What Do Lenders Look for When Financing an Ambulatory Surgery Center?
Financing an ambulatory surgery center can involve a significant amount of capital, particularly when a project includes real estate, construction, medical equipment, or an acquisition. Lenders generally evaluate several aspects of the borrower and the proposed transaction before determining whether financing may be appropriate.
For physicians considering ambulatory surgery center financing, understanding what lenders may review can help physicians prepare for the financing process.
1. Credit History
A physician’s personal and business credit history may be an important part of the financing evaluation.
Lenders may review credit history to assess how the borrower has handled previous financial obligations.
2. Professional Experience
Experience operating a medical practice or healthcare business can be relevant when evaluating an ASC financing request.
Lenders may consider the physician’s clinical background, business experience, management experience, and familiarity with the procedures and services the ASC will provide.
3. Financial Statements
For an existing ASC, lenders may review historical financial statements to understand the performance of the business.
These documents can help demonstrate revenue, expenses, profitability, and cash flow.
4. Cash Flow
Cash flow is an important consideration because the business needs sufficient revenue to support its ongoing expenses and debt obligations.
For an acquisition, historical cash flow can provide useful information about the existing operation.
For a startup, lenders may instead place greater emphasis on financial projections and the overall business plan.
5. Down Payment or Equity Contribution
Depending on the financing structure, the borrower may be expected to contribute some amount of capital toward the project.
The required contribution can vary based on the transaction, financing program, collateral, borrower qualifications, and other factors.
6. Business Plan
A detailed business plan can help explain how the ASC will operate and generate revenue.
The plan may include information about:
- Specialties and procedures
- Physician ownership
- Patient volume
- Staffing
- Location
- Competition
- Revenue projections
- Operating expenses
7. ASC Acquisition Details
If the financing is being used to purchase an existing ASC, lenders may evaluate the acquisition itself.
This can include the purchase price, historical financial performance, assets being acquired, real estate, equipment, and other terms of the transaction.
8. Real Estate
If the project includes purchasing a building, lenders may evaluate the property and its value.
The location, condition, intended use, and other property characteristics can affect the financing structure.
9. Equipment
Medical equipment can represent a significant portion of an ASC’s capital requirements.
Lenders may review equipment invoices, appraisals, useful life, and other information depending on the financing structure.
10. Financial Documents
Physicians should be prepared to provide financial documentation during the financing process.
Depending on the transaction, lenders may request items such as:
- Personal financial statements
- Tax returns
- Business tax returns
- Bank statements
- Profit and loss statements
- Balance sheets
- Accounts receivable information
- Business debt information
11. Debt Obligations
Existing debt can also be considered when evaluating a financing request.
Lenders may review current obligations to determine how additional financing could affect the borrower’s overall financial position.
12. Patient and Procedure Volume
For an established ASC, historical procedure volume can help demonstrate the level of business activity.
Lenders may also review payer mix, collections, revenue trends, and other operating information when evaluating an established facility.
13. Ownership Structure
The ownership structure of an ASC can also be relevant.
Physicians should clearly document ownership percentages, management responsibilities, and the roles of any other investors or physician partners involved in the business.
14. The Overall Strength of the Transaction
Ultimately, lenders may evaluate the entire financing request rather than relying on one factor.
A strong financing request can include an experienced borrower, realistic projections, strong financial documentation, an appropriate purchase price or project budget, and a clear plan for operating the ASC.
Final Thought
Lenders may evaluate an ambulatory surgery center financing request based on the physician’s credit history, professional experience, financial position, cash flow, equity contribution, business plan, and details of the proposed transaction.
Preparing financial documents and developing a detailed understanding of the ASC’s projected revenue and expenses can help physicians approach the financing process more effectively.
