Innovative PFA Alternatives Unlock Health Capital 

The Valley Center for Health and Wellness Holdings project

Innovative PFA Alternatives Unlock Health Capital . Following Q1 of 2023, health systems continue to experience the strain of slim operating margins and limited access to capital. One popular option for securing alternative financing is applying for funds from the Public Finance Authority (PFA). Health systems find PFA financing attractive because it usually offers lower interest rates and longer repayment terms than traditional loans. 

How Does a Health System Qualify for PFA Financing? 

To qualify for PFA financing, health systems must meet eligibility requirements. These include having a public purpose, such as providing healthcare services to the community. Health systems must also demonstrate creditworthiness, which typically involves a review of financial statements, credit scores, and other factors. 

What Can the Funds Be Used For? 

The funds obtained from PFA financing can apply to a variety of healthcare-related projects. For example, construction or renovation of healthcare facilities, the acquisition of medical equipment, or financing working capital needs. Health systems can also use PFA financing to refinance existing debt. This can reduce interest costs and improve cash flow. 

What Are the Drawbacks of PFA Financing? 

However, PFA financing can also be time-consuming and complex to obtain. Additionally, there are often limits on the amount of funding that can be secured. The cumbersome application process has left many health systems wondering; what are the alternatives?  

Third-Party Private Equity 

One option is private equity financing. Private equity such as healthcare real estate investment trusts (REITs), and equity from

are two common examples. In the healthcare industry, private equity firms may provide funding for acquisitions, expansions, or other strategic initiatives. While private equity financing can be more expensive than PFA financing, it may also provide more flexibility for repayment terms and other terms of the loan. 

Traditional Bank Financing 

Another option is commercial bank financing. Although many large banks have paused lending for construction ventures due to market conditions, local and regional banks are still operating with a large amount of liquidity. This is a more traditional form of financing that can provide healthcare providers with access to working capital. Banks can also offer real estate loans and other types of funding. Commercial bank loans can be easier to obtain than PFA financing and may come with more favorable interest rates. However, this depends on the creditworthiness of the borrower. Based on the borrower, bank financing may come with stricter repayment terms and less flexibility.    

Issuing Bonds 

A third option for health systems looking to raise capital is issuing bonds. These bonds are typically sold to investors including institutional investors. Pension funds, insurance companies, and mutual funds, as well as individual investors are all potential buyers. Health systems may issue different types of bonds. Options include general obligation bonds, revenue bonds, or taxable bonds, depending on their needs and financial situation. Bond issuances can provide health systems with large amounts of capital. This capital often comes at a lower cost than other financing options, such as bank loans. However, bond issuances also involve certain risks and obligations. Risks include making regular interest payments and meeting debt service requirements.  

Final Takeaways 

In conclusion, healthcare providers have several third-party capital alternatives to PFA financing available to them. Private equity financing, commercial bank financing, and venture capital financing are just a few of the options available. Each of these alternatives comes with its own pros and cons. Healthcare providers should carefully consider their options before deciding which one is right for them. By taking the time to explore these alternatives, healthcare providers can access the funding they need to continue providing high-quality care to their patients.  

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Chris White

Business Development Manager

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