asc management
We Arrange Financing for our ASC
After our initial lender gets cold feet, we find alternatives that save us millions in interest costs.

By Larry Patterson, M.D., and Ray Mays

It takes lots of money to build an ASC -- millions of dollars that few medical practices have available. Thus, finding a suitable lender and obtaining acceptable financing terms is one of the most critical parts of the construction process. This month, we'll discuss our search for financing.

For more than 10 years, our practice had an ongoing relationship with our community bank. This institution was able and quite willing to handle our banking requirements. Our families and employees banked there, and we had financed equipment and cars there over the years.

As our project began to take shape and the price tag increased into the millions, our banker began to get nervous. As it neared $3 million, he got downright scared. A few months into construction, we received a phone call from our banker informing us that the bank could no longer lend us money. On that same day, I received a request for payment from the contractor for $200,000.

Finding a Financing Solution

Three months prior to our banker's phone call, I had contacted the U.S. Department of Agriculture concerning their loan guarantee programs. The USDA has programs that guarantee 80% of the loan amount to private lenders. This allows smaller banks the opportunity to make larger loans -- and gives the small banks a secondary market in which to sell these loans. When I received the call from the banker, I immediately got on the phone with the USDA and set up a meeting with the USDA, our bank's senior officers and myself.

At the meeting, we discussed the possibility of obtaining a USDA loan guarantee. Our bank agreed to continue to finance the project if we could obtain the guarantee. This process takes 30 to 60 days. During this time we kept the construction schedule going by using our own cash and by convincing the contractor that we were good for the balance.

We received a verbal commitment from the USDA within 30 days and the bank agreed to extend our line of credit to cover the costs to date. Once final approval was given, we were able to complete the project without any serious delays.

Although we received a good rate and terms from the USDA, I continued to research other options. A few months after we opened our ASC, I began a third round of financing through a large commercial lender who not only offered us very low rates (less than 4%), but a new level of banking services.

What Lenders Want

The key to securing good financing is packaging the story of your business. You must tell a good story that translates the language of ophthalmology and ASCs into the language of banking.

Terms such as YAG and excimer mean nothing to a loan committee. Bankers understand cash flow statements, profit-and-loss statements, loan-to-value ratios and business plans. Bankers are interested in your cash flow position and the cash flow projections out to at least 5 years for both the practice and the ASC.

Accountants are helpful in preparing the tax return and profit-and-loss portion of the package, but only those who are familiar with the business of ophthalmology and ASC operations can accurately project cash flow.

Obtaining the best financing possible is crucial to the project's profitability. Good financing frees up cash flow, saves money and provides greater flexibility for the entire operation. A reduction of even 1% in interest can literally save millions of dollars over the life of the loan. It did for us.

If you'd like to discuss the specifics of this type of low-rate financing, please feel free to contact me at raym@ecotn.com.

Larry Patterson, M.D., is practice owner and Ray Mays is practice administrator of Eye Centers of Tennessee, a general ophthalmology practice serving 300,000 residents of middle and east Tennessee. You can reach Ray Mays at raym@ecotn.com.