How to get funding for your Care Home
There is a growing need for care homes, and more care home places in the UK - and the need will continue to grow as more people find that they will need help to enjoy life in their 80s and 90s - or even beyond.
If you are an experienced carer, you might be able to help answer that need by opening and running a care home. It will provide a rewarding way to use your skills, answer a pressing need for your residents - and offer a rewarding business opportunity with growing prospects for the years to come.
But of course, there will be some challenges. You will need to meet the requirements compiled by the Care Quality Commission (CQC) or the similar bodies in Scotland and Wales designed to ensure the welfare and safety of residents. You will need to find staff and to attract residents who have a growing number of homes to choose from.
You can buy an existing care home business or - if you can find suitable premises - set up from scratch. But whatever your route into the business you will need to find suitable funding.
Buying a business
When you are thinking about buying an existing care home you have the advantage of knowing all the costs involved, and of buying a business that will be generating revenue from day one.
This can make it easier to get the funding you need, as lenders will be able to see how the business has performed in the past, and its prospects for the future. This means that they can assess the risk of lending to you - a stable business and a low risk means that the rates they offer for the finance you want may be substantially lower than in a high-risk situation.
There are several factors that a potential lender will need to consider:
- Your experience - do you have the right level of experience to run a care home business? Do you have experience with geriatric nursing, for example, and do you have experience in a management role in a care home environment?
- Your personal financial history - do you have a clear credit history with no problems with loans in the past. Issues such as County Court Judgements (CCJs) can be red flags to many lenders, and will probably mean an increase in rates if a loan can be arranged.
- Your financial commitment - what you are able to invest in the business. If you have cash savings to put forward it is evidence of your own commitment to the business. Providing security, from other business properties or your home, may also be useful.
- The performance of the care home business - the lender will want to look at the accounts to ensure that the care home is profitable and that there is enough turnover from the business to be able to repay a loan easily.
- Your plans for the future of the business - any lender will want to see your projections for running the care home in the future and, especially, whether there are ways to grow the business and increase your profitability.
You will need to produce a detailed business plan covering all these factors, and including detailed financial records and forecasts.
Your lender will be impressed by the standards of your plan - it makes sense to get professional help from your solicitor, accountant and financial advisor to ensure it looks as businesslike as possible, to give lenders confidence in your approach.
How much can you borrow?
A care home will represent an attractive proposition for many lenders because its main asset is in the property it is based in. Property represents a sound investment, with a value that can easily be assessed and the prospect of value appreciation.
This means that a loan to buy a care home business can often be secured on the property itself. This means that if your business became insolvent and unable to make repayments on the loan, the lender could take the property and sell it to cover their losses.
This would be a drastic step and is unlikely if your business plans are sound. This type of secured loan has a powerful business advantage in that it reduces the risk to the lender, which means, in turn, that the rate of interest they charge for lending can also be reduced.
The terms of a commercial loan or commercial mortgage against a care home will vary considerably from lender to lender. As a general rule, you might expect to get a 70% - 80% loan to business value ratio. This would mean that you would need to provide 20%-30% of the total funding required yourself, with the remainder as a loan secured on the property.
You could expect a 15-25 year term - the time over which you would repay your loan - and it may be possible to get interest rates as low as 2% above bank base rate.
What if you want to set up a care home?
The financial position if you want to set up a care home may be similar to that of buying a business as a going concern.
The main expense will be the property itself, and you will need to fund its purchase on the same basis. Remember that buying a suitable property may be difficult. To be profitable you will need at least 25 residents and ideally more, and you will need planning permission from the local authority to change the use of any property into a care home, and that very few properties exist that are suitable for conversion.
There are very few private homes with sufficient space, and a guest house or hotel may offer the best prospects for conversion - but remember, care homes must provide high standards of access and fire escape provisions to meet local authority and CQC guidelines. A property that requires conversion or refurbishment will mean considerable additional expense.
The cost of this work on top of the costs of acquiring the property, plus the need to equip and furnish the property to provide a welcoming environment for residents, should all be factored into your business plan if you are starting from scratch.
At Rangewell, we have helped a number of business owners set up care homes, and have helped arrange suitable funding.
In many cases, this will include ‘jigsaw’ loans, a package of funding made up of the most appropriate funding for each purpose. This type of funding could include a commercial mortgage to fund the property purchase, a secured loan, to fund the refurbishment and conversion work, and asset finance to provide equipment, fixtures and fittings.
In addition, it may be necessary to arrange working capital finance to provide short-term cash to help the business during its first few months, until you are able to achieve a level of occupancy that will cover all the operational costs you may face.
Getting the right finance for each need - from the most competitive lender - could help keep costs down.
At Rangewell, we can work with you to search the entire lending market for the funding you need, and help you set up the Jigsaw deal that could help you put your plans to work, whatever those plans are, if you are buying or setting up a care home business. So whatever your needs, whether it's funding for a supported living business to addiction services businesses and more, find out more about what we can do for your specific Care Home business. You can also find independent business support for care homes in the form of our Care Home Directory.