Tag Archives: Healthcare Industry

Banks Take a Beating in the Fin Rev

Last weekend’s edition had several articles about the big banks and small business owners, some of whom have a recurring need for Medical Equipment Finance.  The small businesses interviewed did not include any Medical Practitioners, but as mentioned in a previous post, the banks’ credit managers still refuse to recognise the much lower risk profile of the Healthcare Industry, preferring instead to apply rigid, one-size-fits-all finance approval criteria.

The general tone of the articles was that the banks heavily favour big business and residential property business at the expense of small business.  The expense was quantified in relation to bank bills swap rates – big business pays a premium of about 2%, whereas small business pays close to 4%.  This closely correlates with my own experience and provides a pretty good guide about rates in general.

For example, 90-day bank bills were quoted at 4.82% last Friday, so small business can expect to pay in the high 8s, and big business will get rates in the high 6s.  That, of course, assumes that credit is forthcoming, and many small businesses are getting squeezed by tougher credit criteria that ignores longstanding relationships and good credit histories.

One SME owner made reference to his bank’s moving the goal posts on lending covenants and said, “When the sun’s shining the banks give you an umbrella but when it’s raining they want it back again.”  Another said, “They will only give you money if you give them something of greater or equal value.”  An embarrassed banker had to say to one client, ‘Come back when you don’t need the money.’  The comparison of the banks’ current actions with that of pawn shops seems valid to me.

Risk-Rated Interest Rates for Medical Equipment Finance

One of my ongoing challenges as a Medical Equipment Finance Broker is convincing the banks that the Healthcare Industry deserves their very best rates, because the risk of default is next to zero. It’s sad to report that the only two lenders who recognise Healthcare’s low risk are now being forced into using their parent companies’ credit policies, which is pretty much ‘one size fits all’.

The only differential the banks seem to use in determining who gets the best deals is size. According to the RBA, the cost of finance for small businesses is almost 2% more than the finance provided to big business. Furthermore, the terms and conditions are still bordering on the extreme for small businesses with the banks using every means to mitigate their risk, including personal guarantees (family homes are on the line), fixed and floating charges, and more.

But, it just doesn’t make sense to treat private medical practices like any other small business, particularly in view of:

• the principals, who as medical practitioners and specialists, are among the most highly intelligent, motivated, and affluent of all borrowers;
• the business, which is recession-proof; and
• the cash flow, claims for which the federal government pays in most cases on a next-day basis.

With all the talk about risk-rated interest rates, you’d think that at least one of the banks would wake up to the opportunity that is the entire private Healthcare Industry.