How to improve your allure to lenders.
As a long-term care provider, getting the financing you need to refurbish, add on, or even start anew depends on your ability to present yourself and your facility as a "good risk." Once you've cleared that hurdle, there are things you can do to ensure that your relationship with your lender runs smoothly, in good times and bad. Some tips follow from our experience with both LTC lenders and providers:
Keep professionally formatted, timely financial statements. As consultants, we see far too many nursing homes in which it's clear that an accountant has never been near the books: balance sheets don't balance, the owner's equity doesn't change routinely with the monthly operation, too many general ledger accounts, and so on. This "home-made" approach to bookkeeping is a red flag to potential lenders. It sends a message: "We don't really know what we're doing."
This is why we strongly advise stand-alone facilities to have a health care accountant come in and write their general ledgers for them. Even if you don't have external audits, it's wise to have an accountant from outside the facility take a look at your balance sheet and operating statements every year to make sure they look the way a bank is accustomed to seeing the books of other businesses look.
Equally important is the timeliness with which your statements are produced. Lenders tend to be leery of a nursing home that takes a month and a half to turn out its books.
Showcase your facility. It's a good idea to invite potential lenders to tour your facility to see firsthand the good things you're doing. This provides your lender with a "face" to attach to a loan application. Of course, it helps to have a facility that you're proud of since that pride - or lack of it - is evident to everyone who enters your nursing home - including those considering investing in the operation.
Establish a relationship with your lender. Once your financial arrangements are made, meeting with your banker/lender on a regular basis, especially when everything is running smoothly, may not be high on your list of things to do. Failing to do so, though, could prove foolhardy.
As regulated and volatile as the nursing home business is, the odds are that some day you'll have a loan-related problem. The day you discover that you're late on your mortgage or you need some relief on your interest isn't the time to go and introduce yourself to the person responsible for your loan. Instead - especially when everything is running smoothly - take your banker to lunch, get to know him or her, and (more to the point) let your banker get to know you.
Become your lender's LTC educator. Unless you let your lender know how things really are "down in the trenches," chances are he'll learn what he knows about the nursing home business from the Wall Street Journal or public company reports, neither of which gives him an understanding of the realities of day-today operations. By giving your lender an insider's perspective on the changing health care climate in your state and community, you're helping to prepare him for those day-to-day realities. When a problem does arise and you need assistance, you'll be less likely to hear that dreaded question, "How could this have happened?"
Be upfront about potential problems. When you're having a problem that may affect your financing, the tendency may be to either understate the problem to your lender or to avoid telling him about it at all. That is a big mistake. Financial analysts live on information - numbers and facts are their food - and nothing makes them more nervous than being kept in the dark.
Lenders, like the rest of us, prize candor. Time and time again I've found that they are much more willing to work with the owner who calls early on in a situation than the owner who waits until he can't make a payment before picking up the phone. Instead, make that call at the first sign of trouble, even if it's just to say, "We're experiencing problem X. This is what we're doing to correct it. I don't think this should cause you any problems at this point, but I just wanted to keep you informed." Lenders tend to view this as admirable, and be more inclined to help when help is needed.
There are literally thousands of ways to finance your nursing home property - from factoring your receivables, if you just need a boost, to selling your facility and leasing it back. The conventional "bank down the street" is only one of a myriad of lending sources: there are REITs, venture capital, industrial revenue bonds and HUD financing, to name just a few.
Despite the subtle and not-so-subtle differences between these entities and the financial arrangements they favor, the personal characteristics of the borrower, as described here - candor, integrity, careful documentation open communication - are qualities they all look for.
A final note: It would behoove any LTC provider thinking about doing any kind of financing attend the annual National Investment Conference (NIC) held each October in Washington, DC. There you can meet with a large number and variety of health care lenders and learn about the types of debt they handle and what their terms are. For information about this year's conference, you can contact the NIC organizers at 705 Melvin Ave., Suite 201, Annapolis, MD 21401. Phone: 410-267-0504.
Joan Dugan is President of Sage Health Services, Inc., an Evansville, IN-based company that provides management support services to the long-term care industry. For more information, 812-422-7774.
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|Title Annotation:||financing for long-term care providers|
|Date:||Sep 1, 1997|
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