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“Investment Practice” loans

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  • “Investment Practice” loans

    [We’re new here, so apologies if this has not been posted in the right forum topic]

    My business partner (family practice) and I have formed an MSO (Mgmt Service Org) to acquire and manage existing practices in our geography. I have a 20yr career in executive leadership and business turnarounds within several industries, so will handle the business operations of the practices we acquire, while my business partner continues to manage his current practice and acts as our Chief Medical Officer.

    We have interviewed, underwritten, and built pro formas for several practices we believe worthwhile acquisition targets, and are now shopping the investment package around. We had made it pretty far down the road with a great national bank that specializes in practice lending, only to have them change directions on “investment practice” lending. We are talking with our local bank and an investment group, but in my research on banks that lend on “investment practices” I came across the WCI Forum and thought I would see if anyone else here had recommendations on banks or investment groups that focus or lend in this area? The free cash flow on these practices is significant, so the DTR (debt-to-revenue) and DCR (debt coverage ratios) are very attractive.

    Sincerely appreciate any feedback someone may have to offer on this forum...looks like some great advice to be found here!!

    Thank you!

  • #2
    A couple of points:
    a. post will get more views/responses in 'General Investing' section of forum IMO. Weather appropriate there, IDK.
    b. A practice loan is a difficult for a bank to underwrite effectively from a couple of perspectives.
    1. A physician doesn't 'manufacture' something (banks love metal benders for this reason) for CF, rather it is a service business.
    2. Business value is primarily based upon AR collections/collections efficiency/average revenue/visit.
    2a. Equipment is relatively straightforward to lend against.
    2b. Patient list/phone number has very little value
    2c. Extremely difficult to have clear bank ownership of AR assets, especially with respect to medicare or medicaid.
    3. Based on work of Physician, difficult for a bank to 'take over' if they need to. Very tight recovery time frame in case of bank takeover, weeks not months.
    4. PE approach is to 'own' a high specialty practice (Cardio/Ortho) in different geographic locals. They are then able to negotiate with the hospital systems and move folks in if there are problem(s) with sufficient volume/track records to assure bank(s).
    5. Unclear the 'value add' you are bringing to table without capital. This is a reason doctors start a clinic with a loan that is personally guaranteed by assets such as home(s), and investment accounts,

    Last edited by ajm184; 03-09-2020, 09:31 AM.

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