Determining The Optimal Financing Strategy
08 Oct 2024

Determining The Optimal Financing Strategy

08 Oct 2024

💰 Determining the Optimal Financing Strategy

Selecting the optimal financing strategy for a healthcare facility project is a multifaceted process that depends on several key factors.

  • The level of business risk with the underlying programs or services, particularly if they are a start-up venture with a high-risk profile
  • The location of a new facility and proximity to a hospital campus
  • The demographic composition of a market
  • The building occupants and the inclusion of independent physicians, joint ventures, or other third-parties
  • An organization’s creditworthiness
  • Access and availability of capital and other competing needs

The right financing strategy for a specific project is often shaped by these and many others factors. Fortunately, there are a variety of financing sources that can provide the optimal value for the specific needs of the project and organization.

Financing Sources  

  1. Traditional Debt 🏦 The debt and bond markets for many healthcare providers with strong credit ratings and balance sheets continue to be a reliable source of capital.  As the financial markets enter what is anticipated to be a period of de-escalation, interest rates and terms should become more favorable for the right facility project.
  2. Government-Supported Programs 🏛️ For healthcare providers in rural communities, the USDA provides highly competitive financing for new facility projects that might not otherwise be available. Because it is a government funded program, it does bring certain complexities that must be navigated and managed.
  3. Alternative Financing ⚡ Financing projects with a preferred development partner can be an efficient and cost-effective source of financing particularly when there is a high level of business risk, the building occupancy involves third-party physician or joint venture programs, or speed to market is critical. Because the value of the financing is based on the terms of the lease, it may preserve balance sheet capacity for other strategic investments.
  4. Charitable Lease Structures 💵 For not-for-profit providers with investment grade credit, bondable lease structures that provide the balance sheet benefits of a traditional lease at lower interest rates, exemptions from property and sales taxes, and beneficial purchase options are a worthy consideration. The provider’s total occupancy in the building, long-term ownership plans, and credit rating are key factors that determine the appropriateness of this financing option.

Throughout the feasibility planning effort for a new facility project, our team helps healthcare providers model and determine which financing strategy best meets their financial and business plan goals. Contact mcmarketing@medcraft.com to discuss your next project and how MedCraft can help you determine the optimal financing source.

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