Before we talk about how a line of credit can help you, it would be beneficial to first establish what exactly it is. Put in basic terms, it’s a loan. However that is too over-simplistic to be helpful. A line of credit is, yes, a loan. But the customer or entity receiving the loan will declare the maximum amount they can withdraw. Once borrowed, the money is accessible whenever the customer or entity wants to use it. Additionally, you cannot withdraw an amount that’s even a little higher than the pre-specified amount, and are expected to follow other conditions such as regular payments of the minimum amount.
A line of credit is most useful to a hospital whenever its cash-flow is compromised. This could be when patients are paying down their deductibles, or even situations where the payment ends up delayed for any other reasons. Not to mention circumstances wherein claims need to be resubmitted. Such situations can impact your finances in a fairly negative manner, hence a line of credit is recommended to help till payments are once again underway.
Among the benefits of a line of credit, is that it functions in a manner similar to credit cards. This means the money can be used at any point the borrower deems suitable, and there’s no need to reapply to access the money. You are, of course, expected to make payments (including interest on the amount that has been withdrawn) from the moment your cash-flow recovers from the initial setback. For businesses, there are also documented instances where the equity of their firm can be linked to their line of credit.
Making use of a line of credit also provides convenience when you need to purchase new medical equipment. While the process of acquiring an equipment loan isn’t all that complex and receiving these loans is fairly simple, it can be fairly time consuming. Once you have filled out the relevant form, you need to wait till you’re granted approval. A line of credit typically works a lot faster than this, allowing you to make all the necessary purchases in a shorter amount of time.
So for convenience, here are the general benefits of utilising a line of credit:
- Flexible borrowing
- A convenient way to cover expenses while cash-flow is compromised
- Quick access to the necessary funds
- Interest is only paid on the amount you have actually withdrawn
However for the sake of transparency, there are also some disadvantages to keep in mind:
- The convenience of using a line of credit can perhaps lead to an over-reliance on borrowing
- Access to money in a quick and easy manner can also lead to irresponsible spending
When sensible and responsible parties are in charge, a line of credit can do a lot for your hospital in the midst of an unsatisfactory cash-flow. By making sure that you have access to the right kind of money at the right time you can guarantee that your hospital will be able easily survive any rough patches. Just be mindful of too much borrowing and spending.