Dental Practice MCA Debt: 6 Questions About Equipment Leases and Practice Loans

If you have a dental practice with merchant cash advances, what happens to your equipment leases and practice loans depends in large part on who filed what first, but also whether each of your “leases” is really a lease or a loan. A reorganization also is different from closing the practice down. If there are real patients and a meaningful number of them still would come back if the practice could work out of its cash crunch, in certain cases a reorganization lets the practice keep its doors open, keep seeing patients, and pay its debts down over a few years under a plan the court signs off on.

Buying things like dental chairs, X-ray machines, scanners, and computers on credit is common, and adding it all up can get pretty expensive. Often leases on office space can have a backstop in them that requires you to pay personally if the practice can not. While patient traffic is good, things go well, but if volume falls off a credit crunch can come on in a hurry.

Perfected Their Lien First

First, in general, if two lenders both claim a right to certain property, like a set of patients’ pay records or a piece of office equipment, the one who filed or perfected their lien first gets paid first. And in a few specific cases, when you use financing to buy a given item, like a computer or a dental chair, the company that lends you the money to buy it gets an edge over creditors who secured claims against the business earlier, but the lender has to have followed a particular set of rules. So long as they perfect within twenty days of delivering the unit, they leap ahead of any other lenders that perfected before them.

A small number of lenders do dental equipment: usually distributor finance arms, community banks, or SBA loans. If one lender holds the equipment, build-out and purchase loans, its stance pretty well drives the matter.

Whether a Lease Is Really a Lease

Second, is the lease really a lease, or is it a secured loan? Under the law a lease is one thing, a secured loan is another. A few of these agreements are different. They are not leases. If you cannot cancel them and can buy the equipment at the end for a nominal amount, they are treated as secured loans. If the amount is more, though, like the equipment’s fair market value, that alone does not make it a loan. The difference is a big deal. A real lease must be followed or the equipment goes back, but if it is a loan the plan can keep it and pay its true value.

The third question is whether a loan from the Small Business Administration can replace your merchant cash advances. Since June 1, 2025, SBA 7(a) loans can no longer do that.

Subchapter V

The fourth question is whether a solo or small practice can reorganize. If its total debts are not more than $3,424,000, Subchapter V fits it. Often a small practice comes under the cap. And at least half the debts must come from the business. If it has several offices, do not assume they qualify separately; you have to check how the law treats them.

Under Subchapter V a plan can pay the equipment’s present value over the life of the plan, not the full loan balance. With older equipment, the amount can be far less than the unpaid loan balance. If the equipment has lost a lot of value, the rest of the balance gets moved to unsecured debts, paid with the rest of the unsecured debts. If the lender objects the plan can still go through; if the court finds your income supports the plan, you can get it approved without the lender’s okay.

In a reorganization, leases work differently than loans. You assume them (keep the equipment and catch up the missed payments) or reject them (give the equipment back, though that is rarely realistic for chairs and X-ray units). Until you decide, you generally must keep paying true equipment leases for amounts due starting 60 days after filing, unless the court orders otherwise.

If you reorganize, one big question is what to do with your office lease. As a rule, patients rarely follow a practice that moves. Rejecting the lease limits the landlord to an unsecured claim, but it’s usually better to keep the office and cure missed payments.

Contracts like those for associate dentists can also be kept or rejected. If you keep one, you catch up any unpaid production bonuses. When you make decisions, think about how you will get the news to your associates. The last thing you want is to have them read about it first in your court papers.

If you reorganize and keep practicing, patient records do not transfer and the practice’s patients may never know a case was filed at all. If the practice closes or sells, though, its patient records may get sent to a new buyer. Patients must choose between the new dentist and finding a new one of their own, and they often do.

If you think about a Subchapter V reorganization, before you do anything else, you should gather every financing document, equipment lease, and office lease, and should read them and show them to your attorney. Also plan how to pay staff, labs, and other vendors, at least for the first few weeks. Filing without a court order letting you use cash to pay staff and buy supplies risks disruptions. A little pre-filing prep for filing usually makes the first 30 days of your case far less stressful.