What Is Healthcare Asset-Based Lending?

Healthcare asset-based lending (ABL) is a loan, usually a revolving line of credit, secured mainly by a provider's accounts receivable. How much the provider can borrow is tied to the value of its eligible receivables, not only to its overall financial strength.

How the borrowing base works

The lender sets a borrowing base: the eligible receivables multiplied by an advance rate. Receivables that are too old, owed by excluded payers, or otherwise doubtful are left out as ineligible. The advance rate is applied to what the lender expects to collect, not to billed charges. As the provider bills and collects, the borrowing base moves, and so does how much it can draw.

What it costs

Interest: usually a floating rate plus a margin that reflects the provider's credit.
Fees and monitoring: commitment fees, regular borrowing-base reports, and field exams in which the lender audits the receivables.
Covenants: financial tests such as minimum days cash on hand or debt-service coverage. Breaching one can restrict the line.
Cash controls: collections run through controlled accounts. For Medicare and Medicaid, which pay only the provider, lenders typically use a "double lockbox": payments land in the provider's account and are swept to the lender.

ABL versus a true sale

An ABL facility is debt. It sits on the balance sheet, carries covenants, and is priced partly on the hospital's own credit, which penalizes providers with thin balance sheets even when their payers are excellent. In a true-sale structure, the provider sells qualified claims instead of borrowing against them, so it gets liquidity without adding debt or using up borrowing capacity. See how Capital Pulse's true-sale approach compares.

Frequently asked questions

What is a borrowing base in healthcare lending?

A borrowing base is the maximum a provider can draw on an asset-based line: its eligible receivables, valued at what the lender expects to collect, multiplied by an advance rate. Old or doubtful receivables are excluded.

Is asset-based lending the same as factoring?

No. In asset-based lending the provider keeps ownership of its receivables and borrows against them. In factoring the provider sells the receivables at a discount, and the factor usually collects them.

Can hospitals borrow against Medicare receivables?

Yes, but Medicare and Medicaid generally pay only the provider, so lenders use account structures such as a double lockbox, in which payments go to the provider's account and are then swept to the lender.