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There are a number of healthcare financing options available for small private practices, large hospitals, and everything in between. With the most popular healthcare financing options, there are good points and drawbacks which may make them unfeasible in the long run.
Healthcare Financing Loans
Healthcare financing loans provide working capital to practices of all sizes. These function in much the same way as standard bank loans, but with specific uses, such as for supplies, medical equipment, and vehicles.
Pros: Working capital, often in amounts proportional to the size of the practice.
Cons: Debt, impacted credit ratings, prepayment penalties, limited use
Cash Advances for Medical Practices
Cash advances offer seemingly more flexibility than traditional loans. The infusion of working capital has no restriction on use, so the money can be utilized for everything from equipment to supplies, advertising, and even paying down existing debt. The big point lenders try to stress is that cash advances are debt-free and do not impact credit ratings. What is not told to practices is that cash advances have incredibly high interest rates due to the lack of collateral, and the payment method frequently leaves healthcare providers with large balloon payments.
Pros: Debt-free working capital, no scheduled payments, flexibility
Cons: High interest rates, additional fees, large balloon payments
In both cases, financing must be taken in one lump sum, which places a large burden on medical practices. In the case of loans, a portion of revenue must be set aside monthly to make payments. With cash advances, the balance is repaid from a percentage of receivables paid by patients with credit cards – cash, check, and other methods do not count towards the amount owed. Unless there is a high volume of patients using credit cards to pay off their invoices, the balance on a cash advance rarely reaches zero by the end of the terms.
There is a Third Option
Instead of going into debt or taking on huge financial liabilities, many medical practices are finding healthcare financing through asset based lending. Asset based lending is a revolving line of credit structured around the inherent value of things such as equipment, receivables, property, and more. The line of credit gives medical practices a source of healthcare financing which can be drawn upon as needed, and then replenished. As a practice grows, so does the amount of financing available.
CNH Finance offers comprehensive healthcare financing options. Contact our offices today to learn how asset based lending can provide the capital your practice needs, without any of the drawbacks.