Paying for healthcare in America is complicated for everyone — there’s insurance companies to deal with, government benefits to handle and copays to collect. Keeping your home healthcare service running while you wait for insurance claims to come through might mean you need regular financing.
Beyond that, there’s equipment to buy, staff to hire and other costs that come with maintaining and expanding your business. We take you through what you need to know about getting the funds you need to keep things running smoothly.
What loan options are available for home healthcare services?
Your home healthcare service might benefit the most from financing designed to help with cashflow gaps. But you might want to check out other loan types if you’re looking for funding to hire new staff, a new vehicle or update your equipment. Let’s take a look at your options.
Line of credit. This option gives your business access to a credit limit that it can withdraw from as it needs — like a credit card with lower rates and higher monthly repayments. You can use it for any legitimate business expense — like if you want to create a website or attend a trade show to market your business — and can find both secured and unsecured options.
Equipment financing. Home healthcare services can find loans specifically designed to cover the cost of software, imaging, radiation therapy equipment and other devices necessary for your business. They also often come with leasing options, if you have a patient that needs a unique piece of equipment.
Auto loan. Need a van to transport patients or equipment? Buying a vehicle comes with a slightly different process than most loans, so you might want to look into business vehicle loans.
Commercial real estate financing. Need a new office — or want to expand the one you’re already in? This type of financing can walk you through the process of getting a new place.
Fixed-term loan. Have any large one-time expense on the horizon that isn’t covered by other loan types? You might just need a good old-fashioned business term loan. These come in a lump sum that you pay back plus interest fees over a set period of time, usually one to five years. You can use it for any legitimate business expense, like purchasing billing and scheduling software or hiring certified nurses for staff training.
Invoice financing. Here, your business can borrow against those outstanding invoices while patients and insurance companies argue over the bill. You typically pay it back as your invoices come in, though there may be a minimum monthly repayment plus an advance fee of 2% to 5%.
Invoice factoring. Rather than borrowing against your invoices, this option allows you to sell them to a third party for a percentage of the amount owed. It’ll take care of your loans from there and you won’t have to deal with the insurance companies or patients anymore. Healthcare providers might also want to look for medical receivables factoring or account receivables factoring.
Can I get invoice financing on Medicare and Medicaid payments?
Not usually. The process for getting an advance on Medicare and Medicaid payments is a little different than other types of invoice factoring or financing. That’s because Medicaid and Medicare typically don’t allow healthcare providers to sell a claim to a third party, meaning you can’t put a pending invoice up for collateral.
You do have a couple of options if your home healthcare service has patients enrolled in either of these programs. First, you can take out a line of credit, which doesn’t require business invoices as collateral.
Or, you can change your bank account to a sweep account — also sometimes called a managed account. A sweep account allows your factoring or financing company to access the account while it stays in your name. Why does this work? Medicare and Medicaid can only make payments to the provider. If the account’s still in the company’s name, it doesn’t care what you do with the funds after it makes a payment.
Compare business loan options for home healthcare services
What common business expenses can I cover with financing?
Overhead costs. Payroll, marketing, transportation, medical supplies — you need these things to run your business and they cost money. Money you might not have when an insurance claim takes 90 days to go through.
Equipment. Like everything else healthcare related, medical equipment is expensive. A medical equipment loan or lease can make paying for it a lot easier.
Vehicles. Auto financing can help you cover the cost of a van, car or any other vehicle your home healthcare business needs.
Buying or expanding an office. Commercial real estate financing can help your business buy, lease or expand your home healthcare service’s office.
Consolidating debt. If your business is already paying off several debts, then you might want to consider moving them to one loan — ideally with more favorable rates and terms.
What will I need to apply?
While it depends on the type of financing you’re looking for, lenders typically ask for the following information and documents at a minimum:
Your personal information. Business owners are typically required to provide their name, contact information and Social Security number when applying for any business loan.
Government-issued ID. Lenders also ask to see the business owner’s driver’s license or state ID.
A voided check. Use a check from the business bank account you want to receive and repay the funds through.
Outstanding invoices. This one generally only applies to accounts receivable financing.
Bank statements. Lenders often ask to see the last three months of your business’s bank statements to get an idea of your current cash flow.
A business plan. Typically banks and credit unions like to see a business plan when you apply for funds. Online lenders sometimes ask to see one too, especially if you’re running a young business.
What challenges might I face getting financing for my home healthcare business?
When it comes to getting business financing, main challenge for home healthcare services can be the bookkeeping. You’re keeping track of invoices coming from insurance companies, patients and the government. If your patients pay with both cash and credit cards, this can make things even more complicated.
To improve your chances of getting approved, make sure your bookkeeping is spotless, regardless of what type of loan you’re applying for. You might want to consider using accounting software or even hiring an accountant to keep track of all your payments.
Home healthcare services can also have difficulty getting approved for term loans — which include most real estate, vehicle and equipment loans — if you don’t have a steady cash flow coming into your bank account. In this case, you might want to find ways to cover your costs with an option like accounts receivable financing.
5 tips to expand your home healthcare service
We gathered some business advice from Home Care Pulse, the home healthcare industry’s leading firm in satisfaction research and quality assurance, that could help you take your home healthcare service to the next level:
Get involved in your community. This can mean anything from 5Ks, setting up a booth at the local farmer’s market or getting involved in any annual or regular community events. This helps put a face to your company and make your service’s name the first that comes to mind when your neighbors need home healthcare.
Partner with other agencies. This might sound counterintuitive, but partnering with other agencies can actually help your business. You can buy supplies together to get greater discounts and refer each other patients the other partner can’t take on.
Branch out your advertising. All of your money in online ads? Consider paying for a billboard or radio ad. By advertising in as many different mediums as you can, you’ll expand your audience.
Take advantage of social media. Post on social media regularly and try to tell a story that people will be compelled to watch — even if they know it’s sponsored content.
Know thy competition. Look at the other home healthcare providers in your area and try to find their weak points. If they don’t offer a certain service, offer it. If they have an incentive program, make a better one.
The fact is that most home healthcare services will need financing at some point. Invoice factoring and financing can help your business cover its bases, while other, larger loans can help your business pay for one-time expenses. Want to learn more about business loans? Check out our guide to learn how it all works and compare lenders.
You might have trouble qualifying for a loan or grant if your business isn’t already up and running. Instead, look into crowdfunding or equity investments from angel investors or venture capitalists. These options don’t require you to have any experience at all.
Once you’ve found a few lenders offering the right loan type for your financing needs, make sure you and your business meet the eligibility requirements. Generally, you need to have a credit score of at least 580 and have a business that’s been around for a year and makes more than $10,000 a month.
Then, start comparing the costs of each business loan offer. The quickest way to do this is to compare APRs on loans with the same term — or require you to pay it back in the same amount of time. If you’re going with invoice financing and factoring, you’ll want to compare how much you get upfront and fees.
Also pay attention to how much your business will need to pay each month and the overall cost of the loan. On term loans and lines of credit, you can reduce your monthly payments by lengthening your loan term, but you’ll up your overall cost. Try to go for something with the highest payments your business can safely afford to save on the total interest you’ll pay.
It depends on your lender and what type of financing you’re applying for. If you’re looking for invoice factoring and applying online, you could get your funds as fast as the next business day. Real estate loans can take as long as a few months.
Anna Serio is a trusted loans expert who's published more than 800 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like CNBC, Business Insider and The Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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