Seeking Hospital Finance

Exploring External Funding Options and Key Factors for Hospital Financing Success


Hospital financing are available for health service institutions or hospices that are currently experiencing liquidity problems or wanted to branch out in another location. It is a known fact that access to capital is very vital to the operations of a hospital. This is because in a hospital setting, staffing and equipment requirements, as well as other key necessities, can be colossal and definitely, the hospital management would not want to be left out in the cold. If you are one of the owners of a particular hospital, or if you are part of its management team, surely you would see the importance of seeking out a hospital financing package.

Even if a hospital has lots of assets and does not have any cash flow problem, it would still be advantageous to have an external funding source in case a good business opportunity crops up. Naturally, hospitals cannot simply just dip into their cash reserves in case there is a need to purchase a more updated or state-of-the-art equipment, right? More so if a wonderful opportunity crops up like another hospital in an exceedingly great location being put up for sale, which your hospital might be interested to buy. Under such circumstances, it would definitely be better to spend for the endeavor with the help of an external funding source instead of using the internal funds of the hospital.

Things to consider when seeking hospital financing

While availing of a hospital financing package is an attractive prospect for most hospitals, you have to consider some factors in order to be fully aware of the options that are available to you, and whether such option would benefit or put your hospital at a disadvantage. Some of these factors are:

  • A divided market

Currently, the credit market has amplified the distinction between an investment grade and non-investment grade rated hospitals. Investment grade hospitals are typically larger and have a more diverse patient base than non-investment grade hospitals. It is therefore not surprising if investment grade hospitals have better access to external funding sources compared to non-rated hospitals.

However, this does not mean that non-investment hospitals have lesser access to external funding sources, only that their rates are a bit higher. This is because most banks and lenders have become a bit more conservative when granting loans to non-investment hospitals.

  • Many hospitals are looking for working capital instead of real-estate loans

A lot of hospitals, particularly the non-investment grade institutions, are seeking hospital financing to help pay for maintenance of facilities, salaries and wages, and equipment purchase. Since most lenders usually base their decisions on the historical and projected earnings of a hospital, the chances of getting approved, under such circumstances, are slim. However, even if the hospital is currently having financial difficulties in such a way that it needed to seek a loan in order to fund their regular activities but can show its potentiality to bounce back, lenders may consider their loan.

  • Mergers and acquisitions provide opportunities for hospitals

At present, some of the growing trends in the hospital market are mergers, acquisitions, as well as joint ventures. This resulted in more institutions seeking external funding sources to fund these types of endeavors. Weaker health facilities are being acquired by stronger hospitals. Lenders, most likely, would look favorably on the loan applications of these stronger hospitals.

  • Reforms on healthcare will definitely impact the future of hospital financing

Healthcare reforms definitely have an impact on hospital financing. This statement was proven true when health care reform bills were still being deliberated in the US Congress. On the overall, lenders are closely monitoring developments in the political arena because a number of bills, if passed into law, could have a variety of outcomes for different segments, including the hospital market.

The Next Move

There are many other factors to consider when seeking out hospital financing. Nevertheless, these four aspects are regarded as very important for the management team of any type of hospital to consider. Although some of these factors may be beyond the control of the hospital management, what is important is that lenders would be able to see that the hospital has a bright future ahead of it.

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