs, 401ks, and pension plans

If you are in a position where you need to pursue emergency financing for your practice, I encourage you to think through your worst case scenario before distributing or pledging any of these assets.

For loans, always ask what collateral is required. For example, most SBA loans require your primary residence as collateral. If your practice closes and it's your sole income source, you'll need to have the resources to pay your mortgage AND any other loan that takes your home as collateral to avoid foreclosure.

The SBA has a disaster relief loan program in all 50 states now. Even if your practice is okay for now but you think you might need money in a few weeks, start today. You will not be the only person seeking financing out there, and lending can be a really slow process even when there's not a lot of demand. I believe what kind of collateral to secure a loan is on a case-by-case basis, but if you apply, be sure to ask so you know what you're getting into.

An additional proposal to the Coronavirus Aid Relief and Economic Security Act is waiving the 10% early withdrawal penalty for retirement accounts and give beneficiaries 3 years to pay tax or repay their account for the distribution. Again, knowing that your qualified retirement account is protected you may want to leave it for a even worse case scenario than what is going on today.

A note about tax returns
You've probably seen that 2020 tax return filings and payments have been extended until July 15th. This doesn't mean you should wait though- especially if you're due a refund.

On the subject of tax returns, if for some reason you or someone you know did not file in 2018, do it now. There's a lot of ongoing debate about how to disseminate relief, but 2018 AGI (adjusted gross income per the first page of your tax return) has been a benchmark considered. It may not be the final measure for relief, but if it is and you did not file, it could impact your ability to get aid. Additionally, most borrowing options require personal tax returns..

A few other resources
My realm of expertise is limited to personal finances, but I've seen several good resources for practice related questions:

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