Like other business entities, healthcare organizations require funding for de novo projects and expansion without undergoing strategic buyout or full recapitalization. This call for caution when choosing either debt or equity since selecting the wrong one is catastrophic to the organization. Therefore, it would be best to consider some factors when selecting the type of financing because each has its pros and cons.
The factors are as follows:
Some health-focused lenders can finance your healthcare organization through healthcare financing. However, the choice of financing option will determine if you will be selling a portion of the equity in the organization. Equity is a financing option; you aren’t obligated to repay the money. However, your organization may be disrupted by introducing other stakeholders. Equity funding is unfavorable if you want full control of your healthcare organization even after the budget. On the upside, your organization won’t be paying the lender monthly hence more capital to use in the business.
Profitability measures the financial performance of your healthcare organization hence the need to consider it when choosing a financing option. You can determine it by dividing the current value of future cash flow by the initial investment. It would be best if you go for a financing option that won’t eat into your profit in the future if you believe the health organization will be profitable. For instance, debt financing would be most suitable in such instances. However, it might restrict use outside the core healthcare functions.
It would be best to consider your organization’s cash flow to determine the best financing option. If your business suffers from poor cash flow, taking an option like debt financing would be unfavorable since your business must pay the lender every month. Therefore, equity financing would be the best option. Note that you should carefully read the terms and conditions to understand the deal before committing to it.
You should also consider the entity’s worthiness when choosing a financing option. An option like debt sources funds from term loans, business lines of credit, SBA loans, and peer-to-peer lending means you might be disqualified if your entity isn’t creditworthy. In comparison, equity financing, which sources its funds from crowdfunding, corporate investors, angel investors, and venture capital firms, doesn’t require creditworthiness and is quite easy to acquire.
Depending on how well your health organization performs, you must consider the cost. The cost can be low if your project performs well, hence the need to choose debt financing. But if not, it would be best to choose equity financing as it will be cheaper. This is because debt financing will require you to pay back the loan regardless of how your business performs, which will be costly. However, note that it might cost you more when buying back your business equity once your entity gets its footing. Therefore, you must seek professional advice before settling on a financing option.
Entities like healthcare organizations require funding to grow through new projects and expansion. There are two options that your organization can choose. However, these healthcare financing options have their merits and demerits. Therefore, it would be best if you consider the factors in this article to get the right option. But if stuck, there are third-party firms that you can partner with to connect you with health-focused lenders that combine both financing options for a better deal.