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Asset vs Cash Flow Lenders

By: Gavin Shea

Some practitioners seeking an acquisition, start-up or expansion loan may not realize there is an actual and meaningful difference between types of lenders and their lending philosophies. There are fundamentally two types of practice lenders - collateral-based lenders and cash-flow lenders. So which type of lender is the best partner for your team?

Collateral-based lenders: 

All lenders assume risk when they finance a practice or project - namely, the risk that the borrower will not repay the loan. Collateral-based lenders mitigate that risk by assessing the value of collateral and their ability to remarket it to other parties in the event the business fails. Consequently, they tend to invest their resources in building a network of companies that can readily remove, remarket and resell both business and personal assets should the borrower default on the loan. To offset any losses the lender would incur under these circumstances, their credit decisions are typically based on the value of such assets as the equipment in your practice, commercial real estate, and even your home, bank accounts, and investments.

The professional network assembled by collateral-based lenders usually includes asset brokers, real estate brokers, equipment liquidators and auctioneers. With these business relationships in place, the lender is poised to recover their losses as quickly as possible in the event of default. The collateral-based lender is motivated to move expeditiously, as the longer it takes to liquidate assets, the more expenses they ultimately incur.

To understand the potential risk and recovery factors of a particular loan, the collateral-based lender estimates the value of your assets from the day the loan is made through the life of the loan, and demonstrates how that value decreases over time. The lender then creates a portfolio delineating who should be contacted in the case of default, how quickly assets can be liquidated, and how much of the loan can be recovered.

Cash flow lenders: 

Cash flow lenders use a completely different approach to lending that is based primarily on the historical performance of a practice - or, in the case of start-ups, projected revenue and cash flow. Cash-flow lenders use practice income alone as collateral, and not your business or personal assets. They are usually specialty lenders that focus on a particular field or industry.

For the cash flow lender, the practitioner is the asset upon which credit decisions are primarily based. Without the practice owner, there is no revenue - and without productive revenue, the bank's investment in the practice is at risk. Cash flow lenders are therefore motivated to keeping the practitioner engaged, productive and successful. They mitigate their risk by assessing threats to the ongoing cash flow of the business. Incidentally, this is the same approach a successful business owner is focused on every day, so the lender and practice owner may be in sync in their business objectives.

Cash flow lenders invest their resources in building a network of professional relationships that can be called upon to help reinforce the practice during an income crisis and re-establish profitability. The more quickly a cash flow lender can make a successful intervention in a cash flow or management emergency, the more quickly the practice can get back on track running the business.

The network of relationships that the cash flow lender typically assembles to help support a practice in crisis may include CPAs, practice management consultants, equipment systems consultants and technology providers. Depending on how the lending institution is structured, it can help direct practitioners to the appropriate channel to receive the exact help they need. For example, if practice income is suffering due to problems with case presentation and acceptance, the lender may refer the practitioner to a practice management specialist. If the key obstacle to productivity is an excessive amount of time spent on financial issues, the lender may refer the practitioner to a CPA.

By providing a triage team tasked with identifying the most prevalent issue in cash flow interruption, the lender may support practice success and help create a foundation for re-establishing profitability. The cash flow lender is ultimately focused on the success of your practice as its solvency ensures the lenders own success.

So which network do you want working for you?

The choice is yours and may depend upon many factors. Start by working with your professional team to determine your borrowing needs.  A CPA, your practice attorney and other trusted advisors may offer advice and guidance to help you find the best credit options to fit your needs.

About the Author

Gavin Shea is the National Director, Healthcare for Wells Fargo Practice Finance. With more than 17 years of banking experience with an emphasis in practice lending, he leads sales and marketing strategy development and implementation throughout the national footprint. His industry background offers practitioners a unique perspective as they approach some of the most important decisions in their professional lives. With more than 30 years of healthcare experience, Wells Fargo Practice Finance specializes in helping healthcare professionals acquire, start and expand their practices with various financing options and a signature Practice Success Program. Contact: gavin.m.shea@wellsfargo.com or 844-626-4317

View all articles by Gavin Shea


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Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

ADA® is a registered trademark of the American Dental Association. ADA Member Advantage is a service mark of the American Dental Association. ADA Member Advantage is a program brought to you by ADA Business Enterprises, Inc., a wholly owned subsidiary of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

All financing is subject to credit approval.

Wells Fargo Practice Finance is the only practice and commercial real estate lender recommended for members of the American Dental Association.

ADA® is a registered trademark of the American Dental Association. ADA Member Advantage is a service mark of the American Dental Association. ADA Member Advantage is a program brought to you by ADA Business Enterprises, Inc., a wholly owned subsidiary of the American Dental Association.

All financing is subject to credit approval.

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