A Deep Dive into Healthcare Practice Financing: Expert Insights from Billy Walker (Source Asset Finance)

In the intricate world of business finance, healthcare clinic owners often find themselves at a crossroads, weighing options to fuel their growth. We had the privilege of discussing the basics of financing, the elements of a strong business case, and the various types of financing available with Billy Walker of Source Asset Finance, a seasoned professional well-versed in assisting practices of all sizes. Here's a dive into the key takeaways from our insightful conversation.

Coherent: Thank you for joining us today, Billy. Let's start with the basics. Why should healthcare practices consider financing, and how can they utilise it across different areas?

Billy: Financing is a versatile tool for practice owners. It enables you to realise ideas and plans by providing the necessary capital for various purposes, such as purchasing equipment, hiring staff, buying stock, or investing in marketing to fuel growth. The key is that ideas may be abundant, but having the required cash is often a bottleneck as waiting until you’ve acumulated sufficient savings takes time. Financing allows practices to access funds promptly, either through banks, financial institutions, or other avenues.

Coherent: What are the options available for healthcare practices in terms of financing?

Billy: There are many financing options available for a growing healthcare clinic. Practice owners can opt for traditional bank loans, seek investment from friends, family, or other parties, or even consider loans from financial institutions. The important consideration is whether to take on debt or give up a percentage of the company in exchange for investment (equity). Each option has its implications, and the choice depends on the practice owner's comfort level with sharing ownership (if giving away equity) and being able to pay down the debt (if taking out a loan).

Coherent: Could you shed some light on the application process for financing?

Billy: Applying for financing is relatively straightforward. To start, I send out a list of the information we need in order to take a proposal to the lenders for a decision. The challenge lies in providing the necessary information that lenders require for a decision. This includes a comprehensive business plan with financial projections, management accounts, and, in some cases, director's guarantees. For instance, if a practice is starting out, lenders may scrutinise the solidity of the business plan and financial standing (e.g., have they got sufficient management accounts - a Profit and Loss statement, Balance Sheet, Cash Flow Statement)? If director’s guarantees are requested, are they home owners? And can they provide an Assets & Liabilities statement?

Coherent: How long does the application process typically take?

Billy: Once we have all the information we need at Source Asset Finance, we write our proposal and send this to the underwriters for a decision. We have a panel of over 200 lenders for all forms of finance so we look to match the requirement with the best lender(s) as quickly as possible. Depending on the requirement, this generally takes a couple of days. In some instances it can take longer if the customer has subpar credit history or if they are looking for a loan secured against a property. 

Coherent: Can healthcare practices starting out get financing easily?

Billy: We can fund practices and clinics of all sizes, including new starts. However one thing to bear in mind is that a new company is generally considered high risk because it doesn’t have any trading history, so the rates are higher.

Coherent: What makes a strong business case for financing?

The underwriters make their decisions mostly based on financial information, which is drawn from a) annual accounts (filed at Companies House), b) the management accounts (what the annual accounts are produced from), and c) bank statements (to show the availability of cash and how the businesses cash is being spent). Underwriters like to see that turnover, profits, and the net worth of the practice are on the upward trajectory. If any of these or other metrics show a decline, it becomes a red flag (e.g., cost base increasing, loss of a significant customer, owners withdrawing a lot of money). They immediately want to understand the reasons behind the downturn and assess whether it's a temporary setback or a more significant concern that points towards the practice struggling and running out of cash.

Coherent: Moving on to types of financing, could you provide an overview of the various categories you finance?

Billy: Sure, there are several financing categories worth considering:
a) Asset Finance covers leasing or hire purchase of equipment, vehicles, plant, refurbishments, technology, and catering, You fund these “assets” generally over 5 years (some equipment can go up to 7 years).
b) Unsecured Loans is lump sum financing for various practice needs (e.g., tax, marketing, utilities installations, fit-outs, insurance, deposits, stock). They generally require personal guarantees from the Directors/Owners.
c) Secured Loans are similar to Unsecured Loans but the loan is secured against a property.
d) Invoice Finance is advances on invoices to bridge payment gaps. E.g., if a clinic has delivered services but the customer doesn’t have to pay the invoice for up to 90 days, a lender will advance the clinic around 70%-90% of the invoice value and the rest once the customer has settled the invoice.
e) Merchant Cash Advance is a loan against clinic income. A portion of the loan is repaid every time a card payment is made by a customer, so the loan provider deducts a portion of the sales income at the point of sale and forwards the rest onto the borrower.

Coherent: How should healthcare practices think about the cost of capital, rates, etc.?

Billy: The rates for financing depend on several factors, including:
a) Asset type – e.g., cars hold their value, so get better rates; refurbishments goods are almost worthless to a lender and don’t keep their value so lending against a fit-out will mean a higher interest rate
b) Business maturity – it is higher risk to lend to a new start or loss-making business, and therefore interest rates are higher for these businesses
c) Lender’s Tier – tier 1 lenders have the lowest rates, tier 3 have the highest rates. We always try to get the lowest rates as a matter of process
d) Term – lending over 12 months is more expensive than lending over 5 years as the lender makes less interest over a short term, but has the same setup costs (underwriting, writing documents, processing payments, etc).

In essence, navigating the world of business financing involves understanding the intricacies of different financing options, presenting a compelling business case, and being mindful of the associated costs and rates. If any healthcare practices have further questions or need assistance, Billy is more than happy to schedule an exploratory chat to guide you through your financing requirements (contact Billy on billy@sourcefinanceuk.com or 07956 045421, Monday to Friday, 9 am to 5 pm).