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A/R FINANCING - using your accounts receivable to generate working capital
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Accounts receivable financing, including commercial factoring, is a multi-trillion dollar financial industry that provides a cash infusion to a wide variety of businesses of all sizes, including Fortune 500 companies. Medical Accounts Receivable financing requires a specialized funding source that knows the healthcare industry because of the complexities involved in the valuation of your medical receivables. Most medical accounts receivable funding sources are asset based lenders [see below]. They use your medical receivables as their primary collateral for lending you money, thereby adding debt to your balance sheet. Sun Capital HealthCare, however, purchases your accounts receivable, so that the cash infusion to your healthcare organization results from the sale of your medical receivables and not as a loan. When deciding between A/R funding sources and their impact on your balance sheet, recognize whether your funding source is lending you money or purchasing your medical receivables. |
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DEBT FINANCING - borrowing money
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BANK LOANS
Easily understood and offered by a wide variety of lending institutions, the interest rate is readily apparent. However, when the often hidden fees and restrictions on the use of the funds are taken into consideration, the "real costs" of bank financing can be substantially higher than the quoted interest rate.
ASSET-BASED LENDING
Essentially the same as a bank loan, except it focuses on A/R and inventory as primary collateral. It is most effective when used to provide a single cash infusion rather than a cash flow solution. In addition to banks, asset based lenders provide this form of financing, the difference being that they use private sources of funds rather than the public funds deposited in banks.
BONDS
Typically used to finance long-term capital needs. Bonds are debt securities similar to stocks, except that bond holders lend money rather than own equity and the bond issuer repays both principal and interest. Interest rates depend on the credit worthiness of the healthcare organization and conditions in the financial markets and can vary over time.
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EQUITY FINANCING - selling stock or ownership
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Investment financing is also widely understood although not always readily available. The advantages include not increasing your borrowing and not having a repayment schedule reducing your working capital. In the short-term, it may appear to be the least costly option since you do not incur interest expenses. However, investors and equity partners often demand healthy balance sheets and operational performance before providing funds. They may not understand your healthcare business and in seeking to exercise control they can limit your decision-making and growth potential. Investors require significant ownership and profit participation, which becomes costly over the long-run.
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