Access to capital and project financing remains a challenge, though the causes have shifted with the ongoing capital crisis.
Project financing and access to capital remain significant barriers to implementing needed technology and facility changes. Lenders have tightened their standards, requiring more detailed due diligence and delaying or denying the access to financing. Crises of confidence in bond markets have dried up some traditional sources for health care financing such as auction rate securities. These changes have driven health care providers to work harder to access traditional methods of financing and to seek alternative methods. Previously, with a more confident economic environment, hospitals in good credit standing could easily pursue financing through unenhanced bond markets. Now, commercial and government enhancements, although more meticulous and fee intensive, will be needed to get the financing that is needed. Providers will have to be far more creative than they have been previously, for example, by taking advantage of methods like HUD 242 enhancements.
With continuing capital scarcity and likely declines in operating margins looming, a significant number of hospitals plan on delaying or eliminating new projects. “Hospitals have faced an ongoing battle regarding access to the capital markets at competitive rates of interest due to some difficult business realities that are peculiar to the health care industry. Through HUD 242, FHA can enhance a hospital’s bond rating up to AA or AAA by insuring the bond issue. The result is a lower interest rate and, therefore, a significant cost of capital savings” (HealthLeaders, “Federal Mortgage Insurance for Acute Care Hospitals,” 2-16-2006).
Traditional methods are going to require more detailed documentation and logical, comprehensive strategic business plans that clearly describe how the institution will generate the revenues required to repay borrowed funds.
Access to capital and project financing will always be available. However, that access will require more thorough business plans and may come from different sources than those traditionally pursued and available.
Our Strategic Finance Group recognizes the fundamental connection between strategy and capital deployment. While KSA understands the complexities of financial analysis, our team goes beyond mere number crunching to connect the necessary financial resources and strategies to the overall mission of the organization.