| Question: When is a business loan not a sufficient | | | | * After almost six months, hospital management |
| strategy to meet the working capital needs of a | | | | was 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 cash | | | | loan. |
| flow, but cannot afford or chooses not to | | | | * The asset-based bank line was insufficient for |
| increase its debt capacity...and/or the time | | | | their needs due to the bank's non-realistic and |
| constraints and the needed amount of capital | | | | significantly "undervalued" valuation of the assets |
| cannot be adequately served by the inherent | | | | owned 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 the | | | | and 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, nor | | | | funding line at that point became dependent on |
| are they necessarily the best suited option for a | | | | the hospital accounts receivable paying in 90 days |
| healthcare provider's growth, expansion, and, in | | | | or less.o The line became "maxed out" and once |
| some cases, healthcare financial survival. The | | | | again meeting daily cash requirements became a |
| following case study clearly exemplifies how a | | | | challenge. |
| 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 medical | | | | as well as a longer eligibility period provided the |
| accounts receivable funding with Sun Capital | | | | most appropriate solution to funding their financial |
| HealthCare, Inc. (SCH), while simultaneously | | | | requirements. |
| applying for an asset-based line of credit. In the | | | | Using medical accounts receivable funding, this |
| initial discussions, hospital management indicated | | | | capital-strapped healthcare institution quickly put |
| that their need was strictly improved cash flow | | | | itself in a stronger cash position. They were able |
| and that they viewed medical accounts receivable | | | | to create new services and procedures, thus |
| funding as their funding method of choice. It would | | | | increasing hospital revenues, as a direct result of |
| provide them with a predictable and steady cash | | | | this working capital strategy. In addition, because |
| flow stream based solely on their hospital | | | | SCH's highly experienced owners know the |
| accounts receivable and the amount of funding | | | | healthcare business, not just fund healthcare |
| would not be limited by the hospital's asset pool | | | | businesses; 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 intent | | | | operational counsel that contributed to the |
| that outlined the terms and conditions of the | | | | healthcare providers' financial survival and |
| transaction being offered, hospital management | | | | subsequent growth. |
| instead chose to execute an asset-based loan | | | | In less than two years, a traditional bank loan |
| being offered by a large regional lender, largely | | | | product was provided for the hospital that now is |
| due to their inability to move away from the | | | | a 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 management | | | | Capital HealthCare's accounts receivable funding |
| returned to SCH requesting another accounts | | | | program, we never would have reached a level of |
| receivable funding proposal in order to secure the | | | | financial health that enabled us to qualify and |
| level of capital and flexibility they required. Here | | | | appropriately benefit from a bank's traditional |
| are the reasons the hospital gave for making the | | | | financing facility. Thank you, Sun Capital |
| switch to accounts receivable funding: | | | | HealthCare, Inc. |