Funding Options for New Hospital Projects

The dream of many medical practitioners is to build or own a hospital. Achieving this dream requires meticulous planning and execution to avoid delays and cost escalations. Financial closure is a critical aspect of executing the project on time and running the hospital smoothly. If financial closure is achieved according to projections, the success of the hospital is much higher.

Choosing the right financial options is crucial for running the hospital without significant stress. Below are various financial options for funding a new hospital.

1. Project Loan :-

A project loan is a term loan offered by banks for the entire project. Typically, banks require a 30% to 35% margin on the overall project. These loans are collateral-backed, with promoters needing to provide 25% to 100% property or cash collateral against the loan amount. These loans are offered for a tenor of up to 8 to 10 years with a 12 to 24-month principal moratorium. Principal repayment can be stepped up based on projected cash flows, making this the best financing option for new projects due to the longer tenor and moratorium for repayment. Higher loan amounts can be syndicated with two or more bankers.

2. Medical Equipment Loans :-

Medical equipment represents a major capital expenditure for any hospital project. Most private banks and financial institutions offer exclusive financing for medical equipment, often without additional collateral unlike project term loans. These loans are typically provided for a period of 5 to 7 years with a maximum moratorium of 6 months. These loans should be availed only after securing infrastructure funding (either through equity or a term loan). Lenders usually require a 10% to 20% margin for these loans.

3. Medical Equipment Lease:-

Leasing is an alternative financing option that is becoming increasingly popular due to its off-balance-sheet nature and tax benefits in some cases. Leasing is beneficial when the debt-to-equity (leverage) ratio is high. Most project finance bankers restrict the debt-to-equity ratio to 2:1, so leasing some of the medical equipment is a good option. Leasing also provides repayment flexibility based on equipment cash flows. Lease tenors typically range from 2 to 6 years.

4. Professional Doctor Loans :-

These personal loans are availed by promoters to contribute their equity or bridge the margin funding for the project. These loans are short-term, although some lenders may extend them up to 5 years. Most promoters obtain these loans at the beginning of the project to kickstart or maintain project continuity. However, this can hinder the negotiation of better terms for project and equipment loans, as the promoters are already leveraged. These loans are useful for covering any financing shortfall at the end of the project or bridging the working capital gap once the project begins

5. Equipment Rental :-

Some equipment vendors offer equipment on a monthly rental basis, often with a minimum consumable purchase commitment. Some eye care and pathology equipment are available in the market on a rental basis.

6. Working Capital Loans :-

These short-term loans are sanctioned against the current assets of the hospital. They are offered as overdraft or cash credit loans for a tenor of 12 months and are renewable annually based on the working capital requirement. These loans are typically sanctioned along with project term loans by bankers.

Proper financial closure at the beginning of the project is critical for the success of any hospital project. Choosing the right financing options with comfortable repayment terms is key to stress-free execution and operation. It is essential to identify and appoint a good financial consultant who can help close the financial requirements according to project timelines and terms to ensure the project is executed on time.

Finbot: Helping Healthcare Providers in Financial Closure of Their Dream Hospital Project

Finbot, a healthcare fintech platform, specializes in assisting healthcare providers in preparing the project report and choosing the right lenders with suitable financing options. With a network of over 20 lenders on the platform, Finbot can identify the right lender and financial product to suit customer requirements, offering the best possible terms and rates. Partner with Finbot in building your dream hospital project with the best possible finance options.