Safety is one of the most important reasons families decide it is better for aging loved ones to reside in an assisted living facility than in their own homes. There are a number of things necessary for owners of assisted living facilities to understand to make good on this promise of safety. This includes what safety equipment should be available on the premises at all times.
Well-Stocked First Aid Supplies
It is vital to be proactive in your approach to handling any possible injuries and emergencies that might occur. One important first step is to make sure a well-stocked first aid kit is always on hand. Older people possess more brittle bones and thinner skin which makes it necessary for them to receive a higher level of care for minor injuries than other people. According to Family Resource Home Care, your first aid kit should at least include the following:
- transparent film dressing
- self-adhesive bandages
- butterfly closures
- rolled gauze
- paper tape
- nonstick gauze
Fall Prevention Equipment
Falls are a major cause of injuries for people of all ages but can be especially problematic for people who have reached an advanced age. The use of fall prevention equipment can be the determining factor in whether an incident is a minor inconvenience or a life-threatening injury. According to Bohn & Fletcher, assisted living facilities should provide things such as handrails, grab bars, bedding, safe and comfortable seating, and walkers or canes. Fall mats are also useful, especially alongside beds and in bathrooms. Fall management socks are excellent for providing extra traction when walking on slippery surfaces. The handrails and grab bars you purchase will be especially useful in the bathroom where the floor is often moist and residents will have to get in and out of the bathtub.
Your assistant home living facility will provide housing for vulnerable people. Because of this, it is extra important for you to take security measures that will ensure the safety of your residents. According to Keri Systems, perimeter access to the facility should be tightly controlled. This will prevent access by unauthorized people and keep residents from wandering off without the knowledge of you or your employees. There should be a point of contact at each door that makes communication with an employee inside the facility necessary. Only known visitors with a photo ID should be allowed inside. You and your staff will not be able to have eyes on patients at all times. In-patient monitoring systems will allow you to make sure residents do not need assistance while in their rooms. Also, be sure that your assisted living facility has a capable fire alarm system.
Providing for the safety of residents is job number one for you as the owner of an assisted home living facility. There are many things to consider as you work to improve safety standards for your residents. The three tips above will provide you with a solid foundation for making your facility as safe as possible.
If you’re looking to buy an assisted living facility, take a look at our listings!
The Different Types of
Assisted Living Facilities
What are the different types of assisted
living facilities? What are their specialties?
If you’re looking to start your own assisted
living facility, those are two questions you’ll need to ask (and answer).
Essentially, five different groups need
assisted living in some form or another:
- Dementia patients
- The developmentally disabled
- The mentally ill
- The brain-injured (traumatic brain injury,
spinal cord injury, etc)
In this article, we’re going to review exactly
what types of assisted living facilities cater to each group so that you can
have a better idea of the licensing, possible bed rates, demand, and level of
care required to service them.
The Different Types of Assisted Living
Facilities: Focus on the Demographic
“Assisted living” has come to mean a lot of
things. Naturally, it can get a little confusing.
We’ll use the term “assisted living,”
generally but, as you’ll see, you can just as easily replace it with any terms
that encompass the same level of medical care and assistance.
Nursing homes are still technically “assisted
living facilities” because they assist dementia patients with basic living
tasks, so people might refer to their grandparents’ nursing home as an
“assisted living facility.”
However, there’s also a specific name for
facilities that cater to an elderly crowd that doesn’t yet require serious
medical treatment or 24-hour supervision: literally titled an “assisted living
What’s even more confusing is that the name of the assisted living facility that you’re looking to start might vary from state to state – like we noted in our article on “Starting an Assisted Living Facility in Michigan.”
Thus, don’t get hung
up on the terminology. Focus, instead, on
the group of people you’re looking to help. The terminology will change from
state to state, but the people that you’re looking to help will stay the same.
Then, when you’ve found out the type of
facility you want, follow our guides on how to get started with financing for
Seniors: Assisted Living, Board and Care,
Adult Living, Supported Care
It’s a sad fact of life: With old age comes
decreased cognitive functioning and increased dependence on others – even for
the most basic tasks. Everyone, at some point, will reach the age where they
need someone to help take care of them. You and your loved ones are no
Assisted living facilities are designed with
this purpose in mind. Unless they’re connected to nursing homes, they typically
don’t assist people with dementia or other serious illnesses. Instead, they’re
focused on helping the elderly with everyday functioning; nursing homes would
provide too much care, in this instance, and therefore would
probably be too expensive for the care recipient. This way, with these senior
care facilities, the owners don’t need to pay for expensive services that the
recipients don’t actually need.
Some of these facilities are able to get
Medicare, and most of the patients in these types of facilities either pay
privately or they qualify for long-term care insurance.
The level of skilled nursing varies from
facility to facility. Some seniors haven’t yet reached the point where they
need a licensed medical professional to insert a catheter into them, for
instance, while others have. Therefore, it’s important to keep in mind that
senior care facilities vary. Here are some of the different types of assisted
living facilities that are available for seniors who need a little bit of help
but haven’t yet reached the point where they need serious medical care:
- Assisted Living Facilities (also “board and
care,” “adult living,” and “supported care”). The key term here – what assisted living facilities actually
assist with – is called an “activity of daily living” (ADL for short).
According to MedicineNet, typical ADLs include feeding,
bathing, dressing, grooming, work, homemaking, and leisure. As we mentioned
above, the patients in assisted living facilities typically don’t require a
high degree of medical care, so assistance with these tasks can be performed by
anyone with a basic degree of training.
Dementia Patients: Memory Care, Long-Term Care, Skilled Nursing, Custodial Care
According to the World Health Organization, the percentage of adults 60 years and older
living with dementia at any given time is around 5-8%. The total number of
people with dementia is expected to reach 82 million in 2030 and 152 million in
2050. Just like assisted living facilities, there’s a growing market for
facilities that cater toward dementia patients.
And, when it comes to informal caregiving, the
jury is out: When friends, family members, and other relatives are tasked with
the assistance of a person suffering from dementia, both suffer. 98-99% of informal caregivers experienced
problems with trying to
take care of their loved one by themselves – and it ended up seriously
affecting their social lives in the later stages of the illness. A vast
majority of them ended up needing additional professional support anyway.
In fact, according to that same study published in The Open Nursing
Journal, “The amount of available professional care is, however, not
expected to rise in line with the growing demand in the ageing population.”
However, this is good news for those of you looking to start nursing homes and
other care facilities catered toward dementia patients.
Naturally, these facilities demand a higher
level of care: more skilled and more attentive. The facilities themselves are
usually on lockdown to prevent any patient from wandering off, and some of them
have amenities such as aromatherapy, pet therapy, and greenhouses – in order to
keep patients at ease.
- Memory Care Facility (also called “long-term care facilities,” “skilled nursing facilities,” and “custodial care facilities”). These types of facilities demand a higher level of care than simple assisted living facilities. Licensed medical professionals are typically on staff 24/7 to help with patients’ needs. Typically, these have higher bed rates than senior care facilities. Many researchers believe that professional care for those with dementia won’t scale in proportion to the level of demand, so opening a nursing home might be a smart investment.
The Developmentally Disabled: Facilities
Serving People With Developmental Disabilities (FDD), Intermediate Care
Facility for Individuals with Intellectual Disabilities (ICF/IID)
Alternatively, there are facilities designed
with no age requirements – for people of all ages who need some level of assisted
care with their daily activities. Just like most of the other types of
facilities designed for these different demographics, there are varying levels
of expertise required for those living in a facility for the developmentally
For instance, some members are relatively
high-functioning members of society. They might even have day jobs, so they’ll
leave at some point throughout the day. These members only need help with basic
tasks (the ALDs we mentioned above, on the bullet-point for “assisted living
facilities”): cooking, cleaning, keeping their medication organized, staying
above par when it comes to their personal hygiene, and so on.
FDDS: Facilities Serving People with
FDDs help patients learn new skills and
maintain their current skills. According to the Wisconsin Department of Health Services, an FDD:
- Provides active treatment, ongoing evaluation,
planning, 24-hour supervision, coordination, and integration of health or
rehabilitative services to help each individual function at his/her greatest
ICF: Intermediated Care Facility
As you can see, that’s a fairly high level of
care that will likely require licensed medical professionals. Meanwhile, an
Intermediate Care Facility (ICF) does exactly what it sounds like. It provides
an intermediate level of care between basic and intensive. It’s just a step
down from an FDD. From Highland Risk:
- An ICF is typically regarded as a lower-level
nursing care facility when compared to a skilled nursing facility, but its
residents require more care and attention than those in a residential care
facility for the elderly or an adult residential care facility.
As for funding, some pay private, some are
taken care of through Social Security, but most of them are placed in an FDD,
ICF, or lower, more basic facility for the developmentally disabled through
Bed rates are usually less than both senior
care and nursing homes, and facilities for the high-functioning developmentally
disabled, naturally, pay the least in comparison to the others.
- Developmentally Disabled Care Facilities:
Facilities Serving People With Developmental Disabilities (FDD), Intermediate
Care Facility for Individuals with Intellectual Disabilities (ICF/IID), and
other basic facilities for the high-functioning developmentally disabled. These facilities serve all types of people,
not just seniors. Some members of Developmentally Disabled Care Facilities are
high-functioning, so they have jobs that they go to during the day. Facilities
like that, which care for people who need some help but not a lot, don’t make
as much money as the others.
The Mentally Ill: Psychiatric Hospitals, Day
Treatment Mental Health Facilities, Residential Mental Health Treatment
Facilities for Adults or Children, and Separate Inpatient Units in a Hospital
When most people think about mental health
facilities, they assume it’s something like One Flew Over the Cuckoo’s
Nest. Less like a hospital and more like a prison: constantly on lockdown
with a variety of people suffering from severe, debilitating mental
illness – and maybe you could even add electroshock therapy in there, for good
High Demand for Psychiatric Hospitals
Of course, this couldn’t be further from the
truth. In fact, only 6.2% of mental health facilities are
full-out psychiatric hospitals, and psychiatric hospitals, in actuality, are nothing like the
movies. (Sidenote: of that 6.2%, over half are privately owned).
The trend, over the past fifty years, has been
to eliminate psychiatric hospitals in favor of outpatient care – and the data
shows the demand for inpatient care is actually at an all-time high, with
some patients struggling to even find a bed.
The National Association of State Mental
Health Program Directors has this to say:
“The shortage of psychiatric inpatient beds
has become a major national issue, with the lack of availability identified as
a major issue by policy makers, states, mental health families, academics, and
popular media. Many reports regarding these shortages start with the major
decline in inpatient capacity in state psychiatric hospitals—a decrease of over
500,000 beds since the 1950s.”
Meanwhile, mental health problems in the US
are on the rise: Gen Z is more likely than any other generation
before it to suffer from serious mental health issues.
Outpatient Care Facilities: Day Treatment
Naturally, though, just like every other type
of facility on this list, there are varying levels and demands of care. Most
mental health facilities are day facilities. According to the National Mental
Health Services survey, roughly 60.8% of facilities are outpatient, day
treatment, or partial hospitalization facilities.
Thus, each of these facilities will have
different bed rates and qualifications for licensing. Because of the high
demand, psychiatric hospitals will have high bed rates, while others will have
much lower bed rates.
Also, according to Mental Health America, fewer youth are insured for mental health
treatment: “The proportion of youth with private insurance that did not cover
mental or emotional difficulties nearly doubled, from 4.6 percent in 2012 to
8.1 percent in 2017.”
So, there’s a variety of payment methods for
inpatient and outpatient mental health recipients: private, Medicare, and
through a family insurance plan.
- The Mentally Ill: Day Treatment Mental Health
Facilities, Psychiatric Hospitals, Residential Mental Health Treatment
Facilities for Adults or Children, and Separate Inpatient Units in a Hospital. Of these listed, psychiatric hospitals
are the highest in demand. However, because of the rise of mental health issues
across the country (along with care being socially destigmatized), all of them
are viable options for your own assisted living facility.
The Brain Injured: Transitional Care and
Assisted living facilities designed for those
suffering from traumatic brain injury, spinal cord injury, and multiple trauma
are typically labeled as “transitional care.”
Every year, an estimated 1.5 million people suffer from traumatic brain injury. Of
that 1.5 million, 230,000 are hospitalized. That also means there are over 5.3
million people living with a permanent TBI-related disability. The demand for
transitional care (and even occasional outpatient care) is, therefore, fairly
Also, pay can be collected in a number of
ways. Some patients pay privately, some pay through Medicare (depending on the
situation and length of stay), and others pay through auto insurance. Auto
insurance can be difficult to collect on, so be warned.
- The Brain Injured: Transitional Care and
Conclusion: The Different Types of Assisted
Over the years, “assisted living” has come to
mean a lot of different things, so if you’re looking to start an assisted living
facility, it can be difficult to gather research on the different types of
assisted living facilities.
In this article, we clarified that confusion
by focusing on the demographics that each facility serves:
- Dementia patients
- The developmentally disabled
- The mentally ill
- The brain-injured (traumatic brain injury,
spinal cord injury, etc)
You can quickly go through our list and find
names for the type of facility that caters toward each group.
Anyway, we hope our data on the different
types of assisted living facilities will help you narrow down your research.
If you have any
questions, comments, or concerns, contact us today.
Starting an Assisted
Living Facility in Michigan: A Guide
Are you looking to start an assisted living facility in Michigan?
What unique problems might you run into? What’s special
about assisted living facilities in Michigan? What steps can you take today to
make your business idea a reality?
In this article, we’ll show you the specific laws and
regulations surrounding assisted living facilities in Michigan – including the
difference between an “assisted living facility,” an “adult foster care
facility,” and a “home for the aged,” – and we’ll guide you toward the best
course of action.
Different About Michigan Assisted Living Facilities?
Isn’t assisted living the same everywhere? Why should
starting an assisted living facility in Michigan be any different than anywhere
Well, no, assisted living is not the same everywhere. Rules
and regulations for assisted living facilities vary from state to state. There
actually isn’t any federal regulation, so paying extra special attention to
your state’s laws is paramount.
Just because you have experience opening a successful assisted
living facility in California doesn’t mean that experience will necessarily
transfer to opening a successful assisted living facility in Michigan. The
laws, regulations, and quality control might be completely different, and so
one of those elements might radically change your business plan. In fact,
depending on your organization’s goals and quality of care, you might not even
be opening just an “assisted living facility.” It might actually be called
something completely different, as you’ll see.
Furthermore, the residential care business, as well as real
estate in general, is all about location. If you’re not willing to do some
research on what’s different about assisted living in Michigan, you’re not off
to a good start.
Luckily, we’re here for you. We’ll break down everything you
need to know.
Cost of Care
Cost of Care Survey 2018 breaks down the cost of assisted living nationally
and by state. Now, we know you’re looking to purchase an assisted living
facility – not just assisted living services for a loved one – but this data
might help you determine your competition’s rates. That could provide you with
some valuable information on how you can outperform them, whether it’s in
service, quality, or price. It’s a good place to begin.
Nationally, the cost for assisted living is pretty high: it
works out to about $133 per day for most, and $278 per day for a private room.
Full-time home health aide services aren’t that much better, either, with an
average of roughly $127 per day.
The costs for assisted living in Michigan are both higher
and lower than the national average, so that indicates, for certain services,
the market is ripe for arbitrage. The median cost for assisted living in
Michigan is $126 per day for most, and $300 for a private room. Full-time home
health aide services work out to roughly $137 per day.
The cost of assisted living in Michigan isn’t all that
competitive, then. As we talked about in a previous article, the proportion of
older Americans is growing every day – and so, then, is the demand for assisted
What else about assisted living in Michigan do you need to
Difference Between “Assisted Living Facilities,” “Adult Foster Care
Facilities,” and “Homes for the Aged.”
For one, regulatory agencies in Michigan don’t use the term
“assisted living facilities.” Instead, they prefer the terms, “adult foster
care facilities” (also known as an AFC or AFC home) and “homes for the aged.” Among
other things, this means that assisted living facilities in Michigan don’t
necessarily have to be licensed. The
Department of Licensing and Regulatory Affairs only licenses adult foster
care facilities and homes for the aged, and the licensing requirement is
different for both.
This all might sound semantic, but it’s actually incredibly important. In order to qualify for an SBA 7(a), the primary method of financing for most assisted living facilities, you’re very likely going to need to be licensed.
And, before you apply for licensing in Michigan to start
your organization, you’re going to want to know if you want to make it an AFC
or a home for the aged. Each of them are designed, of course, to provide care to
individuals who need some sort of assistance, but there are important
Living Facilities in Michigan
Since Assisted Living Facility doesn’t technically refer to
any sort of licensing, it’s possible that some room and board facilities and certain
types of senior housing don’t need to be licensed, as we mentioned before, so
it’s important to understand the rules and regulations to avoid any legal
issues. Unlicensed facilities may not qualify for an SBA 7(a). There are other
financing options available for your venture, but the SBA 7(a) is by far the
most popular when starting or buying an assisted living facility.
For consumers, this means that the term “assisted living
facility” only exists in Michigan to borrow some brand name recognition from
other assisted living facilities that exist across the nation. Assisted living
facilities in Michigan, then, may refer to any type of residential facility
that provides some sort of personal or medical care.
What is an adult foster care facility and how does it differ
from other types of assisted living facilities?
As stated by The
Department of Licensing and Regulatory Affairs,
“Adult foster care is a specific type of assisted living, as
outlined in Public
Health Code Act 218 of the Michigan legislature.”
It goes on to outline the exact provisions of supervision,
personal care, and protection for every AFC resident, as well as the
requirements for room and board – all of which are fairly straightforward and
easy to understand.
In order to develop a more comprehensive idea of the differences
between adult foster care and every other type of facility, it might be easier
to focus on what adult foster care isn’t. As they list in the article,
adult foster care isn’t:
- A nursing home, because the residents don’t
require continuous care.
- “It is not a room and board situation, because
24-hour supervision is provided.” Now, this is a little confusing and
contradictory. The “Adult Foster Care Tutorial” says just a few sentences above
that, “Foster care means the provision of supervision, personal care, and
protection in addition to room and board.” When they wrote this, I’m
sure they meant it isn’t strictly a room-and-board situation, because of
the necessity for high-quality care. (Aren’t you glad we’re going through all
this data for you?)
- Not strictly a home care service, because you
need physical real estate.
- And, of course, it excludes other facilities
that require different licensing, like “Homes for the Aged,” “Hospitals,”
“Facilities Operated by the Department of Community Health,” and “Children’s
So, in that case, what makes a home for the aged any
different from an adult foster care facility?
Home for the
Also, as stated by the Department of Licensing and
- A home for the aged is a specific type of
assisted living, as outlined in Public
Health Code Act 368 and the administrative
- “Home for the aged means a supervised personal
care facility that provides room, board, and supervised personal care to 21 or
more unrelated, non-transient individuals 55 years of age or older. Home for
the aged includes a supervised personal care facility for 20 or fewer
individuals 55 years of age or older if the facility is operated in
conjunction with and as a distinct part of a licensed nursing home.”
The second rule is by far the most important: adult foster
cares have a specific cap on how many individuals can be members of the
facility. A home for the aged doesn’t necessarily have that same cap.
And here’s what a home for the aged is not, with some
explanatory comments thrown in:
- It is not a nursing home. (The licensing
required for nursing homes is different from the licensing required for homes
for the aged).
- “It is not a room and board situation.” (Here we
go again… They probably mean it isn’t strictly a room and board
situation, but it might be a good question to ask the Department of Licensing
and Regulatory Affairs when you apply).
- The other two rules are the same as the ones
stated above for adult foster care facilities: It’s not strictly a home care
service, because you need physical real estate.
- And, of course, it excludes other facilities
that require different licensing, like “Adult Foster Care (AFC),” “Hospitals,”
“Facilities Operated by the Department of Community Health,” and “Children’s
Ask Yourself Before Applying for a License
Finally, there are some important questions you should ask yourself before determining this route is the one you want to take – whether you want to apply to start or buy an adult foster care facility or home for the aged. Let’s review those questions now.
- Do you believe you have the required business
expertise to successfully run one of these facilities?
- What insurance are you going to buy?
- How are you going to finance? (Hint, hint: We
have an article on that…)
- And, most importantly, are you able and willing
to have the government look through you and your family’s financial history and
criminal records to prove that you’re an upstanding citizen?
In order to run a licensed assisted living facility in Michigan,
you have to make a positive impression on the public. Otherwise, the government
will likely not grant you a license to operate.
Think about it from the consumer’s perspective: No one wants
to invest hard-earned money in someone they can’t trust. With assisted living
prices as high as they are, that’s doubly true.
So, if you’ve had a run-in with the IRS, or if you’ve
declared bankruptcy in the past ten years, or if you’ve had multiple run-ins
with the law, it’s likely going to be that much more difficult to secure a
license for your assisted living facility. That’s simply the reality of what
you’re about to go through.
That doesn’t mean, however, that it’s impossible.
Communication is important, so make sure to talk with whoever’s in charge of
licensing and be ready to explain any moral shortcomings you may or may not
Conclusion: Starting or Buying an Assisted Living Facility in Michigan
As you’ve learned, laws and regulations regarding assisted
living facilities vary from state to state. Starting an assisted living
facility in Michigan is not the same thing as starting an assisted living
facility in California. For that reason, it’s incredibly important to do
The average cost for assisted living in Michigan is a little
bit lower than the national average for most assisted living setups, at $126
per day, and a little bit higher for private assisted living (that is, the
elderly person has his or her own private room in a facility) at a much higher
$300 per day. This information could be central to your business strategy. If
you have experience opening assisted living facilities that specialize in low
costs for private rooms, you might want to consider expanding into the Michigan
The most important thing you’ll need to know about purchasing an assisted living facility in Michigan, or starting one from scratch, is that there’s a difference between “room and board,” which are unlicensed, and “adult foster care facilities,” and “homes for the aged.” The latter two are licensed differently, but the principal difference is that a home for the aged is limited to residents age 55 and older and can’t care for people with some other specific needs. According to the Adult Foster Care Facility Licensing Act, adult foster care facilities can have a maximum number of residents based on certain characteristics of the facility itself, but cannot be licensed for more than 20.
We hope that this guide has pointed you in the right
direction for starting an assisted living facility in Michigan. Once you know
the differences between each type of facility, it becomes that much easier to
fill out the requisite paperwork and apply for your license.
We wish you the best of luck.
Looking to Purchase an Assisted Living Facility?
Everything You Need to Know About Financing the Deal
Do you want to purchase an assisted living facility? Here’s
everything you need to know about financing.
It’s a fact of life that everyone’s getting older every day,
but, if it seems like there are more elderly people alive today than there were
ten years ago, that’s because, well, there are…
Thanks to modern medicine, the proportion of Americans who
have made it to at least 90 years old has doubled since 1980. By 2050, the US
Census Bureau predicts that number
will double again, with the proportion of 90-and-older Americans
making up a whopping 10 percent of the population.
Those people will need somewhere to live. Many are opting
for in-home care support, but it’s safe to say that the current assisted living
market is destined to scale. Buying an assisted living facility is – very
likely – a sound investment that serves an ever-growing portion of the
In this article, we’ll give you a primer on the most popular
loan type for financing an assisted living facility: an SBA 7(a) loan.
We’ll show you SBA 7(a) loans work, tell you how to qualify
for an SBA 7(a), where to apply (what lenders are approved by the SBA), rank
the top lenders by total loan volume and approved loan count, give you an
overview of the exact documents you’ll need to apply, and then we’ll wrap it
all up with a recap.
Ready to get started? Your dream of starting your own
assisted living facility starts right now.
What is an SBA 7(a) Loan? And How Can I Use One to
Purchase an Assisted Living Facility?
An SBA 7(a) loan is one of the most popular loan programs
offered by the Small Business Administration.
The SBA can guarantee you up to $3.75 million on a $5
million loan. This way, you’ll have the necessary capital to invest in an
assisted living facility – or you can use the money to make improvements to one
that already exists. Some sites, like The
Balance Small Business, list the maximum amount you can receive from an SBA
7(a) is only $2 million, with a $1.5 million guarantee. This is wrong – and,
more importantly, possibly not enough money to fund your venture. According to
the US Small Business Administration, the
maximum loan amount for an SBA 7(a) is $5 million.
You can use it for
real estate, working capital, equipment, debt refinance, and change of
The terms last 25 years for real estate, 10 years for equipment,
and 10 years for working capital or inventory.
The interest rates are relatively low, ranging from 7.75% to
These two factors – length and interest rate – make the SBA
7(a) one of the best and most popular options for securing long-term funding
for assisted living facilities.
As you’ll learn, though, you’ll still need to look into
other options, as well.
What Do I Need to Qualify for an SBA 7(a)?
- Your business must be listed as for-profit. SBA
loans aren’t given to nonprofits.
- It must be included in the list of
eligible industries for SBA loans. (No problem there, as long as you’re
looking to start a licensed assisted living facility or nursing home; only some
residential care facilities are ineligible according to the SBA – but more on
- Invest (at least some of) your own equity. The
SBA wants to see that you’re not strictly investing other people’s money.
- Have net revenue each year for the past three
years totaling less than $7.5 million.
- Have fewer than 500 employees.
- Have a net income lower than $5 million.
- Have a tangible net
worth less than $15 million.
- Not be incarcerated or on parole.
- Have utilized all alternate forms of financing
first (like personal assets).
- Plan to do business in the United States.
- Have proof that you aren’t delinquent on any
outstanding loans (like your mortgage, student loans, or automobile loans).
It might seem like a lot, but the gist of it is this: The
SBA needs to know that you’re 1) actually operating a small business in the
United States, and 2) able to repay the loan that you’re looking to take out.
How Do I Find an SBA 7(a) to
Purchase an Assisted Living Facility?
First, as we mentioned briefly above, you need to exhaust all other financing options before you apply for an SBA 7(a) loan to buy an assisted living facility. SBA7a.Loans has a great guide on other non-SBA financing options for your small business – but most people end up needing extra money in the form of an SBA 7(a), anyway, after pursuing those other options.
But Where Do I Go to Get an SBA 7(a)?
You go to a lending institution, not the SBA. The SBA only
guarantees loans that you take out from the bank. By guaranteeing the loan, the
SBA ensures that, if you become delinquent, you’re covered for a certain amount
of the loan. For a standard 7(a), that’s 85% on any loan up to $150k and 75% for
loans greater than $150k.
The Top 10 Lenders for the SBA 7(a) – Assisted Living
Here are the top 10 Lenders for the SBA 7(a) by number of loans and total loan volume according to the US Small Business Administration as of June 30, 2019:
- Live Oak Bank –
692 Approved Loans – ~$1 billion
Fargo – 2,316 Approved Loans – $619 million
- Huntington National Bank
– 2,731 Approved Loans – $500 million
Small Business Finance – 679 Approved Loans – $467 million
- Byline Bank – 342
Approved Loans – $407 million
- Celtic Bank
Corporation – 584 Approved Loans – $368 million
- JPMorgan Chase Bank –
1,428 Approved Loans – $361 million
- First Home
Bank – 1,185 Approved Loans – $304 million
- US Bank –
1,976 Approved Loans – $288 million
– 389 Approved Loans – $217 million
If you’re looking for a loan to buy an assisted living
facility, these are fantastic resources. Each link leads to the bank’s webpage
on opening small business credit lines. Even if one lender doesn’t like your
business plan, you’ll have plenty of other options.
It’s best to start with the banks that already give out the
most SBA 7(a) loans before you target the smaller banks. Or, if you’re looking
to get approved for a larger loan, you might want to look for the banks with a
small “Approved Loan” count to loan volume ratio, like Live Oak, NewTek,
Byline, Celtic, and KeyBank.
When I’m Applying for an SBA 7(a) with a Lender, What Information
Do I Need?
So you made it this far, up to the point where you’re ready
to meet with a lender to discuss whether or not they’ll finance your assisted
living facility. But you’re worried: What do I need to bring to the table? What
information are most lenders looking for?
This is a difficult question to answer because it’s going to
change from lender to lender. For the most part, though, lenders are going to
want to know the following:
- Your credit score. Your credit score is
literally a numeric value that determines how likely you are to pay back a
loan. When you’re taking out a business loan, the bank is obviously going to
want to know that you’re personally responsible with your credit. That’s why
having a good credit score is important when you’re looking for assisted living
- Business plan. Lenders will also want to
see a carefully laid-out strategy for the next few years, likely including an
executive summary, business overview (legal structure, location, type of
business, etc), an operations plan, a competitive analysis, and so on. Most
importantly, you’ll need a projections analysis so that lenders know when and
how you plan to repay them.
- Collateral. While it isn’t 100%
necessary, it’s always good to show that you have skin in the game; that you’re
willing to put your own assets on the line.
- Profitability. You’ll also need to show,
of course, that your business has significant revenue (above $100k per year)
and is profitable.
What Exact Documents Will I Need?
If this all sounds too complicated, just keep this in mind: Your
loan officer is there to help.
Generally, at a minimum, you should expect to provide
three years of business and personal tax returns, as well as current financial
statements. As we’ve mentioned time and time again, though, this will vary
from lender to lender, and some lenders will weigh certain factors over others.
Go to one of the SBA-approved lenders mentioned above and
ask about SBA loans for assisted living facilities. The loan officer is there
to help, and he’s probably the best resource you have. He’ll guide you through
how to find and fill out all the paperwork you’ll need.
If you have a great business idea for a new assisted living
facility but you aren’t familiar with all the jargon and minutiae that
naturally comes along with starting a new business, that’s okay. Work with others
to help fill in the missing gaps in your knowledge.
If you want, the SBA has an extensive eligibility
questionnaire designed to help you figure out whether or not your assisted
living facility qualifies for an SBA loan. As you’ll probably note on page two,
not all residential care facilities qualify – only those that are licensed as
nursing homes and assisted living facilities.This is almost undoubtedly
just to secure a certain standard of care for consumers – when in doubt, ask
the SBA whether or not you’ll qualify.
What Can I Do Today to Be One Step Closer to Funding an
Assisted Living Facility?
Well, if you’re looking for practical advice that you can
act on today, first, you can contact the Small
Business Administration to ask them questions about your ability to qualify
for an SBA 7(a) – or a different loan type.
Additionally, you can schedule a meeting with an SBA-approved
lender in your area, like one of the ten we ranked above.
The SBA and SBA-approved loan officers both have a vested
interest in loaning money to reputable businessmen and businesswomen with
ambitious – yet reasonable – goals. Let them guide you.
Recap: Looking to Purchase an Assisted Living Facility?
Here’s Everything You Need to Know
The proportion of Americans 90 years or older is increasing
every day – which means the demand for assisted living facilities is also
increasing every day. If you’re looking to finance an assisted living facility,
there’s never been a better day than today.
The SBA 7(a) is the most popular type of loan for financing
assisted living facilities, but you’ll have to prove that you’ve tried other
modes of financing, as well, before you qualify.
There can be any number of hoops to jump throw and paperwork
to fill out before you actually qualify for an SBA 7(a), but the main two
things the bank wants are this: 1) proof that you’re personally responsible
enough to repay the loan, and 2) proof that your business can generate enough
revenue to repay the loan.
As for exact paperwork, let the SBA help, along with any
SBA-approved loan officer. It’s safe to say, though, that at a minimum you’ll
need three years of business and personal tax returns as well as updated and
current financial statements.
If you have any other questions, comments, or concerns, make sure to contact us. We’ll help you find ways to purchase an assisted living facility.
Purchasing Commercial Real Estate – What You Should Know
If you’re considering purchasing commercial real estate for the first time, or already started the process of searching for commercial real estate for sale, there are a number of things you should know. Commercial real estate transactions are much different than a typical home purchase. It’s advised that you always consult a commercial real estate professional before moving forward with a purchase, but we will cover some of the basics here so you can at least know what to expect.
The property you’re looking at may currently be used as an office, a restaurant, or any other use that you wouldn’t expect to create any environmental concerns. However, this property may not have always been used for its current purpose. The commercial real estate you’re considering purchasing may have once been a gas station, a dry cleaner, or any number of other businesses that either stored, or created, hazardous chemicals or waste. There may also be concerns within the building itself, especially if it’s an older building. Decades ago, things like asbestos and lead paint were used within buildings. Buildings that have been vacant for a while may have toxic mold, especially if there are any leaks in the roof.
To avoid the pitfalls of purchasing a contaminated property, you will likely want to have an environmental study done. If you are purchasing a property with bank financing, your lender will most likely require the environmental study. The key purpose of this assessment is to qualify for the “innocent land owner defense”which allows a purchaser who performed adequate due diligence to avoid liabilities from previous environmental contamination. The environmental study will begin with a Phase I Environmental Site Assessment (ESA). The purpose of this assessment is to determine any potential or existing environmental liabilities. The company handling the Phase I ESA will research the site through property records to determine the previous uses of the property as well as the neighboring properties. They may also make a site visit to see if there are any visible signs of contamination, or anything that would cause contamination such as chemical or fuel storage tanks, asbestos, signs of mold, or other evidence of contamination. If the assessment finds that there’s no reason to believe the site is contaminated, you’re done with the environmental study piece of your due diligence.
When a Phase I ESA shows that there is reason to believe the site is contaminated it is recommended you move on to a Phase II. The scope of a Phase II ESA all depends on the findings of the Phase I. This process may involve soil samples, ground water analysis, monitoring wells, indoor air sampling, or any other tests required to determine if there is in fact contamination and the extent of the contamination.
What happens after a Phase II is totally dependent on the findings, as well as your intentions with the property. The level of contamination may require cleanup efforts, or actions to prevent the spread of the contamination. Depending on the extent of the efforts needed, you may decide the property isn’t worth it. The report may show that the contamination is contained and doesn’t pose a significant health risk at the moment. In this case, you may decide the land is still suitable for your use and you have given yourself protection against liability from the contamination (as long as you don’t add to it.)
While the commercial real estate you intent to purchase may have all of the physical characteristics you’re looking for, you will have to find out if your intended use is allowed at this location based on the local municipality’s zoning ordinance. Most municipalities have a zoning ordinance which keeps certain uses in specified areas. When looking at a zoning map you will usually see that there are areas designated for residential, offices, commercial, industrial, agricultural and possibly others. These different areas are often broken down even further into classifications like high density residential, or light or heavy industrial. These ordinances are put in place to prevent things like a factory being built in the middle of a residential neighborhood or a high-traffic shopping mall being developed on a road that can’t support the traffic.
If you determine that your intended use isn’t allowed based on the zoning, you still have a couple of options available. You can petition the local municipality to change the zoning of an area or property. In order to do this you will have to show a good reason as to why the zoning should be changed and that it won’t negatively affect other nearby property owners. You may also be granted a variance, which will allow you to operate your business in this zoning area. There are also special use permits which will allow you to operate your business with your intended use. Zoning changes, variances and special use permits may have certain conditions that come along with them to help protect current property owners in the area as well as future development in that area.
Many municipalities have a master plan, which may be different than the current zoning in some areas. This master plan is based on the direction the municipality wants to go in terms of future growth. In this case, your intended use may fit with their master plan, which will make the process of requesting a change of zoning much easier. In either case, you will want to be well prepared in presenting your case to the local government.
Valuations of commercial real estate are much more complex than with residential houses. Sellers and buyers often have very different opinions of value on a commercial property since there is usually more than one way to determine what the property is worth. The difference in opinion of value can often be hundreds of thousands of dollars and even millions. This is a huge difference, and you don’t want to rely solely on the seller’s idea of what the property is worth when purchasing commercial real estate.
While an appraisal on a home may cost $300 – $400 in most areas, a commercial property appraisal will usually cost thousands. As with purchasing a home, a lender will normally require an appraisal on the property to ensure they aren’t lending more than the property is worth. Depending on the estimated price of the property, some banks may do an in-house valuation for properties that are assumed to be valued under a certain amount. If you’re buying the property for cash, or on a land contract, There are many more factors that are considered in a commercial appraisal. Like residential appraisals, a commercial appraisal will consider sales of comparable properties in the area. However, there are usually far fewer similar commercial sales than there are with homes. If you’re purchasing commercial real estate for investment purposes, such as an apartment building, multi tenant office building, or single tenant retail property, the value will be largely based on the income the property produces for the owner.
Investment Property Values
If you’re purchasing commercial real estate as an investment, like an apartment building, multi tenant office building or strip center, or single tenant retail or industrial property, the value is going to be based on the income the property produces now, and what it’s likely to produce in the future. One of the most common methods of this is to determine the capitalization rate, or cap rate. The cap rate is the amount of net income you will receive from an investment property in relation to the purchase price. The cap rate is shown as the percentage of the purchase price that you will earn in net income each year based on its current revenue. Let’s look at an example.
An apartment building has a gross income of $100,000 each year.
Its operating expenses, included property taxes, insurance, maintenance, lawn care, snow removal, management fees, leasing commissions, etc. are $40,000 each year.
The net income from the apartment building is $60,000
The asking price of the property is $650,000
$60,000 divided by $650,000 is .092 or 9.2%, which gives you a cap rate of 9.2%
Now, this cap rate may or may not be good depending on a number of factors. Look at what cap rate other similar apartment buildings have sold for in your market. Also look at the condition of the property. If it is going to require a new roof next year that will cost $50,000 you may want to add that figure to the purchase price when determining the cap rate. Look at the leases and the tenants. If all of the tenants are on month-to-month leases it’s harder to predict what the income will be over the next several months, where as having tenants in longer leases provides more predictability and stability. Another thing to consider is the rental rates. If the rates are similar to the rental rates of other similar apartments in the area, then that’s probably where they’ll stay for now. If the rents are well below market rents, you will likely be able to raise rents over the next several months or year to increase the income even more. If the rents are above market, then you will have a hard time keeping that same income as tenants move out and you struggle to rent out apartments at the same rate.
While cap rates are one of the most common units for determining investment real estate value, there are other investment calculations that are also used such as internal rate of return, cash-on-cash and others. These are more advanced methods that are beyond the scope of this posting. Again, this is where it becomes important to use the help of a commercial real estate professional that is experienced with investment properties.
W’re using the term “business property” here to describe purchasing commercial real estate that is specific to a business use that’s currently operating, and requires the operation of such business to bring value to the property. This includes properties such as hotels and assisted living facilities. When valuing these properties, you must look at the performance of the business that’s operating within the property. For a hotel, it’s best use is to continue being operated as a hotel so you must look at the performance of the current hotel operation to determine what type of return you will receive on your investment. Similar with various types of assisted living facilities. When buying these types of properties you are typically also purchasing the fixtures, furniture and equipment (FF&E) along with the going concern, or the current operation.
The actual transaction of purchasing commercial real estate is also more complex than that of a residential property. There may be several contingencies in your offer to purchase such as addressing the above concerns like having an environmental study done, receiving the proper zoning, inspecting the current leases in an investment property as well as having a survey completed on the property and having title work done to show any liens or claims to the property. Financing also isn’t as cut and dry as with purchasing a home. Instead of FHA loans, you’re dealing with SBA loans which have different lending guidelines. Some lenders will only lend on owner occupied buildings, while others prefer to lend on investment properties. Below we’ll discuss some of the various types of commercial real estate sale transactions
Cash to Seller
This one is pretty straight forward. Buyer and seller agree on a price, buyer does their due diligence and closes on the sale by paying the purchase price in cash to the seller. While these are any seller or broker’s favorite deal types since they don’t require the hassles of dealing with a bank and can close sooner, they’re not the most common.
Purchasing commercial real estate with seller financing, or land contract, is fairly common. In this scenario, buyer and seller agree on a price and terms, then the buyer pays a certain amount as a down payment, say 30%. The rest of the purchase price is paid over an agreed upon amount of time, usually with interest. In many cases, the amount owed after the down payment is amortized over a longer period of time, but has a balloon payment due within a few years. At this point, the buyer either has to come up with the cash, or get a bank to refinance the land contract so the buyer can continue making payments, but to the bank. If the buyer can’t come up with the cash or get a loan, the seller has the rights to take back possession of the property and keep any money paid. As a purchaser, it’s important to be sure that you can pay the balance off in the agreed upon amount of time.
Option to Buy
Sometimes a buyer wants to be able to purchase a property, but either doesn’t have the funds available now or has some other things to work out in order for the purchase to be beneficial to them. In this case, a buyer and seller both agree on a sale price, and the buyer buys an option to purchase for that price within a certain amount of time. The amount paid for the option will usually be applied toward the sale price, if the option is exercised. During the period of time that the buyer has the option to purchase the property, the seller can’t sell it to anyone else and must sell to the buyer if the buyer chooses to exercise their option. If the buyer does not exercise their right to purchase the property, the seller keeps the option money and can keep the property or sell to anyone else they choose.
Options are a useful tool when planning a development, but don’t want to tie up the capital required to purchase the property yet. It allows time to get other things in place before purchasing. It’s also a great tool if you happen to know of a planned development that will make the property much more valuable in a year or two and want to take advantage of that appreciation without making the full investment now.
Lease With Option to Buy
A lease with an option to buy allows a purchaser to move into a property now without having to raise the money to purchase it yet. Sometimes a bank is more likely to lend on a property when they see that the business has been operating successfully in the location for a certain amount of time. A lease with option is also a valuable tool when you’re waiting on the sale of your own property to have the capital to purchase or are waiting on capital from any other source. There are many reasons to lease with an option to buy, but the important thing to know is that each of these deals are different. Some require the lessee/ buyer to buy the option, like above. Some will allow for a portion of the monthly rent to be applied to the sale price. Some may require that the lessee/ buyer lease for a minimum amount of time before being able to purchase. These are all things that are negotiated between buyer and seller.
A sales/ leaseback is when a buyer purchases a property, and immediately leases it back to the seller. There are several reasons for this type of deal. Sometimes the seller isn’t going to be ready to move out for a while, but wants to take advantage of somebody willing to buy the property now. The seller may need an influx of cash for business operations so they are willing to sell the property and pay rent. Some companies will change their business model to be in lease spaces instead of their own buildings for various reasons. This is a good situation for a buyer that either doesn’t have a use for the property yet, or wants an investment property with a successful business in place as the tenant.
Purchasing commercial real estate can be done many ways, including deal types that haven’t been mentioned here. If one thing is certain in commercial real estate it’s that no two deals are the same. When determining the best method for you when purchasing commercial real estate it is wise to consult with a commercial real estate professional that’s experienced with various types of purchases.
Cost of Ownership
Being able to purchase the commercial property you want is one thing, it’s another thing to be able to afford the property once you own it. Expenses such as property taxes, property insurance, lawn care, snow removal and maintenance are usually greater than that of residential properties. For example, replacing an air conditioning unit or a furnace can costs tens of thousands of dollars. Plumbing issues can also be much more complex than in your home. As the property owner, you have to be able to cover those costs as they arise, especially in an apartment building or office building. Before making the purchase, look at what the property taxes are each year and if they have been going up or down. Get an insurance quote from a few companies as well as lawn care and snow removal. Request to see what the maintenance costs have been over the past few years and have a qualified inspector look for anything that may need repair soon, such as HVAC systems, and the roof. If you are receiving financing for the purchase you will want to factor in the interest expenses. Make sure you understand all of the costs associated with purchasing the commercial property you are looking at.
As you can see, there is a lot involved with the commercial real estate sales process. When purchasing commercial real estate it is extremely important to allow yourself enough time to conduct adequate due diligence to ensure you can use the property for your intended purposes, that environmental concerns won’t hold you back, and that the property is worth what you are about to pay for it. Also make sure that your business revenue, or rent from tenants can not only support the costs of the property, but allow you to be profitable. As mentioned several times above, it is always wise to consult an experienced and knowledgeable commercial real estate professional. In many cases it is advisable to seek guidance from more than one professional. A commercial real estate agent will be valuable to understand market conditions and local property values as well as help you negotiate a fair deal. An accountant experienced in commercial real estate will help you to understand tax implications and benefits on the purchase, the future sale, and the income generated form the property. An experience real estate attorney will help to keep you protected throughout the transaction, as commercial real estate contracts are usually pretty extensive. Purchasing commercial real estate can be a great investment as long as you take the time to fully understand all of the factors affecting the deal and work with qualified professionals to ensure your success.
To learn more about what a commercial real estate agent can do to help you purchase commercial real estate, read about our buyer representation services.