1. Many banks don’t understand surgery centers. As a result of the credit crunch, many national players in the healthcare finance market left, leaving a few regional and local banks available to offer loans to ASCs. However, many of these lenders have difficulty understanding how surgery centers operate and may be skeptical in providing loans, according to Mr. Mai.
“Many of these banks don’t understand that ASCs are a physician-driven industry and are seeking loans based on cash flow rather than collateral,” Mr. Mai says. “It may be difficult for surgery centers to get over that hurdle.”
In order to help banks understand how ASCs operate, Mr. Mai suggests, prior to asking a particular bank for financing, investigating and understanding how a bank’s process works for specific loan types. “Banks focus on collateral versus cash flow. Cash flow is harder to finance since bankers are taught to make sure they have an 80 percent LTV (loan to value) on their loans,” he says.
Mr. Mai also encourages surgery centers to have banks speak with their physicians. “Banks should understand how ASCs run: Physicians bring cases to the center and that revenue is invested in the center,” he says. “Otherwise, banks will think the revenue goes into the account of the physician’s practice. They need to understand that it is a separate source of income [from the practice].”
2. Established ASCs are looking for loans to open new lines of revenue. Even in a time of economic uncertainty, many established ASCs are still looking for financing to continue to expand their facility or the types of services it offers, according to Mr. Mai.
Some of the most common loans that Mr. Mai sees ASCs looking for in the current market are loans for purchasing equipment. “Many established ASCs are looking for upgrades or new equipment to update their facility,” he says. “They may also be looking to bring in new physicians and new specialties along with them, so they may need a loan to purchase this new equipment.”
Other ASCs and their physician owners are looking for real estate loans. “Many physician-owner groups are looking into purchasing the real estate of their center to establish a secondary source of income,” Mr. Mai says. “This kind of loan is still tricky, as many banks may not understand why the tenant would want to also run a real estate entity. Personally, I like to see more physician-owned groups [owning real estate] as it typically leads to more success for the ASCs.”
3. Although the market may improve, banks won’t be as willing to lend. Mr. Mai believes that the credit crisis has bottomed out; however, this does not mean that banks will immediately begin lending as they had in the past, if they return to past trends at all.
“I don’t think banks will be returning to past ways,” Mr. Mai says. “This can be bad for ASCs and hospitals unless they are existing clients.”
Mr. Mai suggests ASCs should ask to talk to the management of the bank. “Your typical front-end relationship manager is looking for loans and deposits. If he comes across your ASC and he sees that there are 10 doctors involved from the local community, he will get excited because he thinks he will get all the doctors other lines of business. When he brings the transaction to management, after spending 20 days gathering information for him, management may not understand ASCs and they will either turn it down or restructure it to something that is not favorable to the group.
“Although there is some risk, de novo ASCs are just as important and just as safe [as hospitals], if you have a management company involved,” Mr. Mai says.
4. Don’t look for financing at banks that are not in the healthcare sector. Although many banks may have worked with the healthcare industry in the past, Mr. Mai says ASCs should research banks they are interested in to determine what their status is in regards to healthcare financing.
“Many banks are dealing with financial issues from the real estate market and may be in the business [of healthcare] where profitable,” Mr. Mai says. “An ASC should ask, ‘What’s your experience in the healthcare market?’ If they do not have a focus or if they don’t know, move on.”
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