Tools of the Trade

When it comes to building a home medical equipment business, it pays to have the right tools. No, we're not talking wheelchairs and oxygen concentrators here — we're talking about financing and protecting your company as it grows.

The choices HME providers make in obtaining loans, leasing equipment and taking out insurance can help construct a firm business foundation — one that experts say can be the difference between success and failure. But understanding your options in these areas can be complicated and confusing.

What, for example, is the best way to fund expansion? When should a provider lease equipment? Which insurance coverage is must-have and what is optional? For answers to these and other questions, HomeCare sought advice from industry professionals and successful providers.

Getting Ready for Growth

“One of the challenges in the HME market is that, as you grow, it takes additional capital,” says Mike Kloos, vice president of sales and marketing for VGM & Associates, the Waterloo, Iowa-based buying group. “Every time you get new patients, there is a need to buy new equipment to service those patients. Growth takes a substantial amount of capital.”

Where does that capital come from? Of course, committing your own funds is often the first financing step, and is certainly a good indicator of just how serious you are about your business. But many HME providers don't have enough money to finance growth themselves. Or if they do, they don't want to tie up ready cash in inventory or company acquisitions. Banks, then, are an obvious source of funds, and alternatives also include commercial finance companies, venture capital firms and even family members or other business “angels.” For equipment purchases, providers also look to manufacturers and buying groups for help.

The reality for HME providers, says Doug Korey, managing director of Shrewsbury, N.J.-based Ziegler Healthcare Capital, is that “there are limited sources out there for capital. If you need $1 million, there are very few venture capital funds that will fund that.”

Dexter Braff of The Braff Group, a health care merger and acquisition firm in Pittsburgh, agrees, noting that industry lenders are most comfortable with asset-based loans, which, as their name implies, are secured by a company's assets. In other words, he explains, “If you don't pay me, I have assets to sell off to get paid back.”