Friday, August 31, 2007

Q. I need to find a way to fund and grow my business without incurring debt. Am I stuck?
A. Expanding a business invariably requires a cash infusion. Traditionally, we think of two ways to do so: borrowing money (debt) and selling stock (equity). While both are viable, they're not the only, or necessarily the best, option for an HME provider's growth. A third tool is accounts receivable funding, which uses your non-performing asset, your receivables, and turns it into readily available cash.
Borrowing money is easily understood and offered by a wide variety of lending institutions. However, any HME owner who has gone to a bank has experienced the limitations of debt financing. Small businesses are often disqualified and personal guarantees are usually required. Most credit lines are limited and insufficient due to the bank's "under-valued" valuation of assets. Consequently, your credit line can easily "max out" and you will be right back where you started. Finally, there are other fees along with the interest rate that increase the "real" cost of borrowed money.
Selling stock has the advantage of no interest payments and no increased borrowing. However, by selling stock, you often relinquish significant ownership and profits.
Medical Accounts Receivable (MAR) funding uses an asset, your accounts receivables, to generate cash flow without borrowing money or selling stock. Every HME provider can "cash in" medical claims awaiting payment for immediate use to fund their expansion. The advantages of MAR funding include no funding caps and availability grows as you expand your business (without going through yet another application process). Additionally, there are no costs incurred when not in use. The challenge is that MAR funding can only be used through a very specialized funding company.
DME/HME providers should evaluate all these financial tools when selecting a strategy for expanding their business.
Fred Leder is vice president of business development for Sun Capital Group. Reach him at 800-880-1709 or