Part One
Hospitals face a lot of financial challenges since they must leave up to the demands of the dual roles of getting profit and providing quality care for the population. In many occasions, such institutions tend to operate smoothly and manage well their finance. However, there come cases when hospitals seem to operate well, yet they have financial challenges that come as a result of short term debts ( Mergaerts& Vander Vennet, 2016). By definition, short term debts are the liabilities which an organization tends to settle within one year. Hospitals tend to opt for a short term debt as source finance to provide quick money to manage critical operations. The problem is that the short term loan give fewer repayments space, and this is normally tricky mostly in a situation where the institutions use money in a failed project ( Duca, 2016). In such cases, such organization struggle because in addition to the short time given for the loan repayment, the organization also have to pay more interest which sometimes strains the business and the operations resulting to financial challenges. In such cases, a smoothly running business which has used short term loans must run into financial challenges because the company must use every financial source to fund back the money before it attracts fines and more interest.
Part Two
Omega Care Community Hospital is one of the best Known hospitals in Renton city in New York in the United States of America. The hospital serves over five thousand residents within its locality and more than five thousand from outside the local city, which is a private profit organization found in the year1978, and since then, the organization has achieved considerable milestones. It offers a variety of services to the population. Among some of the critical services that the hospital provides to its population include pediatric specialty care, greater access to surgical operations, physical therapy and rehabilitation services , prescription services , and home nursing services . Other pertinent services it offers include nutritional counseling, mental health care, and family support services . Currently, the hospital has a total of 50 specialists and 125 staffs spread across its four branches in the city. The foundation of its management is its mission, which indicates how the hospital strives to excel in the healthcare sectors in the state and at the national level. At the heart of its success are also its staffs and management that work round the clock to ensure that they deliver the best for the patients. Its success has seen it grow tremendously with its revenue hitting $0.3 billion.
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For a hospital of this nature, growth and maintaining reputation are critical to its sustainment and competitiveness in the healthcare industry. For this reason, there are many external financial options which its management can opt for in case the Hospital needs to expand its branches or want to manage its urgent operations. The first option is a loan as both short and long term loans can be available for this hospital. The short term loans are repayable within one year, and they are recommendable in a situation where the Hospital needs to fund some of its operations urgently (Goswami, 2000). The challenge with such loans is the urgency within which the organization will need to repay them in addition to the high-interest rate which they attract. On the other hand, there are long term loans which an organization can take and repay after some time usually more than one year. The advantage of these types of loans is that the hospital will have enough time to spread the payments to reduce the using a lot of money at the end of every month. Besides, these loans are also useful because the interest spreads and tend to be lower than in the short term (Choe, 1994).
Another option is equity investment. In this sense, there are situations where the Hospital may need to add another branch in another area. Also, the hospital may need to carry out a considerable project, such as increasing the number of assets by buying land or building a structure. Such projects might need more money that may cripple the organization if they were to use the money within its financial system. In this case, the organization can allow an investor to own part of the hospital in exchange to finance. Such investors will be entitled to seat on the hoard to discuss the hospital's operations (Goswami, 2000). In addition to those, payment on account also can work in a situation where the hospital needs to purchase drugs or machines. The organization typically pays these after 30 to 60 days of the purchase.
Any of these types of external financial sources is critical depending on the circumstances under which the hospital needs the money. However, a hospital of this nature needs long term loan for an effective operation ( Mergaerts & Vander Vennet, 2016). Long term loans are beneficial in many ways. For example, they come in a large amount, and this is critical for a large project for the hospital. Further, long term loans will provide some breathing space for the organization. They will not immediately get back their payment ( Choe, 1994). At least, the organization will sometimes have, or an extended period of payment thus will repay them in smaller amount until the loan is over. In this sense, it will allow the Hospital to invest wisely and more effectively than when it will opt for any of the above external financial sources.
References
Choe, Y. S., (1994). The substitution effects of short-term debt for long-term debt on the expected returns of common stocks. Asia Pacific Journal of Management , 11 (2), 187-203.
Duca, J. V., (2016). How capital regulation and other factors drive the role of shadow banking in funding short-term business credit. Journal of Banking & Finance , 69 , S10-S24.
Goswami, G., (2000). Asset maturity, debt covenants, and debt maturity choice. Financial Review , 35 (4), 51-68.
Mergaerts, F., & Vander Vennet, R. (2016). Business models and bank performance: A long-term perspective. Journal of Financial Stability , 22 , 57-75.
