What Lenders Want to See Before You Expand

Ep. 144: Financing ASC Growth: What Lenders Want to See Before You Expand 

Episode Transcript

[00:00:24] Ryan Cohn: Hi, everyone. Here’s what you can expect on today’s episode.

This week, my colleague, Grant Duncan, sits down with Eric Gonzalez and Alexandra DeHart from Columbia Bank for a practical conversation about ASC financing. They walk through the difference between debt and equity, how surgery centers should think about ownership and control, and what lenders are really looking for when a center is planning for growth.

They also get into the numbers that matter most in a financing conversation, such as EBITDA, revenue growth, leverage, fixed charge coverage, payor mix, stabilization, and the quality of a center’s financial reporting. One of the clearest takeaways from the conversation is that financing readiness starts well before you actually need the capital.

The centers that know their numbers, understand their growth plan, and can explain how that growth will actually translate into cash flow are going to be in a much stronger position.

And after Grant’s conversation with Eric and Alexandra, I’ll come back for our data and insight segment, where we’ll look at a few findings from HST’s brand-new State of the ASC Industry Report for twenty twenty-six and look at how it connects directly to today’s discussion on how ASC leaders can use operational and financial data to build a stronger, more bankable growth story.

I hope everyone enjoys today’s episode, and here’s what’s going on this week in surgery centers.

[00:01:52] Grant Duncan: Hey there. Thanks so much for joining us today on the podcast. Can you briefly introduce yourselves?

[00:01:57] Eric Gonzales: Yeah. Eric Kienzle. I am the marketing director for healthcare banking at Columbia Bank. I’ve been in the commercial banking lending platform for about 20-plus years. Healthcare, I’ve been in it for about 17.

I’ve had a number of roles within the bank, but specific to healthcare sales, credit, workouts and now I’m back into more of a sales role. Expanding our markets in California, Arizona, Colorado, Nevada, and Texas.

[00:02:24] Alexandra DeHart: I am Alexandra DeHart. I am also with Columbia Bank. I am a healthcare banker, and I am here, and I’m excited to be on the podcast and talk with Grant and Eric.

[00:02:35] Grant Duncan: Awesome. Thank you both. I’m excited to talk about ASC financing with you both.

So to start, how should ASCs think about the difference between debt and equity? And can you give maybe an example of each? They’re wanting to think about maybe how to grow, how to look at financing. These are some helpful starting concepts to ground us in

[00:03:02] Alexandra DeHart: Yeah. So at a high level, debt and equity are just really they’re two different ways an ASC can access capital.

With debt, the physicians maintain ownership and control of the surgery center while borrowing money and gets repaid over time through cash flow. With equity, you’re bringing in a partner or investor in exchange for the ownership in the business. So a simple debt example would be refinancing a new surgery center or equipment purchase through a bank loan.

The physicians still own the ASC, but the bank obviously has repayment expectations and loan covenants. An equity example would be bringing in a management company, hospital partner, private equity group that purchases a percentage of the ASC in exchange for capital and strategic support.

That can provide growth capital and operational resources, but it also means sharing future profit decision-making.

[00:03:57] Grant Duncan: Appreciate that overview. So how do you think an ASC should approach which path is best for them? you know, If they’re choosing, “Hey, do I want to finance and grow through debt or through equity?”

And are there specific metrics that should help guide them in that decision?

[00:04:19] Eric Gonzales: Yeah, I’ll take that one. It starts with, the ha- the cash flow visibility, and the risk tolerance of both, I would say, the entity and then, the financing partner they’re seeking financing from.

Typically, we’re looking at the overall EBITDAs, what’s the revenue growth? And then, what’s the timeline if they’re expanding or if they’re, really maybe even a de novo. What, what– at what point are they gonna have sta- stabilization, right?

So we’re looking, from a bank’s perspective, we’re, we do… we’re providing debt financing. We’re looking at the leverage, right? So that’s, debt compared to EBITDA. There’s two different levels of that. We’re looking at total debt or we’re looking at senior debt.

Total debt would include bank financing and maybe some mezzanine financing plus, with the equity. And then the other aspect would be the senior debt, which is the bank itself, right? So we’re just looking at leverage overall. Then we’re looking more at, the repayment of the debt, right?

So the fixed charge coverage ratio, the pre and the post distribution. That’s always one that’s a little bit tricky if they haven’t had d- you know, debt financing or equity partners. It may be reducing what they’re taking home, but it’s not as much as you may anticipate, right?

And then it’s really just understanding, the revenue stream. What’s the payor mix? You know what, if you’re expanding, how much is that gonna add to your overall revenue stream? Do you have, enough doctors to, to bring on and, or do you have the existing staff to help, build out what you’re trying to accomplish?

And I think I think that last thing is just, again, understanding stabilization. Stabilization is one of those things where, we have a definition and then maybe the physician groups have a definition, and then we’re trying to meet in the middle, right? What is stabilization? Is it 12-month post, construction and there’s, good revenue streams and breakeven?

Or is it the revenue stream plus, covering at a certain FC… a fixed charge coverage ratio? So that’s always a hard part to, to get to, but that’s the beauty of it, right? The negotiations and trying to find something that, that works for both parties.

[00:06:16] Grant Duncan: Yeah. And I imagine many of our ASC leaders that are listening are tracking with you.

For those who are maybe newer or have a more clinical background- … can you define a couple of those terms you’ve mentioned for- Yeah. I- … the acronyms?

[00:06:34] Eric Gonzales: I jumped into that, but yeah, EBITDA is just, it’s your profit plus adding back, interest interest amortization, depreciation, those non-cash events.

The other aspect to it is if you own the real estate, and you’re buy- and you’re expanding, we’re gonna add back that re-rent component. The last portion that isn’t really talked about a lot, it’s… I refer to as EBITDARM. So, majority of these ASCs always have some type of a management company, and those are fees, that are provided to reduce, overall tax, implications.

But we look at that as part of the overall equation. So EBITDARM is what we’re looking at, so.

[00:07:11] Grant Duncan: Great. And when centers are thinking about do I focus more on the debt side? Do I focus more on the equity side? What would you say are some pros and cons of approaching each of those?

[00:07:27] Alexandra DeHart: So the biggest advantage of debt is preserving ownership.

If the ASC performs well, the physicians keep the upside. Debt is also generally less expensive long term than giving up equity. The downside, of course, is that debt has to be repaid regardless of market conditions, reimbursement pressure, or operational challenges. With equity, the benefit is access to capital operational ex- expertise, recruiting support, and resources to help the business grow.

But the trade-off is giving up a portion of the ownership and potentially some control over future decisions.

[00:08:01] Grant Duncan: Yeah. And how often do you see a hybrid approach being taken? Yep.

[00:08:06] Eric Gonzales: I take that one. Eric

[00:08:07] Alexandra DeHart: gets a lot of those.

[00:08:08] Eric Gonzales: Yeah. It, so it’s just it depends on how fast you wanna grow, right?

That’s the way I talk about things, is, the ba- the bank is comfortable with certain thresholds for leverage. And that, again, that’s EBITDA relative to your debt. And, we’re trying to stay under certain, thresholds, three to four times these co- these covenants, right?

And those are… we’re trying to understand can they stay within those parameters? If they wanna grow faster, and that ratio’s gonna be higher than the three to four, then we’re typically asking to bring in some type of equity. And that’s really based on the trajectory of the growth, right?

How fast are you gonna grow, so what skin do you have in the game outside of the bank debt? That’s really, trying to understand that. And we have a lot of those conversations because there are certain operators right now that are, they’ve really sharpened their pencils.

They really are good at what they do. And I would, I don’t wanna go too deep into this, but there’s a lot of, hospital systems, there’s a lot of acquisitions of hospitals. So there’s a fair amount of independent, surgeons and physician groups that are wanting to, go do their own thing, right?

And they have an existing business. They’ve definitely sharpened their pencils. They’re ready to move to a new location, build up a campus or just a me- an MO- MOB, a medical office building. And there’s that growth strategy. “Okay, we did this. Now let’s, we wanna go do another one, and another one.”

So certain aspects to the business allow for that growth, but it’s just trying to figure out how fast do you wanna grow, so.

[00:09:35] Grant Duncan: And when they’re evaluating that, how should physicians and ASC leaders think about that control and ownership piece? So as you talked about, that is a trade-off.

How do you suggest they evaluate that?

[00:09:50] Alexandra DeHart: I always encourage physicians to think long-term. Capital is important, but leadership, control, alignment matter just as much. They really need to understand what decision-making authority looks like after a transaction closes. Who controls future capital calls, control recruitment decisions, expansion opportunities, distributions?

A deal can look very at- attractive, as we’ve seen, Eric financially upfront, but if leadership and expectations aren’t aligned, they can absolutely create friction later.

[00:10:19] Eric Gonzales: I’m gonna add to that if you don’t mind. I think one of the aspects of the ASC world, outpatient facility specific is the cost and control, right?

Those are the two things we’re talking about all the time. And so, they’re making these shifts, one, to reduce costs, two, to provide- More opportunities for patients to be seen sooner. So and that– and those costs are the ones that they’re exhibiting, but also the patient and the insurance.

It’s unusual to talk about this in, in, in non-healthcare people, when they ask us, what we do. And I actually like to say that, we help lower the cost of the insurances, right? But that the other part to the whole thing is the control, right? They wanna make their own decisions.

They, they– these are doctors that know what’s best for their patients, and I think it really comes down to that, right? Giving the con- the control back to those that are seeing us, those that are helping us. So, yes, there’s the debt equity components of these things, but it’s not always just about, the bottom dollar.

It’s about what’s best for the patient and, how quickly can you get comfort or get somebody help. So.

[00:11:26] Grant Duncan: What would be a piece of tactical advice for someone who’s saying, “Hey, I’m probably going to work with a bank in the next year or so”?

[00:11:35] Eric Gonzales: This one’s always the interesting one ’cause a lot of these groups have grown up having their own internal, we’ll call it controller.

And they’ve really graduated, right? They’re doing revenues anywhere from, ten to fifty, some even up to the hundred million dollar range. But they haven’t taken the time to really scrub their books to understand what they have, and then also what level of financials do you have, right?

If you’re asking for debts of, fifteen million or greater, typically banks are asking for audited statements, right? And those are expensive. And they’re also time-consuming, so it may slow down that, that opportunity to move forward. So getting, understanding what level of financials you have is number one, right?

And you don’t have to have audited statements, I would say, but you could have, CPA reviewed or CPA compiled. And then layering on top of that is, is a quality of earnings, right? So that quality of earnings is gonna verify the cash is really there. We wanna find out what’s the normalized or stabilized cash flows to repay debt, right?

Yes, you have an idea about, growing and there’s gonna be this windfall of profit, but we gotta understand what it is, th-what you have today, right? So I think first and foremost is what level of financials do you have, right? Secondarily is understanding that plan. Like what is it that you’re trying to accomplish?

Are you trying to add more to your overall, ASC outpatient facilities? The one that comes to mind to me that we see probably the most of is in ortho. People are adding a lot of pain and spine surgery to that that, that’s one of the biggest ones, right?

They’re trying to just expand their revenue streams, right? And they go, hand in hand. So it’s just trying to understand what is it you’re trying to accomplish, how, what revenues, what profits are you gonna… And then also the staff. The what other doctors are you bringing on?

Are they associates? Are they gonna be an owner? And then how are they buying in? Is that, is it an upfront cost? Is it an earn-out? Do you want bank financing? We can help you with that because we help with buy-ins. So I think there’s a lot of different things going on there, right?

And then also just understanding, if there’s a s- if there’s an expansion and they have an existing, location, how far away is it from that one? And then is it… If it’s, if it’s like another, city or if it’s another town over, how are you gonna drive other, patients to that new location, right?

So it’s just understanding, the overall plan, how, what, where is the revenue coming from? How are you gonna accomplish that with the existing staff or new staff? So I think, the best operators are the ones that are gonna really do really well in the coming years. So you really gotta sharpen your pencils and know what you’re talking about.

One of the things I love is getting in front of, physician, groups and whiteboarding things. If you can tell me on a… If you can write it down and tell me exactly what you’re seeking or what you’re doing, you really demonstrate that you know what you’re talking about.

I love that kind of stuff, right? Yeah, you can send me, a huge 10, 10-page report, but let’s talk about it in person to really understand the nitty-gritties of the nuances, so.

[00:14:25] Grant Duncan: And let’s say that an ASC has gotten to that place where they say, “Okay, we, we do want to proceed here and partner with a bank. We’ve considered some of those factors you were just talking about, Eric.” What should they be looking for in a bank beyond just the interest rate that they’re gonna get?

[00:14:46] Alexandra DeHart: The cheapest rate is not always the best banking relationship.

So ASCs should really look for a bank that understands healthcare, and even just listening to Eric, the healthcare reimbursement, the physician ownership structures and operational side of ambulatory surgery centers, the responsiveness, it matters. The consistency matters. Experience matters. You want a banking partner that can stay with you through the growth cycles, the expansions and market changes, not just to close a single transaction, and that’s something that we come up right often with.

Say someone started with a different bank and we’re coming in to help clean up, but if we’re able to start from the beginning it’s a little easier. But again, once you start the process with us that they’ll see the difference between us and the other banks that they have worked with

[00:15:30] Eric Gonzales: I’m gonna jump in- Eric, I know

[00:15:30] Alexandra DeHart: you have something else to add.

Yeah.

[00:15:32] Eric Gonzales: I think it’s the flexibility, the customization of that financing. I- in the last, twenty-four or thirty-six months, I don’t think any deal we- we’ve looked at is exactly the same. Everybody has a different, structure. Everybody has a different, structure for taxes, for how cash flow, flows.

You throw in an MSO in there or maybe even throw in something really un- unique like a trust or maybe there’s some type of insurance product in there it gets really complicated. So we need to understand that, that, the structure where are all the assets at? Where’s the flow of dollars?

And I think that’s the biggest part, is understanding that upfront. I don’t wanna get into something that we’re… we can’t finance, right? So we do a lot of due diligence on the front end to understand, the structure. We talk with– we engage counsel to make sure that we’re capable of financing any particular entity and can they be a co-borrower?

Can they be a guarantor? Can they grant collateral? And then also the last thing is can they sign on for new debt? Just understanding those nuances for each entity. You think about the, the… when we put these things together we like to see visually so that we can understand the flow of funds, so.

But I just wanted to make sure that we talk about the flexibility of credit. I’ve been doing this for a really long time, and I think that’s how we win is with our flexibility, right? And I would say that, sometimes they can be expensive because there’s a lot going on.

Especially if it’s not just an acquisition, you got a construction project, those take time, twenty-four, thirty-six months. So, and there’s a lot of pay applications, understanding the the construction monitoring of that. There’s a lot that goes into ground up construction or even just a, an acquisition of a, real estate converting to an MOB or some type of ASC or micro ER or urgent care there’s just a lot going on, so

[00:17:18] Alexandra DeHart: And I like how you say that, Eric, ’cause I could say just in the last couple weeks, I feel like a lot of the deals and opportunities we’ve been looking at, they’re similar, but they’re very different, and we approach them…

they’re all different, right? And there was different structure. The things that we were able to do and provide in our term sheet were very different from what oth- other competitors were able to do, but really thinking outside the box. And I love… So Eric I do have to share this a little bit, but he has been with the company 20 years.

I know he mentioned that earlier, but he previously in a previous role had a 30 million credit approval limit, which is very beneficial for me being in the market and working with all of these ASCs. But really taking back any deal or any questions that I may have, I have him as a resource. We’re able, to dive in and look through all of the financials and structure and do things differently.

It’s not just, like Eric mentioned earlier the MSO. We just have to do a lot of different things. But I love that we take the time to really understand the deal. They’re all very unique. And the solutions that we have, they’re very different from our competitors, and I think that’s 100% what makes us stand out.

[00:18:23] Grant Duncan: Appreciate all you have both shared today. Definitely helpful to understand this world better for those listening. Last question here. We do this every week with our guests. What is one thing our listeners can do this week to improve their surgery centers?

[00:18:40] Alexandra DeHart: I’m gonna start, Eric. Go for it. One thing I’d encourage every ASC to do this week is spend time understanding their data.

The strongest surgery centers usually know their numbers extremely well, case volumes, block utilization, turnover times, payor mix, physician productivity, and profitability by specialty. Some operational improvements compound quickly in an ASC environment, and the centers that consistently monitor performance tend to make much better long strategic decisions.

That’s what I’d say.

[00:19:13] Eric Gonzales: She stole everything I was gonna say.

[00:19:14] Alexandra DeHart: No, Eric, I know you have more. That’s why I like to go first. I,

[00:19:18] Eric Gonzales: I think, just trying to understand where they’re at. Let’s think about this. W- where they were at, where they’re at today, and where they’re going, right? Trying to understand, what is the one, two, three, maybe even five-year, place that they wanna be.

I think we’re talking about, what we’re talking about here is expansion, right? Just understanding where you’re going and then also finding partners that, that can help you get there because you don’t wanna show up unprepared and then have to draw out that, that process longer.

So I think it’s just, talking with your CPAs, talking with your lawyers, talking with your bankers, your brokers. Even talking about with architects or engi- and contractors about h- how is it that we’re gonna get there, and then trying to figure out how do we pay for it, so

[00:20:00] Grant Duncan: Thank you both. Great to have you on.

[00:20:01] Eric Gonzales: Thank you.

[00:20:02] Alexandra DeHart: Thank you.

[00:20:10] Ryan Cohn: Welcome back. That was Grant Duncan’s conversation with Eric Gonzalez and Alexandra DeHart from Columbia Bank. And I thought this was a great episode to connect back to HST’s brand new State of the ASC Industry Report because so much of the conversation came down to one big idea, which is if you want to grow, you need to know your numbers.

This year’s report includes three full years of data from 2023 all the way through 2025, with insights from over 680 surgery centers across 45 states and nearly 4.8 million unique patient visits. So while every surgery center is different, the report gives us a useful benchmark for what ASC leaders should be watching as they think about expansion, financing, and their long-term strategy.

The first area that connects really well to today’s interview is cash flow visibility.

Eric talked about how banks look at EBITDA, revenue growth, leverage, and the center’s ability to repay debt, and one of the most direct operational signals behind that is net collection rate.

In the report, the average ASC net collection rate improved from 81% in 2024 to 87% in 2025. That is good movement overall, but the specialty level differences are still significant. Pain management and spine, for example, were still lagging at fifty-four percent and seventy-three percent respectively.

That matters because when a surgery center is trying to finance an expansion, bring on new physicians, or evaluate debt versus equity, the question is not just, you know, are we doing more cases? The question is, are we turning those cases into predictable cash flow?

So for ASC leaders, the practical takeaway is to know your net collection rate by specialty. If one service line is growing but collections are lagging, that is something you want to understand before you sit down with a lender and not after.

The second area is capacity and utilization. The report found that OR block utilization ranges from seventy-one percent in smaller centers to nearly fifty percent in larger centers, while cancellation rates remain around twenty percent. The report also points out that those scheduling gaps can contribute to anesthesia challenges because open time in the schedule can make it harder to work with anesthesia cost effectively.

That ties directly to the expansion conversation. A center may be thinking we need more ORs, or we need another location, or we need to add physicians. But before making that case, leaders should also be able to show how well they are using capacity that they already have.

If your current blocks are underutilized, if cancellations are creating holes in the schedule, or if anesthesia coverage is becoming more expensive because the day is not tightly managed, that all affects your growth story. A stronger financing conversation sounds more like this. Here is our current utilization, here is the volume that we are turning away, and here are the physicians that are committed to bringing in new cases.

Here’s how we are reducing cancellations

And here’s how the expansion will help us create incremental cash flow.

And that is a much more compelling story than simply saying we’re busy and we simply need more space.

The third area is specialty mix and profitability.

In the report, gastroenterology averaged 171 cases per month in 2025, supported by shorter OR durations and strong utilization. Orthopedics saw revenue per case rise 16% from 2023 to 2025 while maintaining steady volume. about 127 cases per month.

And that matters because not all growth is the same. Adding cases is good, but adding profitable, predictable, operationally manageable cases is what really strengthens a center. And that is especially true in specialties with implants, higher supply costs, or more reimbursement complexity.

The report also emphasizes reviewing case profitability before the date of service, including procedure costs, staffing hours, equipment usage, overhead, reimbursements, patient payments, and implant costs. It specifically calls out metrics like expected profit margin by procedure, and implant

cost per procedure. That lines up almost perfectly with what Alexandra’s advice was at the end of the interview, which is that the strongest centers know their numbers, they know the case volume, block utilization, turnover times, their payor mix, physician productivity, and profitability by specialty.

And then the final connection is financial review discipline. review financial performance, revenue and expenses, their cash flow projections, budget variance, and their growth trends. It also identifies EBITDA, revenue growth rate, budget variance, cash flow, and budget preparation timeline as key financial review metrics.

And this is exactly the kind of foundation that Eric and Alexandra were talking about in today’s episode. if you’re planning to work with a bank in the next year, the preparation starts today. Clean up your financials, understand your cash flow, review profitability by specialty and surgeon, know your payor contracts inside and out, track utilization and cancellations, and make sure your growth plan is specific enough that someone from the outside of your center can understand how it will all work.

So the takeaway for this week is simple. Pick one growth assumption and pressure test it. Maybe it’s a new service line. Maybe it’s a new physician. Or maybe it’s a new OR or it’s a de novo center. Ask yourself, do we have the data that will prove this will work?

And if the answer is yes to that question, you are not just improving operations, you’re building a stronger financing story. And if the answer is no, then that’s a great place to start this week.

And that’s it for this week’s episode. A big thank you to Eric and Alexandra from Columbia Bank for joining Grant and sharing such a practical look at ASC financing. If you found this conversation helpful, please share the episode with a colleague, especially someone who is thinking about expansion, financing, or how to make better use of their center’s operational data.

It helps us grow the show, and more importantly, it helps us get useful conversations like this in front of more ASC leaders.

Thanks again for listening to This Week in Surgery Centers. We’ll see you again next week