Despite a turbulent few years, one constant remains within the healthcare industry: growth opportunities exist for companies with access to capital. While identifying qualified and trustworthy lenders is critical, it’s only one half of the equation; you will also need to understand what traditional lenders look for in a partnership. Before approaching potential lenders with a funding request, it’s best to think through what they might ask and prepare detailed answers addressing their concerns. Here are 6 common questions most traditional bank lenders will ask when entering a lending relationship.
What are your nonrecurring revenues?
Special federal and state funding has kept many skilled nursing facilities solvent over the past three years. However, most lenders usually exclude one-time cash infusions, such as special federal funding — CARES Act, PPP, etc. — or grants, from loan considerations. To gauge a facility’s current financial situation, a lender will typically look at most recent 3- and 6- month trailing performance trends, excluding many of these non-recurring government payments to revenue. Excluding the non-recurring funding sources reveals a more accurate operating margin. This gives potential lenders a better look at the facility’s true financial health. It can also generate a discussion to highlight what current expenses are planned to dissipate in the future. In essence, some operators may choose to spend more temporarily because they have the benefit of the one-time money to support the business through a transition period. This is why the government instituted the one-time money in the first place.
What have you done to reduce costs or increase occupancy?
High inflation and rising interest rates have made it more expensive for skilled nursing facilities to operate. Unfortunately, employment is one of the highest costs, making up 52.4% of all expenses.1 And it’s also one of the most difficult costs to reduce without sacrificing the quality of care. Therefore, lenders will look at the methods you’ve used to reduce expenses in other areas, and the steps you’re taking to attract new patients to your facility.
How are you addressing staffing issues?
Many facilities increased their reliance on agencies to help fill labor gaps during the pandemic. In addition to increasing employment costs, this can result in inconsistent patient care. Potential lenders will want to know what methods you’re using to maintain current staffing levels, as well as what you’re doing to attract and retain qualified employees.
What are the current regulatory challenges in your state?
Facility growth is often impacted by state regulations, both positively and negatively. One significant factor lenders will consider is the outlook on Medicaid reimbursement in the state where the facility or facilities are located. Suppose a state has approved higher Medicaid reimbursement levels in coming years. This regulation could improve the facility’s borrowing position — and vice versa if Medicare reimbursement levels remain stagnant or even decline. This is why working with a lending team with extensive experience in the healthcare industry is beneficial. Your team should know the current and proposed regulations in your state, and how those regulations could affect the financial health of your facility.
What need will you be meeting with the requested loans?
Most facilities seeking capital recognize the opportunity to meet a pressing need by growing their physical footprint or expanding their range of services. Lenders will examine how facilities plan to deploy the funds and better serve their communities.
How have your operations evolved to adapt to the post-pandemic environment?
Finally, lenders will explore what processes owners and administrators have implemented to position facilities for long-term growth successfully. How has the facility overcome past challenges? How will they address potential future challenges?
Unfortunately, many of these questions can’t be answered with black-and-white data. It’s important to choose a lending team who looks beyond the numbers, asking tough questions to uncover the real story behind your funding request. Providing thoughtful answers to these questions and engaging in real dialogue with your lender usually leads to successful, long-term lending relationships.
Ready to discuss your financing needs with an experienced lending team?
At CIBC, our experienced team is a trusted partner for skilled nursing facilities across the US. To learn more about CIBC Healthcare Banking services, call 312-564-1227 Opens your phone app.. Or visit our Healthcare Banking page.
1 Health Dimensions Group. February 1, 2023. The Importance of Managing Labor Cost for Senior Living Opens in a new window..
