5 Common Financial Mistakes Promoters Make When Securing Funding for Hospitals

Owning a hospital is a dream for many doctors, but achieving this dream requires careful financial planning. Choosing the right funding options is crucial for the successful completion and operation of a hospital.

Unfortunately, many healthcare providers make common mistakes during financial closure and when selecting financing options. Here are five frequent missteps:

1. Insufficient Equity Contribution from Promoters :-

Equity should ideally come from the promoter's savings. However, many promoters leave their existing practice or job to pursue their dream project, often resorting to personal loans to fund their equity contribution. This approach can create significant financial pressure, as it typically takes at least 12 months for the new project to generate free cash flows. Promoters should aim to contribute 30% to 35% of the total project cost as equity.

2. Starting the Project Without Financial Closure :-

A common error is initiating the project without securing proper financial closure. If this isn't achieved within the first two months, promoters may run out of funds, leading to delays and cost escalations. Ensuring financial closure early on is crucial to maintaining the project's timeline and budget.

3. Avoiding Project Term Loans :-

Some promoters try to finance their projects with short-term personal loans or medical equipment loans. These loans often come with high EMIs and minimal or no moratorium, causing stress due to their short repayment periods. Opting for a long-term project loan with a 12 to 18-month moratorium can alleviate early financial pressures and help ensure timely project completion.

4. Choosing High-Cost Equipment Loans :-

Banks are often hesitant to fund new projects without additional collateral, leading many healthcare providers to turn to Non-Banking Financial Companies (NBFCs) for medical equipment loans, which usually come with higher interest rates. However, some banks offer equipment loans up to Rs. 2 crores without collateral. By working with multiple banks, promoters can potentially secure higher loan amounts with more favorable terms and reduce interest costs

5. Lack of Working Capital Limits :-

Many promoters assume they can generate free cash flows from day one and thus start their projects with insufficient working capital. In reality, project break-even can be delayed due to various factors. It's crucial to plan for at least six months of working capital to ensure smooth operations. Securing overdraft (OD) or cash credit (CC) limits from banks can help manage initial cash flow mismatches.

Finbot: Your Financial Partner for Hospital Projects.

Finbot is a healthcare fintech platform specializing in identifying the right financial options based on project requirements. With a network of over 20 lenders, Finbot helps healthcare providers prepare comprehensive project reports and select the best financing options. By partnering with Finbot, you can secure the most favorable terms and rates for your hospital project, turning your dream into reality with the best possible financial support.