Cash Advances Are Causing Big Headaches for the Healthcare Industry

November 22, 2018 by CNH Finance, LP in category “Financing”

From small practices to large healthcare centers and hospitals, finding a source of working capital can be challenging. Among the myriad options claiming to be debt-free, cash advances can seem very attractive. However, the true nature of cash advances can cause just as many problems as traditional loans, and leave practices in dire straits.

Cash Advances Are Difficult to Repay

Getting a large infusion of working capital without any debt attached is a hard offer to pass up, yet cash advances rely on medical practices being unable to repay the balance owed. Advances are sold under the auspices of no fixed payments. This flexibility is offered by having the balance repaid through a percentage of overall sales. Looking at the fine print, “overall sales” means credit card transactions. Everyone a patient pays for services in full with a credit card, a small percentage of that transaction goes towards reducing the balance owed. The issue is that few patients pay their bills in full via credit card. Most rely on some sort of financing program or insurance to offset their medical bills. This makes the road to repayment a very steep hill for medical practices.

Interest and Balloon Payments

Because cash advances bill themselves as an alternative to loans with no debt and no collateral required, the interest rates are much higher than most other types of financing. Payments are taken automatically, but since those large credit card transactions are few and far between, getting out from under the interest is nigh impossible. Once the terms of the cash advance end, the interest, fees, and remaining principal leave medical practices with large balloon payments. While advances offer a brief respite from traditional loans, at the end of the day, the remaining balance can end up restricting or completely cutting off cash flow.

A Better Alternative to Loans and Cash Advances

Asset based financing offers more flexibility while placing more control back in the hands of medical practices. Asset based financing is a revolving line of credit structured around the value of equipment, receivables, and other items. Practices can draw on the line of credit as needed, and the amount available is replenished as the balance is repaid. The line of credit doesn’t place any debt on the books, and the amount available increases as a practice purchases more or newer equipment, sees a rise in receivables, or moves into larger facilities.

At CNH Finance, we specialize in working capital solutions for the healthcare industry that are accessible, affordable, and effective. Contact our offices today to learn more.

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