Though key decision makers continue to feel the impact of capital market disruptions, by taking the following steps, providers seeking funding for required capital cannot only secure the assets they need, but also reduce the cost of capital by taking advantage of current government provisions.
Look for strength and stability: To find a company with proven stability ask the following questions: Is the company well capitalized? What sources of additional capital are available? Is it diversified so economic hits to its portfolio won’t destroy its revenue stream? Can it maintain or renew commitments, and is it focused on developing long-term relationships?
Work with a financing partner with experience in your industry: Healthcare industry financial officers can increase their chances of obtaining capital by targeting financial institutions with an established history of providing finance products to the healthcare industry. An experienced funding source will understand the industry’s payment cycle, apply knowledgeable valuations to income statements, and deliver products specifically targeted for healthcare organizations.
The funding company should also have a dedicated healthcare division with veteran specialists who can assist with reviewing competitive bids, and can help develop a strategic plan for obtaining capital requirements now and in the future. Financial institutions with this type of healthcare expertise understand how market disruptions can negatively affect a healthcare provider’s financial statements and appreciate the fact that it was not within management’s control.
Match structures to your situation: At a time when healthcare providers are suffering reduced liquidity and revenue challenges, an operating lease may provide additional benefits, making it imperative that a funding source has the ability to offer a wide range of products — including both loans and leases. A properly structured operating lease, sometimes called a Fair Market Value (FMV) lease, is treated as an operating expense and does not appear as a liability on the balance sheet. With a FMV lease, a company can return, upgrade or purchase the equipment at the end of term, resulting in better technology for patients, physicians and technologists.
Make the 2009 American Recovery and Reinvestment Act (ARRA) work for you: The 2009 ARRA includes provisions to accelerate equipment depreciation and upgrade Electronic Hospital Records (EHRs) for for-profit healthcare businesses. Typically, a depreciation deduction would be spread evenly over the scheduled useful life of the equipment. But the ARRA’s provision for accelerated depreciation allows a company to take 50 percent of the cost of qualified business assets, in addition to the regular MACRS depreciation on the remaining 50 percent of the equipment cost. This deduction could provide major tax savings for a business or reduce equipment lease payments. A healthcare business that is having revenue challenges may not be able to completely utilize accelerated depreciation and might find an operating lease with a strong funding partner (who can fully utilize the benefit) a method to obtain needed capital assets at a lower cost. Furthermore, the ARRA may provide potential monetary incentives for a healthcare business to start planning upgrades to certified EHRs. Work with a tax consultant and an experienced funding source to crunch the numbers and see if either or both provisions will help you achieve your capital goals.
If a healthcare provider approaches its search to obtain credit as carefully as its goal to help patients, it can equip its facility with the capital tools required to provide the best care to its patients and set itself apart from its competition.
Mr. Myhre is senior vice president of Wells Fargo’s Healthcare Financing Division. Learn more about Wells Fargo.
