Health care clients are lucrative for banks, but lending to practitioners who are launching their own practices is complex.
Borrowers may carry hundreds of thousands of dollars in student debt. They may have had no experience running a business before starting or acquiring a practice. They typically take out loans that range from $500,000 to $3 million to buy real estate, obtain specialized equipment such as dentist chairs and X-ray machines, and hire employees. Several parties are often involved: the practice owner, a certified public accountant and perhaps business partners.
The process is “scary and emotional,” said Ben Hoffman, chief strategy officer at Fifth Third Bancorp in Cincinnati.
Fifth Third and Sonabank in Tappahannock, Va., are among the banks turning to fintechs for help.
One of those is Lendeavor, a San Francisco fintech that said Tuesday it has changed its name to Provide. The company, which works exclusively with banks to to help solve credit challenges for customers, has raised $34 million in Series A and B funding rounds this year.
Provide has specialized in practice lending, or credit for health care providers who are buying, acquiring or expanding a practice, since 2016. It focuses on regional banks, which may have significant geographic reach but lack the technology budgets to compete with the larger banks that have practice financing divisions.
“Bank partnerships are core to what we do,” said Dan Titcomb, co-founder and CEO of Provide. “We’re not part of the group of fintechs that say banks are the dumb pipes and they’re going to be a commodity soon.”
Besides the $200.5 billion-asset Fifth Third — also one of Provide’s investors — the practice lender works with First Internet Bank of Indiana in Fishers, Ind., NBT Bancorp in Norwich, N.Y., Washington Federal Bank in Seattle and Zions Bancorp. in Salt Lake City.
Fifth Third has worked with Provide for more than two years. As a partner bank, it is the source of liquidity for Provide’s loans and financial services for the new medical-provider customers Provide ushers into the bank. These clients generally have high incomes and steady revenue — and have maintained them during the pandemic. Over time, Fifth Third hopes to build on these relationships with other services, such as mortgages and wealth management.
“It’s a wonderful opportunity to secure a customer who you can see through their life cycle and with whom there is likely a very productive relationship on the individual side as well as the business side,” Hoffman said. “These are people who tend to buy homes and need mortgages, who accumulate wealth and need advice.”
Provide fits into Fifth Third’s broader strategy of turning to fintechs for innovative ways to solve customer problems. The company also partners with the student lender CommonBond, online estate planning company Trust & Will, job-finding app Steady and lender GreenSky.
In the case of Provide, Hoffman values its expertise in this particular niche.
“This is why the partnership model is wonderful," Hoffman said. “For us to have relationship managers well versed in making those types of loans throughout our footprint who can meet the client, walk to location and put eyes on equipment is not financially tenable.”
The vast majority of health care providers that Provide brings to Fifth Third are brand new customers to the bank. Their revenue is predictable, and their services are always in demand.
“Lending in the medical space is a great place to be,” Hoffman said. “Even in a pandemic people need all manner of health care. Whether the economy is on the upswing or downswing, they will feel muted effects of the macro cycle.”
The co-founders of Provide say that health care providers are a low credit risk and they have only charged off one loan since the company’s inception.
Provide works primarily with professional who own small practices, including dentists, veterinarians, optometrists, ophthalmologists, dermatologists and plastic surgeons, as well as other medical specialties that lend themselves to solo or small group practice. Its customers are typically early in their careers and interested in becoming practice owners, with around $50,000 to $100,000 in the bank and about $275,000 in student debt.
The fintech will originate a loan for its health care customer and sell the loan to its bank partner. Provide will usually oversee the opening of a business checking account with the bank partner during the loan-closing process. The financial institution that buys the loan will maintain the business checking relationship, and the two parties will serve the customer once the loan is originated. Provide will collect financial statements and manage additional lending requests, while the bank partner handles treasury management and payment processing.
“They help us acquire high-value customers through solving an incredibly emotional experience and a large debt undertaking by the client,” Hoffman said. “We are able to then wrap our arms around those clients in helping them address their other needs as they get the practice started.”
This ability to help customers through such experience is something that can deepen loyalty, he says. Several years ago, Fifth Third launched an app called
“For each of those emotionally laden, scary, transformative moments where they need help from a financial institution, we want to deliver a world-class experience, whether it’s by ourselves or with partners,” he said.
The range of products for medical students, residents and emerging practice owners is increasing.
Provide is offering life and disability insurance to health care providers in 46 states. By early 2021, the company will be offering life, disability, general liability and business and personal property insurance in every state. It says it will not offer business checking accounts that compete with its bank partners.
A challenger bank called Panacea Financial in Little Rock, Ark., which launched to the public on Nov. 1, is trying to fill another gap for practitioners. For now, its products include no-fee checking and savings accounts and fixed-rate personal loans it calls PRN loans. (PRN is for the Latin for pro re nata, meaning “when necessary,” and is frequently used in the medical world.) It operates as a division of the $3.2 billion-asset Sonabank.
The target audience tends to be even earlier in their careers: medical students, residents and fellows, and attending physicians.
One of the co-founders, Michael Jerkins, is a practicing physician. While doing his residency, he was dismayed to find that most banks required a co-signer to extend a personal loan and even then, interest rates could reach the double digits. His debt-to-income ratio was unappealing, despite the fact that a high annual salary and high net worth were only a couple of years away.
“When physicians-in-training are done with residency or fellowship, every bank wants their business,” Jerkins said. One of the ideas driving Panacea is that these customers are low risk, and by offering them affordable credit and deposit accounts now, they are likely to keep their business with Panacea as they progress in their careers.
Loan applicants need only prove they have a medical license and no adverse credit events to qualify for a fixed-rate loan. Panacea also designed its customer service around physician needs, including 24-hour technical support and a dedicated “primary care banker,” or personal banker, that each customer can call, text or email.
Since the company started actively marketing its products in mid-November, it has acquired 38 customers in 22 states.
Later this week, Panacea will roll out medical student loan refinancing, and next week it will add disability and life insurance. Property and casualty and medical malpractice insurance will follow in 2021. Practice lending is also on the horizon, starting with loans to finance the cost of buying into partnership in a private practice in early 2021.
