How to Get Funding for Your Care Home
Funding a care home can be a complex process, it pays to have care home finance experts on your side to help find and secure the cash you need to grow. Learn more in this guide from Rangewell.
Due to an ageing population, there is a growing need for care homes in the UK. In fact, research shows that by 2026, at current market growth, there would be an additional 14,000 people in need of care home places every year.
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UK government figures also signify that the number of people over 85 has increased by almost a third over the last decade - to approximately 1.5 million! This figure shows no sign of slowing down, with projections at 3.5 million over the next 25 years.
So, if you already run a care home, or are planning to buy a care home, then now might be the right time to set your sights on growth.
As with any venture in the healthcare space, there will be some challenges. You will need to meet the requirements compiled by the Care Quality Commission (CQC) or similar bodies in Scotland, Wales and Northern Ireland designed to ensure the welfare and safety of residents. You will need to find staff, attract residents, and stand out in an increasingly competitive marketplace.
You'll also have to navigate tight profit margins as care home costs skyrocket due to the increased price of utilities, equipment and staff wages. However, you can navigate these challenges by having a comprehensive business plan that includes a detailed financial assessment.
So, whether you are starting from scratch or acquiring an established business, then you'll need the funding to back your plans. That's where we come in. At Rangewell, we work with businesses providing care services to find and secure the finance they need to grow.
We have a team of expert financial advisors who are independent of the lenders, so we can tap into the whole of market and find the best funding packages to meet your needs. If you're ready to kickstart your loan application, don't hesitate to contact Rangewell today. Alternatively, keep reading to learn more about how to fund and grow a care home business.
Buying a care home group
When you are thinking about buying an existing care home or group, you have the advantage of acquiring an operation 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 also 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, 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. The 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 against the property itself. If your business became insolvent and unable to make loan repayments, 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 care home mortgage 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 the 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 to maintain high occupancy rates, and you'll also need planning permission from the local authority to change the use of any property into a care home. 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.
Care home finance from Rangewell
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 some or all the operational costs you may face.
At Rangewell, we can work with you to search the entire lending market for the funding you need and help you set up a deal that could help you put your plans to work. Get in touch today to start your loan application.