As financial institutions look for ways to expand their commercial lending portfolios and attract valuable relationships, there are many opportunities out there for consideration. Possibly none add more value across multiple channels than healthcare banking. The healthcare industry is a $2 trillion market that represents 18% of our GDP and is growing. Banking opportunities abound. Healthcare relationships bring in core deposits, have a strong need for treasury management services, are typically sound credit risks, and drive wealth management opportunities.
Attracting healthcare relationships starts with having a viable healthcare loan platform. Just what is healthcare lending, though?
Most bankers immediately think of doctors’ offices, including the real estate involved and possibly a piece of equipment. While those are valid targets, the healthcare industry is much broader than that and represents an even greater lending opportunity.
I challenge you to think beyond the doctor’s office when searching for potential healthcare relationships. Here are some examples of businesses that have similar specialized financing needs:
- Medical staffing agencies
- Nursing providers
- Long-term care facilities
- Durable medical equipment providers
- Rehabilitation facilities
- Surgery facilities
- Diagnostic centers
- Nursing homes
- Imaging centers
- Ambulance and medical transportation companies
You can no doubt think of more. The point is, don’t limit yourself to the practice down the street. If the business can bill a health insurance company, it is a prospect for healthcare lending. Dig deeper.
Technology becomes the game-changer in this space. While financial institutions have long been able to monitor accounts receivables used as collateral, attributing a value to healthcare receivables has approached the realm of guesswork. The challenge lies in identifying a true reimbursement-rate, which often varies significantly from the claim amount, and even the contract rate.
Further complicating the matter is a financial institution’s desire to shield itself from HIPAA and HITECH compliance woes. A software intermediary becomes necessary for providing true net-collateral values – by provider and by insurance company – as well as for stripping away patient-specific information, which mitigates regulatory and compliance concerns. Once those hurdles are cleared, the process is as simple as issuing a traditional credit facility backed by the identified net-collateral value. From there opportunities are plentiful!
Creating lending opportunities means discovering a need and finding a unique way to address it. While just about any financial institution can provide a real estate or equipment loan to healthcare providers, very few lenders can provide the working capital many of them need to run and grow their businesses. As a consequence, they may turn to medical finance companies to provide the needed cash flow, and the local financial institution gets only a piece of the relationship.
In terms of opportunities, think about the growing nature of any business and why it needs financing to begin with; overhead, supplies, equipment, operating capital … you know the drill. Now think about those needs in an industry that is projected to grow the fastest from 2014-2024, according to the Bureau of Labor Statistics, Office of Occupational Statistics, and Employment Projections. That rapid growth provides a plethora of business opportunities for those in the healthcare space, which fuels financing opportunities to fund that growth.
What’s that old saying about what to do when opportunity knocks? In this case, you should probably just take the door off the hinges …