The increase in pressure from the national government has increased the need for investment in the hospital’s facilities. Due to the increasing need to upgrade its facilities, there is also a need to borrow funds to enhance its operations and various departments while investing and integrating new technology. The decision to use debt is critical in supporting the growth and operation of the hospital and should be guided by a professional (Lexa et al., 2020). This should mainly involve a financial adviser that structures the debt and assists in capital decisions and implementation.
To ensure that the risks associated with using debt are significantly minimized, a proper ratio must be developed. A proper ratio is needed to ensure that the hospital does not take on a lot of debt. A proper debt ratio for the hospital to have should range from 35 to 40 percent (Bordonaro, 2012). This lower range percentage is better as it will result in lower interest and favorable borrowing terms. While there is a concern that the hospital will be overleveraged, the need to have improved infrastructure is important. This debt to cap ratio is significantly essential and will depend on the financial needs of the hospital (Bordonaro, 2012). Utilizing this low ratio will also ensure that the hospital can engage in greater borrowing in the future.
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The hospital can constantly reevaluate its debt and what requires to be done to be invested in the future. The funding of the hospital’s growth through the most appropriate financing means will help in ensuring the proper maintenance of its capital structure while optimally funding the growth of the organization (Huang et al., 2018). As the access to capital has become more challenging, reliance on debt as a source of capital while using an appropriate ratio is critical for the hospital's growth.
References
Bordonaro, G. (2012). Hospitals using debt for growth . Hartford Business Journal. https://www.hartfordbusiness.com/article/hospitals-using-debt-for-growth .
Huang, S. S., Yang, J., & Carroll, N. (2018). Taxes, bankruptcy costs, and capital structure in for-profit and not-for-profit hospitals. Health services management research , 31 (1), 21-32.
Lexa, F. J., & Lexa, F. J. (2020). Private equity–backed hospital investments and the impact of the coronavirus disease 2019 (COVID-19) epidemic. Journal of the American College of Radiology , 17 (8), 1049-1052.
