Ask the Experts: Loan Refinancing
Question: We have an opportunity to refinance a tax-exempt loan on better terms with a new lender. Our current lender says that there will be a big penalty to pay if we switch to another lender. What do you recommend as next steps?
Answer: Prepayment penalties are common in fixed-rate loan and bank placement documents. The good news is that they can almost always be lowered—particularly if the bank has other “ancillary” business it is eager to keep with the hospital (e.g., treasury, purchasing cards). Start by putting a dollar value on that business to have it in your back pocket when going into negotiations.
Thoroughly review loan documents. We often run into incomplete prepayment language or even lack of a formula, which makes it much easier to negotiate a compromise. It also pays to ask other lenders what is fair and present your findings to the bank. Finally, align management and leadership on how hard you plan to push the bank. Someone familiar with banking practices, such as an attorney or financial advisor, may be helpful during negotiations.
This question was answered by: Pierre Bogacz, managing director and co-founder, HFA Partners LLC, and a member of HFMA’s Florida Chapter.
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