| Question: When is a business loan not a | | | | * After almost six months, hospital |
| sufficient strategy to meet the working | | | | management was in the exact same cash flow |
| capital needs of a hospital or other | | | | situation they were in prior to their |
| healthcare provider? Answer: When the | | | | accepting the asset-based loan. |
| provider needs to improve its cash flow, but | | | | |
| cannot afford or chooses not to increase its | | | | * The asset-based bank line was insufficient |
| debt capacity...and/or the time constraints | | | | for their needs due to the bank's |
| and the needed amount of capital cannot be | | | | non-realistic and significantly "undervalued" |
| adequately served by the inherent limitations | | | | valuation of the assets owned by the |
| and delays in the loan application process. | | | | hospital. |
| | | | |
| While loans are a viable and traditional part | | | | * The bank was closely monitoring the |
| of the working capital strategy of hospitals | | | | hospital's accounts receivable (a significant |
| nationwide, they are not the only funding | | | | asset in the pool) and was quick to |
| vehicle available, nor are they necessarily | | | | disqualify that collateral once the aging |
| the best suited option for a healthcare | | | | reached 90 days. Consequently:o The funding |
| provider's growth, expansion, and, in some | | | | line at that point became dependent on the |
| cases, healthcare financial survival. The | | | | hospital accounts receivable paying in 90 |
| following case study clearly exemplifies how | | | | days or less.o The line became "maxed out" |
| a hospital found its most effective funding | | | | and once again meeting daily cash |
| solution by trial and error. | | | | requirements became a challenge. |
| | | | |
| The California-based hospital applied for | | | | * Hospital management realized that the |
| medical accounts receivable funding with Sun | | | | significantly higher valuation of receivables |
| Capital HealthCare, Inc. (SCH), while | | | | by SCH as well as a longer eligibility period |
| simultaneously applying for an asset-based | | | | provided the most appropriate solution to |
| line of credit. In the initial discussions, | | | | funding their financial requirements. |
| hospital management indicated that their need | | | | |
| was strictly improved cash flow and that they | | | | Using medical accounts receivable funding, |
| viewed medical accounts receivable funding as | | | | this capital-strapped healthcare institution |
| their funding method of choice. It would | | | | quickly put itself in a stronger cash |
| provide them with a predictable and steady | | | | position. They were able to create new |
| cash flow stream based solely on their | | | | services and procedures, thus increasing |
| hospital accounts receivable and the amount | | | | hospital revenues, as a direct result of this |
| of funding would not be limited by the | | | | working capital strategy. In addition, |
| hospital's asset pool being evaluated by a | | | | because SCH's highly experienced owners know |
| bank at "fire-sale" prices. However, after | | | | the healthcare business, not just fund |
| SCH presented a letter of intent that | | | | healthcare businesses; the SCH team was able |
| outlined the terms and conditions of the | | | | to assist hospital management and its |
| transaction being offered, hospital | | | | advisors with operational counsel that |
| management instead chose to execute an | | | | contributed to the healthcare providers' |
| asset-based loan being offered by a large | | | | financial survival and subsequent growth. |
| regional lender, largely due to their | | | | |
| inability to move away from the comfort-zone | | | | In less than two years, a traditional bank |
| of their traditional financial mind-set. | | | | loan product was provided for the hospital |
| | | | that now is a very financially strong medical |
| Less than six months later, hospital | | | | facility. Quoting the hospital's CEO, |
| management returned to SCH requesting another | | | | "Without the help of Sun Capital HealthCare's |
| accounts receivable funding proposal in order | | | | accounts receivable funding program, we never |
| to secure the level of capital and | | | | would have reached a level of financial |
| flexibility they required. Here are the | | | | health that enabled us to qualify and |
| reasons the hospital gave for making the | | | | appropriately benefit from a bank's |
| switch to accounts receivable funding: | | | | traditional financing facility. Thank you, |
| | | | Sun Capital HealthCare, Inc. |