We're asked from time to time what physicians should be aware of when they begin their search for financing an ambulatory surgery center. Unfortunately there is no simple answer, but there are five key items that you should know.
1. Play the field. Don't rely on your current bank alone. One of the most critical errors borrowers make is that they become too comfortable with their current banker. People want to believe that their bank will give them the best deal. In today's lending environment, the only way to find the bank with the most competitive offer at that moment in time is to test them all. Since the 2008 credit crisis, banks' underwriting guidelines have grown much more stringent and potential borrowers go through multiple levels of credit approvals. No matter how good your relationship is with your bank, the banker doesn't have the final say on the rate and terms offered.
2. Leverage your business ranking. Recognize the value of your business banking relationship and make the most of it as a negotiating tool. Banks are not thrilled with asset-based lending. Instead, they are highly motivated by all of the opportunities to earn income that are afforded them in business banking relationships. Be willing to consider moving the entire business relationship to the bank that can pony-up the best deal. Not only will you have a lower rate on the real estate financing transaction, but you'll probably end up with better terms related to linesofcredit and returns on your deposits.
3. Be real. You might be the lowest credit risk in the world, but now you've got to prove it. The days of issuing term sheets simply on the basis of the physician's reputation are long gone. In order for a bank to give you its best deal, it will require an exceptionally well-documented file, including personal financial statements, tax returns and verifications of deposits. If you are unwilling to produce those documents, you will hurt yourself and your investment.
4. Understand prepayment penalties. Don't get locked into a loan that will cost you dearly to modify. The one sure thing that you can take to the bank is that things will change. Be extremely cautious of prepayment conditions with yield maintenance language or interest rate swaps that have not been negotiated through an advisor. The best suggestion is to structure the loan with language and carve-outs that allow for maximum flexibility if the partners decide to change the ownership structure or sell the real estate at a later date.
5. Don't go it alone. It is critical for a borrower to enlist a professional advocate to walk them through the minefield of negotiating a commercial real estate loan. Banks have become very sophisticated in creating hidden fees and additional security risk to the borrower through floors, swap pricing, unusual wording on guarantees and cross defaults on unrelated obligations of guarantors. Just as you would never consider building a new facility without the expertise of a qualified ASC developer or enter into a legal contract without the guidance of an attorney, consulting with a financial advisor that is well versed in negotiating loan terms and documents will save you money and time.
The reality is that financial reform has done little, if anything, to create the transparency promised. As banking profits have been squeezed, lenders are looking for more creative ways to recoup that income. With the assistance of an educated team of advisors, you will find yourself with a loan that protects you for years to come.
Shannon Stocker, MD, MS, is managing director, HealthCare Group, for Capital Markets Access Company (CMAC). CMAC is a commercial financing firm and advocate for owner-occupied physician groups that specializes in below-market real estate financing. To contact Dr. Stocker, e-mail stockermd@cmaccapital.com or call (407) 264-7251. Learn more about CMAC at www.cmaccapital.com.