Trends Impacting Hospital Financing and Capital Planning

What’s Affecting Borrowing Power with Hospital Financing in 2026

In 2026, hospitals are feeling the squeeze in every direction. There’s been a decrease in demand for care, but the associated costs of delivering that care have also surged rapidly.

Higher labor costs, expensive equipment, and drug prices are all contributing to an increase in demand for hospital financing. However, they’re also shaping how lenders assess risk, which can affect borrowing power.

1. Labor Costs

Hospitals focus on patient care and provide life-saving health care services. But a hospital is only the vehicle for that care. It’s the staff of nurses, physicians, and administrators that make it run.

According to the American Hospital Association (AHA), labor and workforce expenses make up about 60% of all hospital costs. These costs have spiked over the past five years, spurred by the pandemic and the resulting workforce shortages.

The AHA also notes that many clinicians have left the profession and burnout is consistently high. As a result, there are fewer providers available to help with the rise in patient demand. To manage these challenges, many hospitals are investing in both recruitment and retention.

2. Equipment and Supply Expenses

Due to inflation, supply chain issues, and technological advances, hospitals are spending more on equipment and supply expenses. According to the AHA, hospital spending on supplies rose 9.9% in 2025, noting price increases from things like disposable medical gloves to advanced surgical devices.

Significant purchases can put a strain on budgets, ultimately leading hospitals to seek out financing solutions.

3. Rising Drug Costs

The AHA reports that hospital drug costs have increased by 13.6% in 2025. This surge has grown faster than the rate of inflation and is attributed to rising drug costs and new high-cost options.

As part of the issue, hospitals are seeing increases in both older and sicker patients, effectively increasing the cost of care.

4. Modernizing Facilities

As facilities age and start to decline and as technology continues to evolve, the need to modernize facilities becomes paramount. According to the Healthcare Financial Management Association, capital expenditures have increased due to aging facilities and key investments in technology.

While these upgrades may be necessary, some organizations may have a difficult time accessing capital for these investments. For example, nonprofit hospitals and rural hospitals have very slim margins to begin with and may struggle to stay afloat. Pressure to update and modernize may put them in a more vulnerable position.

5. Medicaid, Medicare, and Insurance Issues

Hospitals rely on Medicaid, Medicare, and health insurance companies to reimburse for services rendered. According to AHA testimony on House Ways and Means Affordability Hearing with Hospital CEOs, both Medicare and Medicaid payments typically don’t cover total costs for patient care. As of 2024, the AHA notes that Medicare underpayments to hospitals were more than $100 billion.

Additionally, health insurance companies often delay reimbursement and may deny claims, ultimately affecting a hospital’s finances.

All of these issues combined create a challenging environment. Hospitals are facing cash flow difficulties and thin margins, both increasing the need for hospital financing, but making it harder to qualify as a borrower.

Types of Financing Options Used by Hospitals

Healthcare organizations in need of capital have various financing options to choose from. Each option has specific advantages and drawbacks, eligibility requirements, and funding timelines.

1. Term Loans

Term loans provide borrowers with capital in the form of a lump sum. Funds are repaid over a set schedule, or term, and often have fixed interest rates resulting in consistent payments.

Typically, term loans are a good option for significant investments like renovations, expansions, or capital improvements. Financial institutions like banks and credit unions as well as online lenders offer term loans, but generally with different eligibility requirements. For example, banks may have stricter credit and revenue requirements.

2. SBA Loans

The U.S. Small Business Administration (SBA) has different loan programs available to for-profit businesses, including eligible hospitals. The SBA 7(a) loan is a versatile financing option and has a high maximum loan amount of $5 million. Although, SBA doesn't have a specific loan product for hospitals, these businesses can apply.

Borrowers can use funds for working capital, improving real estate, refinancing business debt, and purchasing equipment and supplies.

The SBA 504 loan provides funding for major fixed assets that can support job creation and business growth.  Loan funds are available for new facilities, existing buildings, as well as long-term machinery or equipment with a useful life of at least 10 years.

These loans are available through specific SBA nonprofit community partners that are Certified Development Companies (CDCs).

SBA loans are backed by the federal government, which can reduce risk and improve access for borrowers. Interest rates may also be competitive, and the loans can have extended repayment terms, such as 10, 15, or 25 years.

These benefits make SBA loans attractive. However, they often have a time-intensive application process and can have a longer funding timeline. You can find more info at the SBA.gov website.

3. Equipment Financing

While other types of hospital financing may be more open-ended, equipment financing has a specific purpose. As the name suggests, it provides medical equipment funding. For hospitals, which rely heavily on equipment like imaging machines, ventilators, ECG machines, and surgical tools, equipment financing can be an appealing financial solution. 

Equipment comes at a major cost and being able to break down expenses over time can help. Typically, the equipment is the collateral as part of the loan agreement, which can make it less risky and may help with approval.

4. Business Line of Credit

A traditional loan can be helpful if you need upfront capital to pay for major expenses. But if your healthcare facility needs more flexible financing, a business line of credit is an option to consider.

Business lines of credit allow borrowers to access a specific credit limit. Borrowers can tap the funds they need, only paying interest on the amount. Because it’s a form of revolving credit, as the balance is repaid the available credit resets.

Repayment structures can differ and may not be as straightforward as a traditional loan. Be sure to read the fine print and understand payment obligations and potential fees.

Tips to Improve Your Chances of Qualifying for Hospital Financing

Healthcare organizations face immense challenges navigating patient needs, insurance and Medicare/Medicaid reimbursements, labor shortages, and rising costs. As a result, hospital financing can be a solution when your resources are already overextended.

These are for general information and does not guarantee approval, funding, or qualification:

• Reduce debt: Lenders review your financial health to make sure you can afford your payments. If you’re already stretched thin with current debt obligations, that could be a warning sign for lenders. Reducing your debt can help with your debt-service coverage ratio (DSCR) and debt-to-income (DTI) ratio.

• Maintain strong cash flow: Consistent cash flow and revenue show lenders that you have a solid financial foundation, which can help your loan application.

• Organize documentation: Keep clean financial records, stay up to date with bookkeeping, and make sure all documents are current.

• Focus on revenue and growth: Highlight revenue trends and potential areas for growth.

• Identify loan purpose: When applying for hospital financing, identify the loan amount and purpose to execute your vision and desired outcomes.

Being proactive puts you in a stronger position as a borrower and may help your loan application.

Final Thoughts

Hospitals may need capital to keep up with patient care, technological advances, and rising inflation. But various factors are impacting profitability, cash reserves, and the lending environment, which can make it tough to qualify for financing. As a result, healthcare leaders must be strategic with funding and secure options that align with a clear vision for growth.