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 population.

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 ownership.

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 10.25%.

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 that later).
  • 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 Facility Financing

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:

  1. Live Oak Bank – 692 Approved Loans – ~$1 billion
  2. Wells Fargo – 2,316 Approved Loans – $619 million
  3. Huntington National Bank – 2,731 Approved Loans – $500 million
  4. Newtek Small Business Finance – 679 Approved Loans – $467 million
  5. Byline Bank – 342 Approved Loans – $407 million
  6. Celtic Bank Corporation – 584 Approved Loans – $368 million
  7. JPMorgan Chase Bank – 1,428 Approved Loans – $361 million
  8. First Home Bank – 1,185 Approved Loans – $304 million
  9. US Bank – 1,976 Approved Loans – $288 million
  10. KeyBank – 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 facility loans.
  • 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.