A key to growing a Physician Practice Management business (“PPM”) is to acquire competitors and/or build out new practice offices. But what happens when your company lacks the capital necessary to acquire and/or build new practices?
From a PPM operator’s perspective, investments in these types of solutions are a no-brainer. Yet, traditional banks may not agree in this market, leaving limited loan options with less-than-ideal terms.
For many middle-market companies, like PPM platforms, regional banks are often all you have ever known and worked with. The reality today, however, is that there is a much larger pool of lenders to choose from, if only you know how to find and connect with them.
How overreliance on traditional banks hinder your growth
Traditional and regional banks are coming off a cycle of low revenues and high costs, during which they saw little return on their lending investments. Companies took on a lot of debt prior to 2022 and traditional lenders got trapped. As a result, lenders may have more hesitant attitudes toward new loans.
In times like these, traditional lenders often impose rigid loan terms that can suffocate growth for PPM platforms. They tend to undervalue recurring revenue models and intangible assets such as long-term patient relationships. Long approval cycles and time-consuming due diligence processes only further inhibit you from gaining capital quickly.
Traditional and regional banks tend to remain conservative when it comes to cash flow-based lending, which is the primary structure used to finance acquisitions. This conservatism can amplify industry-specific complexities within healthcare, such as payor concentrations and physician ownership structures, that make it more difficult to model within standardized risk frameworks. Many banks are unable or unwilling to provide acquisition financing to PPM firms as a result, limiting these firms’ access to capital for growth through M&A.
Additionally, banks’ standardized risk models may struggle to price clinical and regulatory complexities that are inherent in healthcare, which can result in higher spreads or blanket exclusions for certain platform specializations.
Relying on existing relationships with your local and regional banks can seem like the most convenient means for gaining capital on a surface level. However, with all of the above considerations, along with the lack of sector expertise within traditional bank lending models, you’re limiting your ability to ensure successful debt placement when you restrict yourself to only your relationship bank and do not reach out to alternative lenders.
Why non-bank lenders view healthcare as recession-resistant
Non-bank lenders are growing more keen on the healthcare sector due to its combination of demographic inevitability with counter-cycle stability.
Populations in places like the U.S., Japan, and England are witnessing a fast expansion of the 65 and up demographic segment. In the U.S., for example, more than 11,000 Americans are turning 65 every single day. More importantly, this means more than 11,000 are aging into Medicare eligibility daily, accelerating healthcare utilization by double or triple the amount compared to younger people.
For lenders seeking durable demand regardless of economic cycles, this aging curve makes healthcare one of the most structurally resilient sectors. Private equity, for instance, has a long-standing focus on PPM rollups (i.e. primary care, orthopedics, dermatology, oncology, and other specialties).
During the heated cycle that lasted from 2018 to 2021, platforms could acquire practices at modest multiples, all while centralizing operations through MSOs and expanding profitability at scale. Yet, when interest rates surged in 2022 many over-leveraged platforms struggled to grow in their existing capital structures, leading traditional lenders to pull back.
Non-bank lenders, on the other hand, tend to take a more contrarian and cycle-aware approach. They recognize that lowering interest rates will result in stabilization and growth. Reimbursement levels remain generally predictable, patient volumes are rising, and well-run platforms are adapting to new cost and revenue dynamics, creating a prime environment for re-entry.
As banks retreat, non-bank lenders see the opportunity to partner with PPM platforms that want to cultivate growth by refinancing fatigued capital structures and expand during a period when smart capital can secure stable long-term positions.
The challenge of connecting with alternative lenders
You want to expand your network of lenders, but you’re not sure where to start.
Such is the case with many middle-market companies that have historically only worked with banks. You may know that there are alternatives out there, but have a limited network for finding these lenders and striking a deal. The problem becomes, if you want to gain meaningful amounts of capital that allow the type of growth and business innovation you are striving for, you won’t find it with your standard banks.
However, there is a secondary challenge to contend with: non-bank lenders are not always proactively reaching out to individual healthcare companies and private practices. Unlike banks, private credit funds often lack the resources to deploy teams of bankers to regularly call on and build relationships with middle-market companies. Banks can afford this outreach model because their depository businesses provide both the capital base and the customer access needed to get in front of companies. Private credit firms do not have this same infrastructure, making it harder for them to connect directly with middle-market healthcare borrowers, even when there is strong mutual interest.
With CAPX, you can break through the limits of traditional lending
CAPX is designed to make it easier for PPM platforms to connect with non-bank lenders, and vice versa. With the help of our platform, you can instantly discover the additional lending options available to you that you may not otherwise have the networking resources to find.
At CAPX, we have 150 potential lenders on our platform eager to provide capital to growing businesses. You can skip the lengthy processes you’ll encounter at traditional banks and instead enjoy near-instant access to viable capital structures and lenders willing to give anywhere from $10MM to $500MM and up.
Obtaining meaningful capital is only one part of the equation. Maybe you need to refinance old capital structures, or perhaps you are looking for a new lender to break away from your regional bank. Whatever the case may be, CAPX gives you the power of choice. Through our entirely digital platform, you can approach a much broader range of financing options from capital providers across the U.S., as well as gain the actionable insights you need for crafting the right deal for your business.
Are you ready to find your ideal lender? Our no-cost solution allows you to create and execute transactions at no cost, risk, or obligation.
