Healthcare providers often face complex financing needs, and this is especially true for those not affiliated with larger medical institutions. Providers tend to face uncertainty regarding payment timing, reimbursement agreements, and other cash flow issues that can limit their ability to plan for the future and respond to changing business conditions.
When your cash flow isn’t predictable and reliable, you may have limited options for expansion, less flexibility for seasonal fluctuations, and even higher employee turnover.
One solution to these issues can be a business line of credit, a financing tool that gives your business access to working capital on an ongoing basis. With a line of credit, you draw from a revolving credit line and only repay what you use.
While it can’t solve every financial issue that a healthcare business might face, a line of credit offers flexibility and consistent access to funds to help boost cash flow, fund renovations and capital investments, and hire additional staff. Like any debt financing solution, a line of credit comes with terms and interest repayments. But when used carefully, it can provide the crucial infusion of funds you need to stabilize cash flow, cover costs, or expand into new markets.
What you need to know
- Business lines of credit provide a flexible source of funds that can be drawn as needed, and used for a variety of expenses.
- Interest is only charged on the portion of the credit line you use.
- The Bluevine Line of Credit allows for continuous usage without reapplying upon repayment, though every draw is subject to review.
1. Renovations or new services
A lack of cash can prevent healthcare companies from expanding their practices and taking advantage of ripe business opportunities. Having access to new technologies and equipment can be the difference between a growing business and a stagnant one. With a line of credit, your healthcare business can purchase new equipment to improve patient care, upgrade your facilities, or even hire specialists to expand your services.
Other use cases include paying for digital service subscriptions, opening additional physical locations, and developing telehealth offerings. These investments can drive new revenue streams that can help pay back your initial line of credit draws, plus any incurred interest. With a revolving line of credit, this process can be repeated to drive continued expansion.
2. Reimbursement delays
Effective cash flow management drives profitability and helps your business avoid financial crises. Unfortunately, healthcare businesses have some of the most complex cash flow models of any industry. For example, insurance reimbursements can have unpredictable processing times, often forcing you to wait several weeks or more to receive funds. Disagreements between healthcare providers and insurance companies on acceptable reimbursement rates can also delay payment even further, as can delays on out-of-pocket payments from patients.
These variables make cash flow less predictable, which can be the perfect reason to consider a business line of credit. On-demand access to cash can help combat the unpredictability of payment timing and extended payment delays, so you can comfortably cover recurring expenses like rent, utilities, and payroll.
3. Manage staffing
Healthcare businesses often need to hire additional staff to take advantage of seasonal surges in business, both predictable and sudden. While this additional demand can provide increased cash flow, it isn’t always enough to cover the costs of hiring temporary staff.
A business line of credit can provide the initial sums needed to hire and train staff, and support salaries until seasonal revenue catches up with the cost of employing administrations and locum tenens physicians. You should be able to use the additional business you earn during seasonal surges to quickly pay back your line of credit principal and interest.
4. Marketing and patient acquisition campaigns
For your healthcare business to thrive, prospective patients in your community need to know you exist. Studies have found that the average healthcare practice spends between 1–5% of gross annual revenue on marketing, while growth-focused practices often spend more.
While marketing needs for healthcare businesses can be complex and split across numerous channels, it’s important to at least invest in the basics—including an up-to-date professional website and a discoverable presence on social media.
Out-of-home (OOH) advertising, such as billboards and public transit ads, can also be a great way to increase awareness and capture local market share. If it’s too expensive to invest in now, expanding your marketing efforts is another reason to consider a business line of credit in the near future. Having access to funds for expanding advertising on short notice can be crucial in expanding your healthcare business and maintaining your presence against local competitors.
How flexible financing supports healthcare businesses
A business line of credit is not the only form of working capital available to help healthcare practices cover operating expenses. Another common financing option is a term loan, through which you can access a lump sum of cash and pay it back with interest in fixed installments.
While a term loan can provide an upfront infusion of funds, its repayment schedule can be less flexible than a line of credit, which can overcomplicate financing for healthcare practices with very unpredictable cash flow.
Both term loans and lines of credit are divided into secured and unsecured categories. Secured loans are backed up by collateral, usually an asset of some kind, which is forfeited in the event that the principal is not paid back. These forms of debt financing generally have higher borrowing limits and lower interest rates, but can risk the loss of the collateral. Unsecured lines of credit do not require collateral, but generally come with higher interest rates and stricter eligibility requirements, as lenders want to avoid potential losses.
For healthcare businesses with good credit and limited collateral assets, an unsecured line of credit may be the best financing option, while businesses with ready collateral may prefer the lower interest rates offered by a secured loan or credit line.
Did you know?
Bluevine makes it easy to apply for a business line of credit, plus term loans via trusted lending partners, through one simple application.
Business line of credit best practices for healthcare providers
When applying for and using a business line of credit, healthcare providers should avoid some of the pitfalls that come with using new financial tools. The most common mistakes businesses make include overuse of credit, failure to make repayments on time, and improper disclosure of patient information, which can all interfere with the business operations that a line of credit is intended to support.
Here are a few tips to help your business make the most of a credit line:
- Keep your credit usage low. One of the advantages of a line of credit is that interest is only paid on drawn funds. By only using 20–40% of your credit at any given time, your business can avoid paying substantial interest and continuously improve your credit score with on-time repayments.
- Use credit strategically. A business line of credit should be viewed as a tool for solving cash flow issues and should not be overused. Like any form of debt financing, funds drawn from your line of credit need to be paid back and can incur substantial interest if not paid back promptly. Companies that over-rely on lines of credit to pay for basic expenses—or use lines of credit to pay off other debt—can quickly find themselves overwhelmed by interest payments.
- Keep patient information compliant. Healthcare businesses always have to be mindful of not disclosing patient information in financial transactions. Stay compliant and protect your patient information when you fill out paperwork to apply for a line of credit, term loan, or other financing opportunity.
Complements to your business line of credit
While a business line of credit provides flexibility for healthcare businesses looking to access capital, other financial tools can also help you achieve your long-term objectives. A term loan may provide lower interest rates and more predictability. For some businesses, equity financing can provide an infusion of capital without taking on debt, though you would be dividing equity with investors
For practices looking to expand or upgrade their medical equipment, equipment financing can be a targeted way of accessing credit for one specific purpose, while paying predictable interest.
With all that in mind, here are some potential ways to complement a business line of credit:
- Equipment financing: Equipment financing can take many forms, including term loans that use the purchased device as a collateral, deferred payment options, or vendor partner financing, offered specifically through the equipment supplier.
- SBA loans: While the Small Business Administration (SBA) does not provide credit directly, the lenders that it licenses can provide loans with favorable interest rates to applicants with credit scores of 650 or above.
- Business credit cards: A business credit card can function similarly to a line of credit, allowing your business to draw on funds where needed, with interest paid only on used funds. Credit cards can also be given to employees, allowing for more flexible usage of funds.
FAQs
What credit score do I need for a business line of credit?
To be considered for a Bluevine Line of Credit, you must have a personal FICO credit score of at least 625. Your business must also meet additional qualifications, including:
- $10,000 in monthly revenue
- In business for 12+ months
- Corporation or LLC
- No bankruptcies on file
- In good standing with your Secretary of State
- Business is operating or incorporated in an eligible U.S. state
Learn more about Bluevine’s minimum requirements here.
Can I use a line of credit to buy medical equipment?
Yes, you can use a business line of credit to purchase medical equipment. Tapping a credit line to refresh existing equipment or buy new equipment can help your practice avoid using crucial operating funds that would otherwise be used for expenses like rent, utilities, payroll, and more.
You can also draw from your line of credit to cover those operating expenses when cash flow is tight, especially during seasonal fluctuations and unpredictable insurance reimbursement periods.
