Bankruptcy: How Healthcare Practices Are Saving Themselves

April 19, 2018 by CNH Finance, LP in category “Financing”

Across the country, many healthcare practices are either facing bankruptcy or sitting on the edge of the bubble. However, there is a solution which allows practices to steer clear of bankruptcy and get things back on track.

What Causes Bankruptcy?

Healthcare practices go bankrupt for a number of very common reasons. Outstanding patient accounts can place a strain on cash flow. The cost of equipment and supplies alone can cause finances to turn upside down. Then there are liabilities. Many private practices and large healthcare centers are juggling debt from loans, which take a large amount of revenue to repay. Then there are the regular overhead expenses such as utilities, payroll, leases, and mortgages. In short, practices need a reliable source of working capital to function at optimal levels.

Loans Do Not Correct Cash Flow

Taking out loans to cover gaps in revenue never fixes anything in the long run. Loans heap more debt on the books, further impact credit rating, and take even more revenue to repay. Since most healthcare practices try very hard to control the amount of outgoing funds, taking out more loans will only exacerbate any cash flow issues, and increase the likelihood those problem will recur.

Cash Advances Do Not Help

Some medical practices use cash advances for working capital. Cash advances work very differently from traditional loans. Cash advances provide a lump sum of working capital without placing debt on the books. There are also no regular payment schedules, which overtly provide flexibility. The problem arises with the repayment of a cash advance. Cash advances are repaid from a percentage of sales receipts. Because cash advances do not require any collateral, the interest rates are higher than traditional loans. In a field where medical bills and insurance claims are not paid immediately, cash advances are rarely repaid in full by the time the terms of the agreement end. This leaves practices in worse shape than before, with a large balloon payment from the balance of the cash advance.

A Sound Solution

Asset based lending solutions can help practices avoid bankruptcy without debt and without the small print traps of cash advances. Asset based lending creates a revolving business line of credit for medical practices based on the value of equipment, receivables, vehicles, and more. This source of working capital helps medical practices stay afloat. What’s more, the line of credit will increase as more equipment is added, and as receivables grow.

CNH Finance specializes in asset based solutions for the healthcare industry. Contact our offices today to get started.

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