For any commercial enterprise it’s vital to secure a flexible and reliable line of finance, and the nursing and care home sector is no different. While the property may be larger and tenants more numerous, a care home still requires the same amount of financial backup as any other business. With high levels of care and staffing come high overheads, and without access to the proper levels of funding a nursing home can easily find itself in a poor financial situation - for the benefit of tenants and carers alike, it’s vital that an adequate financial plan is put in place to support the home’s ongoing operation.
Any form of loan is a major financial commitment, and nursing home finance is no different. Before deciding to go ahead with any borrowing plan, care home owners must consult a professional financial advisor with the experience to discern what constitutes a viable lending solution. Otherwise it’s possible for care homes to end up in financial difficulties; most care home finance is secured against the property itself, which can lead to repossession if the borrower fails to repay the loan.
Care homes are in some ways a natural progression for professional landlords who’ve started out with buy-to-let properties and progressed to larger Houses in Multiple Occupation (HMOs). A care home is similar in many regards to these large properties in that there are multiple tenants with their own individual contracts, which presents the care home owner with a more reliable source of income; the home is unlikely to fall completely void at any time, as tenants aren’t letting the property as a group. This makes a care home a potentially lucrative opportunity for owners with the right experience and expertise to ensure they’re run correctly and profitably.
The major difference between HMOs and care homes is, of course, the need to provide high levels of care to tenants. Sufficient numbers of trained staff don’t come cheaply, which makes taking on a care home an expensive business; the start-up costs are high, and the monthly overheads associated with running a home can also be a major expense. Therefore it’s important to source a flexible and affordable funding solution before proceeding with the purchase of a nursing home, and bridging finance presents an ideal solution for new care home owners.
While a bridging loan is not designed to provide a long-term financial solution, the ability to quickly source a large, flexible loan presents borrowers with a highly valuable set of options. New owners who are looking to set up a care home or take on a going concern can put together the necessary capital in a relatively short space of time (usually days rather than the weeks required by mainstream lenders). Speed is important, but where bridging finance really shines is in the flexibility of the packages on offer, and most bridging lenders will allow borrowers to “roll up” interest (and sometimes arrangement fees, too) until the end of the loan term. This means that there is no monthly bill to be paid and no ongoing drain on the bottom line - as long as the loan can be repaid in full at the end of the term then the borrower need make no other contributions.
This is vital for care homes which are just starting out, as it can take several months to acquire enough tenants to become a profitable business. While the home is building up its business it’s vital that they make the best use possible of the capital they have coming in, so the option to defer loan payments for a year (or longer) is highly attractive. Many nursing homes will use bridging finance as a temporary solution to get the ball rolling, and will seek out a traditional mortgage as quickly as possible. This will usually be the method through which the borrower repays the bridging loan and any associated expenses.
Like all bridging loans, finance used to pay for a care home will be secured against the property itself. This allows the lender to provide a higher level of funding because they have the option to repossess the home if the loan isn’t repaid; while this is certainly not an ideal outcome for the lender, it does provide a guarantee that their money won’t be lost. However, a care home is a unique combination of property and commercial investment - the home itself is not the most valuable part of the business.
A care home that’s run by an experienced team is likely to do well, while a newcomer might struggle to turn a profit. Because of this, bridging lenders will want to examine the professional qualifications of whoever will be running the home in order to ensure that their investment will be in good hands. In many cases the borrower has no intention of actually running the home themselves, and plans to hire an experienced team to deal with the day-to-day business of the nursing home. In cases like this, the lender will want to understand who will be responsible for the home’s direction and how much experience they have in the industry.
As with property development bridging loans, a care home loan will also be assessed on the value and condition of the property itself. This is the fundamental asset acting as security, and so lenders will conduct thorough valuations of the property’s likely sale value. This process is usually completed quickly, and bridging lenders often pride themselves on being able to make funds available in less than a week.
Bridging finance is an intensely personal form of lending because of its inherent flexibility; since terms can be altered to suit each individual’s circumstances, lenders are able to create a bespoke lending product for any situation. This means that bridging lenders will want to know a great deal about their borrowers and their business plans, in order to accurately assess their worth as a borrower. Preparing for a care home loan requires careful planning and thorough preparation in order to obtain the best loan terms possible.
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