Financing Guide for Nursing Home Operators

Nursing Home Financing Guide

Nursing homes have many moving parts. Residents interact with nurses. Admin staff plan events. Vendors bring in goods and services. It can overwhelm even the most organized person. One thing you shouldn’t let slip away: financing. Nursing home financing is one of the most critical elements to its success. It involves careful planning and execution. Failure to adhere to strict finance principle may render your business moot. In fact, bankruptcy is not uncommon in the nursing home industry. That’s why you see such consolidation. Therefore, we will review financing guidelines for nursing homes here. They’ll help you keep your financial ship afloat!

Why do Nursing Homes Consider Financing?

Nursing home financing seems daunting. The numbers and terms startle many people. It’s not hard to imagine why. Even seasoned pros don’t understand some of things going on here. We want to discuss how your nursing home might seek financing. Before that though, we want to review why some nursing homes seek financing.

Expansion. The sound of building normally makes people happy. It often signals a growing business. Nursing homes across the country are expanding at shocking rates. They’re adding on whole new wings. They’re moving more beds into rooms. They’re accepting more residents. That’s great news. It also means they might need financing.

Disaster. Sometimes disaster can strike. Lightning can fry your electrical systems. Earthquakes can wreck your windows. Fires can tear down your walls. We can’t avoid every act of nature. Fortunately, effective financing can fill the void. It can help you get your nursing home back up on its feet.

Citation. Many states come in and cite nursing homes. They do this for many reasons: falls, sores, employee misconduct, etc. If your nursing home gets cited, it’ll most likely get fined as well. These fines can be steep. You might also get one for every instance-not just for the issue. When this happens, it can be helpful to have bridge financing to make ends meet.

Litigation. Nursing home lawsuits have gone through the roof. Lawyers are eagerly filing cases and asking for millions of dollars. They don’t always connect. Yet, when they do, they can bankrupt a nursing home. Be prepared in case this happens to you. Have a team of financiers ready to step up if a lawsuit emerges.

This should explain why you might consider financing if you operate a nursing home. Now, we’ll show you what type of financing may be available to you.

What Types of Financing are Available for Nursing Homes?

There are a couple different options for financing if you run a nursing home. Here are some of the most common.

Commercial real estate. These loans provide homes with capital for the acquisition or rehab of facilities. Normally, these are used for refurbishment or expansion of existing ones. Yet, they could be used for other reasons. The exact terms (rate and maturity) depend on the issuer. They also depend on the circumstances of your nursing home and project.

Large Principal Loans. This financing offers existing homes with large amounts of capital. They normally start around $1 million in size. Homes must put down collateral. They also must pass certain credit and business-worthiness standards. Once secured, the loan can be used for a variety of purposes. In some cases, these loans can be obtained through the government (Housing and Urban Development).

Small Principal Loans. These loans are smaller in scale and scope. As such, companies don’t need so much to pass the application. They merely need to be around a few years and have a certain level of operations. Once acquired, homes can use this financing for a broad array of functions.

How do Nursing Homes get Financing?

Securing a loan for a nursing home takes a couple steps. There isn’t a lot of variation. We can summarize them now.

Screening. Financiers will typically pre-screen applicants for nursing home loans. They’ll use some factors to filter out companies. Some of these include credit, income, and debt. The kind of things they include depends on your business and loan type. If your home doesn’t get screened out, then you’ll need to apply.

Application. Loan applications vary widely but there are some themes. Lenders will ask you for the purpose of this loan. They’ll supply you with lots of documents to review and fill out. Lenders also inquire as to how this will affect your future earnings and liabilities. What they’re trying to do is figure out whether your loan will pay off. You’ll be best served by painting a picture of how this loan will allow you to succeed and reduce risk.

Decision. After the loan application, the lenders will forward your package on to a committee. That committee will make a decision on your loan. If they approve you, they’ll supply you with a set of conditions you need to satisfy in order to receive the funds. Many times, you’ll need to give more info, sign docs, and pay a processing fee.

Closing. After the lender has made a decision, you’ll have a closing to exchange your promise for payment (as well as collateral and other conditions) for its money. This normally happens a few days after the decision has been made. You’ll typically want to bring your lawyer and other agents. They’ll help with advice and the logistics of closing the deal.

Nursing Home Financing Resources

Here are some resources that will help you in your study of nursing home financing.

Learn more about how to better operate your nursing home! Read these pages.

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