Make better specialty services lending decisions. This slide deck discusses credit risk considerations for the four most-researched specialty services industries—dental practices, physician practices, HVAC, and new car dealers—on eStatement Studies.

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HOW TO MAKE YOUR
SPECIALTY SERVICES LENDING
ROCK: CREDIT CONSIDERATIONS
FOR 4 INDUSTRIES
Credit risk considerations for four of the
most-researched medical/specialty industries
on RMA’s eStatement Studies

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MEDICAL/SPECIALTY SERVICES
• Offices of Dentists1
• Offices of Physicians (except Mental
Health Specialists
2
• Plumbing, Heating, and Air-
Conditioning Contractors
3
• New Car Dealers4

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1.
OFFICES OF DENTISTS

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CREDIT CONSIDERATIONS FOR
DENTAL PRACTICES: ADVANTAGES
1
Dental practices are one of the most profitable
industries in the entire economy, and that is likely to
continue.
3
There is expected to be a rise in the need for dental
services in two population groups: children and the
elderly.
Unlike other medical fields, the dental industry is
not as burdened by the administrative costs of
interacting with health insurance entities to be
reimbursed for patients’ out-of-pocket costs: Many
patients pay out-of-pocket costs themselves.
2

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CREDIT CONSIDERATIONS FOR
DENTAL PRACTICES : ADVANTAGES (CONT.)
4The Affordable Health Care Act will expand the
number of children who will have access to dental
care.
6
Dentists will also be in demand in the future:
projections are that there will be more dentists
retiring than new dentists entering the field.
It is projected that aging Baby Boomers,
a population that numbers close to 70 million,
will be seeing dentists more in the next few
years.
5

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CREDIT CONSIDERATIONS FOR
DENTAL PRACTICES : RISKS
One threat to dental
practices is the possible
reduction of Medicaid
funding by states.
Dental practices can also be
hampered by the large
amount of money required to
open an office.
There have been great
technological developments
in equipment, but that has
driven up the overhead
costs for starting a new
dental practice.
Overhead costs are
becoming so cost
prohibitive that more dentists
are combining with other
dentists to form a shared
clinic rather than opening
an independent office.

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DENTAL PRACTICES :
FUNDING NEEDS
Typically need
funds for:
Dental equipment
Dental supplies
Furniture
Staff salaries
Rent or mortgage payment
Office supplies
Working capital

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CREDIT RISK ISSUES TO CONSIDER
FOR DENTAL PRACTICES
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• The effects of changes in Medicare, Medicaid, and
private insurance coverage on the industry.
• Key points of healthcare reform that will impact
dentists.
• How the prices of nonferrous metals and
technological advances will impact dental practices.
• How the increasing elderly population will affect
dental practices over the next five years.
• Insight into how the increase in at-home
preventative care affects the industry.

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2.
OFFICES OF PHYSICIANS
(EXCEPT MENTAL HEALTH
SPECIALISTS)

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CREDIT CONSIDERATIONS FOR
PHYSICIAN PRACTICES: ADVANTAGES
1
The market forces of supply and demand
coupled with healthcare reform and its cost
containment measures are the largest factors
affecting physician practices.
3
More births and a large, aging population
are factoring into the need for more primary
care and specialty care physician practices.
Demand for healthcare is increasing.2

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CREDIT CONSIDERATIONS FOR
PHYSICIAN PRACTICES: RISKS
Certain pressures play an important role in the success of
physician practices:
Expenses, as
well as the
complexity of
running a
business and
keeping up with
IT advancements,
are rising in this
sector.
Healthcare
reform pressure:
greater scrutiny
of physician
practices, more
admin. burdens
on practitioners,
and downward
pressure on
average
reimbursement.
Larger practices
have strategic
advantages in
managing these
pressures, so this
segment has
seen
consolidation with
physicians joining
group practices,
or smaller
practices merging
with each other.
New practice
models (solo
micro-practice,
patient-centered
medical home,
direct-pay
practice) hold
promise both for
diversifying
physicians’
service offerings
and for improving
physician
productivity.

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PHYSICIAN PRACTICES:
FUNDING NEEDS
Typically need
funds for:
Financing a start-up, new additional
practice or joint venture.
Practice acquisition.
Equipment purchases.
Malpractice insurance premium
financing.
Real estate acquisition.
Working capital for ongoing financing
needs.

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CREDIT RISK ISSUES TO CONSIDER FOR
PHYSICIAN PRACTICES
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• Key indicators that a physician practice is a
good risk.
• Determine competitive issues per market.
• Insight into the economic pressures bearing
on medical fees and reimbursement.
• Which expense-to-revenue changes in a
physician practice can indicate a bad risk.

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3.
PLUMBING, HEATING,
AND AIR-CONDITIONING
CONTRACTORS

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CREDIT CONSIDERATIONS FOR PLUMBING AND
HVAC CONTRACTORS: ADVANTAGES
1
Plumbing and HVAC contractors will benefit from a
continuing increase in nonresidential construction which
includes office buildings, schools, and hospitals.
3
Demand is expected to increase job growth for plumbing and HVAC
contractors, particularly for those contracting businesses that support
niche markets, like service provision (energy services or refrigeration)
or industry specialization (convenience stores, homes, or restaurants).
Demand in the residential sector to update older homes to central
air conditioning and environmentally friendly plumbing or to repair
already existing systems is also projected to rise—which
represents an enormous possibility for business expansion.
2

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CREDIT CONSIDERATIONS FOR PLUMBING
AND HVAC CONTRACTORS: RISKS
Residential housing
construction continues to be
erratic, with substantial
growth in some parts of the
country and slower growth
in others.
Although many leading
economic indicators have
improved, consumer
confidence remains too low
for accelerated overall
housing growth throughout
the country.
Another challenge to
plumbing and HVAC
contractors are federal
regulations directed at
small businesses.
Projected increases in costs
for materials will affect cash
flow and raise upfront costs
in this sector.

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PLUMBING, HEATING, AND AIR-CONDITIONING
CONTRACTORS: FUNDING NEEDS
Typically need
funds for:
Equipment and tools.
Insurance.
Employee recruitment, training and
retentions.
Materials.
Vehicles.

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CREDIT RISK ISSUES TO CONSIDER FOR
PLUMBING AND HVAC CONTRACTORS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• How do different types of contracts affect
profitability?
• What key balance sheet indicators can
signal risk?
• The financial effect of restrictions and
regulations.
• How to determine if maintenance contracts
will positively impact profit.
• Trends in residential and nonresidential
construction.

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4.
NEW CAR DEALERS

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CREDIT CONSIDERATIONS FOR
NEW CAR DEALERS: ADVANTAGES
1
As economic conditions have gradually
improved, the new car dealer industry has
expanded, with its success largely attributable
to increased discretionary spending and
elevated confidence among consumers.
The introduction of new, fuel-efficient vehicle
models with advanced technologies,
currently low interest rates, high service
standards, and use of a high volume/low
margin strategy will continue to drive
industry growth.
2

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CREDIT CONSIDERATIONS FOR
NEW CAR DEALERS: RISKS
Economic factors that threaten
profitability include increased vehicle
prices due to new federal
automotive regulations and
trade disputes with
foreign brands.
New car dealerships are
typically most profitable
in parts and service and
used car sales.Periodic skilled labor
shortages can affect
profitability in this
sector.
Cars have grown
more complex,
making service jobs
more challenging.
Dealership profitability is
affected by growing
competition from fast oil-
change outlets, tire stores,
and independent service
centers.
$

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NEW CAR DEALERS:
FUNDING NEEDS
Typically need
funds for:
Land or building acquisition and
development.
Dealership setup, including signage,
pavement, banners, and lights.
Working capital.
Inventory.
Sales-related expenses and advertising.
Parts inventory and employee training for
service department.
Utility bills.

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CREDIT RISK ISSUES TO CONSIDER FOR
NEW CAR DEALERS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• What sales tools and strategies will increase traffic
and volume sales?
• What are the debt management requirements for
managing changes in the new car market?
• The revenue effects of after-sales services and
customer satisfaction with these services.
• How will fluctuations in the price of oil affect
consumer demand for new cars?
• What levels of disposable income are required to
maintain industry expansion?
• What effects will consumers’ increased
environmental consciousness have on the industry?

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eStatementStudies@rmahq.org

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