A Hospital Finds Best Funding Solution Through Trial And Error

Question: When is a business loan not a sufficient* After almost six months, hospital management
strategy to meet the working capital needs of awas in the exact same cash flow situation they
hospital or other healthcare provider? Answer:were in prior to their accepting the asset-based
When the provider needs to improve its cashloan.
flow, but cannot afford or chooses not to* The asset-based bank line was insufficient for
increase its debt capacity...and/or the timetheir needs due to the bank's non-realistic and
constraints and the needed amount of capitalsignificantly "undervalued" valuation of the assets
cannot be adequately served by the inherentowned by the hospital.
limitations and delays in the loan application* The bank was closely monitoring the hospital's
process.accounts receivable (a significant asset in the pool)
While loans are a viable and traditional part of theand was quick to disqualify that collateral once the
working capital strategy of hospitals nationwide,aging reached 90 days. Consequently:o The
they are not the only funding vehicle available, norfunding line at that point became dependent on
are they necessarily the best suited option for athe hospital accounts receivable paying in 90 days
healthcare provider's growth, expansion, and, inor less.o The line became "maxed out" and once
some cases, healthcare financial survival. Theagain meeting daily cash requirements became a
following case study clearly exemplifies how achallenge.
hospital found its most effective funding solution* Hospital management realized that the
by trial and error.significantly higher valuation of receivables by SCH
The California-based hospital applied for medicalas well as a longer eligibility period provided the
accounts receivable funding with Sun Capitalmost appropriate solution to funding their financial
HealthCare, Inc. (SCH), while simultaneouslyrequirements.
applying for an asset-based line of credit. In theUsing medical accounts receivable funding, this
initial discussions, hospital management indicatedcapital-strapped healthcare institution quickly put
that their need was strictly improved cash flowitself in a stronger cash position. They were able
and that they viewed medical accounts receivableto create new services and procedures, thus
funding as their funding method of choice. It wouldincreasing hospital revenues, as a direct result of
provide them with a predictable and steady cashthis working capital strategy. In addition, because
flow stream based solely on their hospitalSCH's highly experienced owners know the
accounts receivable and the amount of fundinghealthcare business, not just fund healthcare
would not be limited by the hospital's asset poolbusinesses; the SCH team was able to assist
being evaluated by a bank at "fire-sale" prices.hospital management and its advisors with
However, after SCH presented a letter of intentoperational counsel that contributed to the
that outlined the terms and conditions of thehealthcare providers' financial survival and
transaction being offered, hospital managementsubsequent growth.
instead chose to execute an asset-based loanIn less than two years, a traditional bank loan
being offered by a large regional lender, largelyproduct was provided for the hospital that now is
due to their inability to move away from thea very financially strong medical facility. Quoting
comfort-zone of their traditional financial mind-set.the hospital's CEO, "Without the help of Sun
Less than six months later, hospital managementCapital HealthCare's accounts receivable funding
returned to SCH requesting another accountsprogram, we never would have reached a level of
receivable funding proposal in order to secure thefinancial health that enabled us to qualify and
level of capital and flexibility they required. Hereappropriately benefit from a bank's traditional
are the reasons the hospital gave for making thefinancing facility. Thank you, Sun Capital
switch to accounts receivable funding:HealthCare, Inc.