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PIK Debt | A Growing Source of DSO Funding

  PIK debt (Payment-In-Kind debt) is a type of financing where the borrower doesn’t pay interest in cash. Instead, the interest is added to the loan balance , so the debt compounds over time . Simple example: Borrow $10M at 10% PIK interest Year 1 → you owe $11M Year 2 → you owe $12.1M No cash leaves the business… but the balance keeps growing Why DSOs use PIK debt DSOs (Dental Service Organizations) often use PIK debt to: Preserve cash flow during aggressive expansion Fund acquisitions without immediate cash strain Bridge gaps when traditional financing gets tight On paper, it can make growth look easier and faster. Why it’s a concern (especially right now) 1. It hides real cash performance PIK lets organizations avoid paying interest today, which can: Make EBITDA look stronger than reality Mask cash flow pressure from operations For DSOs that are already tight on margins (staffing, reimbursements, build-outs), this is a big red flag. 2. Com...