Banks find creative ways to help cash-strapped health clinics
Even the health care industry is feeling the financial strain of the new coronavirus pandemic.
Measures put in place to curb the spread of the outbreak, like social distancing and stay-at-home orders, have forced doctors and dentists to cancel appointments and delay elective procedures, while other providers are dealing with increased costs of treating patients of COVID-19.
The upshot is that many health providers are trying to figure out how to cover their expenses for an indefinite period of time, and they desperately need help from their banks.
“The No. 1 question right now is cash flow,” said Andy Harmening, consumer and business banking director at Huntington Bancshares in Columbus, Ohio.
Harmening said that the $108.7 billion-asset Huntington has specialists, who ordinarily work with first-time dental and veterinary practice owners, proactively reaching out to all of its health care clients to hear their particular concerns.
Huntington has researched state and local assistance efforts in each of its markets and put those resources onto an internal site for bankers to reference when they call clients.
Dentists, optometrists, and even veterinary clinics, are feeling pressured as they cancel nonemergency appointments and sometimes close their doors to new business for the near term.
While many of those small businesses will likely be able to qualify for loans from the Treasury Department’s Paycheck Protection Program, bankers say they have been fielding calls from small health care providers for weeks now. Lenders who spoke to American Banker described a number of measures they are taking to help health care clients, like modifying loan terms, deferring payments, or loaning money against equipment or future receivables.
Dan Croft, the head of the health care practice solutions group at TD Bank, said that dental and optometry practices have been the hardest hit, as their work demands such close proximity. Medical offices and veterinary practices are usually deemed essential services, but many of those businesses are also experiencing declining appointments and, in turn, revenue from insurance and co-pays.
Croft said the $320 billion-asset TD Bank is continuing to process and approve new loan requests to health care clients, but “a number of borrowers have requested their deals be put on hold, pending the end of this crisis.”
Ted Sheppe, the executive vice president of commercial banking at Axiom Bank in Maitland, Fla., said that in most cases, Axiom has been making 90-day loan payment deferrals for health care clients.
“It frees up cash flow for them to do the things they need to do to survive and to continue to collect receivables and pay bills,” he said. “That’s been the quickest and most immediate thing we’re doing.”
The $672 million-asset Axiom has also used its factoring capabilities in a few cases, Sheppe said. Its factoring arm pays a business for future receivables, say 70 or 80 cents on the dollar and makes it money by collecting on 100% of the receivables.
While factoring is typically used by companies that are new and not quite bankable, or else undercapitalized, Axion has used it to help its established health care clients meet cash-flow needs.
Jared Wolff, president and CEO of Banc of California in Santa Ana, said that even providers on the front lines of fighting the pandemic are having financial struggles. These providers, for example, are seeing a higher cost of supplies, particularly protective gear, as they rapidly expand their capacity to take in more COVID-19 patients.
Wolff said the $7.8 billion-asset company has increased credit lines to bridge cash flow and has adjusted term loans where it can, to allow for longer collection periods. He also said the company is anticipating pent-up demand from non-front-line health care businesses catching up on appointments once the crisis passes.
“Except for emergencies, most of these facilities are closed and they’re expecting very high volumes after quarantine ends, which could trigger a shortage of supplies and a higher cost of supplies as there’s a surge in demand,” he said.
Mark Gusinov, East Coast regional manager of City National Bank in Los Angeles, said many small health care businesses do have plenty of liquidity, but they’re wary of draining it all now, especially when it’s still uncertain how long widespread shutdown measures will be in place. Health care practices want to still have working capital once they’re able to turn the lights back on, whenever that may be.
In some cases, the $61.4 billion-asset City National, the U.S. unit of Royal Bank of Canada, has deferred loan or mortgage payments for 90 days. In another instance, it took a lease on a piece of equipment to give that business a little bit more working capital.
Gusinov said City National, like other banks, has had to strike a balance between finding creative solutions for clients while ensuring the bank itself can also make it through the crisis.
“We’re trying to be as innovative as we can be while still being prudent as an institution,” Gusinov said. “Part of the challenge for any bank is that you want to help your clients to the absolute best of your ability, but you also want to be around when this is over.”