SBA 504, SBA 7a & HUD Loans for Assisted Living Facilities
Senior Care, Skilled Nursing, Retirement & Nursing Homes, Memory Care, Adult Day Care
SBA & HUD insured mortgages are a great solution for financing for assisted living facilities and can be used for the refinance, acquisition or construction of licensed Senior Care and Special Use facilities.
HUD loans for assisted living are typically for larger properties/larger loans.
SBA loans for assisted living can be for large or small loans and 100% financing is available for experienced borrowers.
The SBA 7a program can be used for the purchase of an assisted living facility (either just the business or business + property), ground up construction, refinance, expansion and even partner buyouts, but the program is typically limited to loans of $5 million. There are a few lenders who will allow transactions with $10 million in total financing under the right circumstances for truly stong borrowers or businesses.
The SBA 504 program can only be used to finance real estate and FF&E, but allows transactions as high as approx $20 million.
Allowable property or business types for both HUD and SBA are as follows:
- Assisted Living Facilities
- Board and Care Homes
- Adult Family Homes
- Residential Care Facilities for the Elderly
- Nursing Homes
- Psychiatric Facilities
- Alzheimer’s Facilities
- Disability Care
- Skilled Care
- Intermediate Care Nursing
- Personal Care Nursing Facilities
- Drug and Alcohol Centers
- Rehab Hospital
- other “special purpose facilities
100% Financing For Assisted Living Facilities & Nursing Homes
By definition, the SBA 7a program can be used for “any legitimate business purpose” and is probably the most flexible type of financing available for assisted living facilties.
It allows many different property types and businesses to be financed and you can legitimately get 100% financing if you currently own and operate an assisted living facility and are looking to purchase another or move from rented space to owning.
Please visit our 100% financing page for more information on what it takes to qualify for 100% financing.
Assisted Living Facility Construction Financing
SBA loans (in particular the 7a program) are the path of least resistance when it comes to assisted living construction financing assuming your transaction is right-sized for the program.
The 7a program is a hyper-flexible program depending on the lender making the loan, as it allows qualified borrowers to build from the ground up and include not only the purchase of the land and all construction and construciton-related costs, but all closing costs as well.
However, where the program really shines with the right lenders is that you can finance the first 1 to 2 years of payments into the loan while you are ramping up occupancy. This is not something most lenders will consider, but some SBA lenders allow it.
FHA/HUD Section 232 Loans
The following types of HUD LEAN financing are available for Senior Housing/Assisted Living:
- Refinance of existing HUD/FHA insured loans
- New Construction or Rehabilitation
FHA/HUD Section 242 Loans
FHA/HUD Second Mortgages or “supplemental loans” are available for FHA Insured Properties.
Bridge to Hud
Bridge loans for projects not yet eligible for HUD financing – a.k.a. “Bridge to HUD financing” – are available at very attractive rates – please call us for details: 1-800-414-5285
Fannie Mae and Freddie Mac
Fannie Mae Senior Housing Financing and Freddie Mac Senior Housing Loans are also available.
HUD 232 Acquisition and 223(f) for Refinancing current HUD loans:
- Up to 35 year loan term and amortization
- Lowest possible interest rates for ALF financing
- Loan is Non Recourse
- Loan is Fully Assumable
- Interest rate is fixed for length and term of loan – NO balloon
- Ownership may be for profit or non profit
- Prepayment penalty typically 2 to 3 year lockout and declining penalty through Year 10
- No CASH OUT and existing debt must be seasoned 2 years
Maximum FHA insured mortgage limited to the lesser of:
- a mortgage supported by a 1.35 debt service coverage ratio
- 80% of appraised value for “for profit” entities
- 85% of appraised value for “non-profit” entities
- 100% of existing debt including loan costs, repairs and replacement reserves
HUD Construction Loans For Assisted Living Facilities
HUD lenders are actively offering construction financing for strong projects.
HUD Construction Financing Highlights:
- Interest only through construction period
- 40 year loan term and amortization
- Interest rate fixed for term of loan
- No maximum loan amount
- Loan to hard and soft costs is 90%
- Loan is non-recourse, even through construction
- Loan is assumable
- Prepayment is normally: Closed for 5 years, then 5% first year declining 1% per year to par
- Ownership may be for profit or non profit
HUD 232 and 223f Costs
Please note that both the HUD 232 and 223(f) programs have significant up front costs although most can be financed into the loan. Here is sampling of typical fees:
- Appraisal: $6 – 8,000
- Environmental: $2500 to $5,000
- Engineering Report: approx $3,500
- MAPS underwriting: approx $7,500
- HUD fee: 3/10ths of 1 percent
MAPS stands for Multifamily Accelerated Processor Services. HUD MAP lenders are designated by HUD for healthcare underwriting.
Residential Care Facilities, Adult Family Homes, Care Home Financing
Residential Board and Care homes can be financed for up to 25 years with as little as 10% down and with nothing down if you have a long enough track record of succesful Care Home ownership. You can get more information from our blog re: Care Home Mortgages.
SBA Assisted Living Facility Financing
The SBA 504 program as well as the 7a are well suited for Assisted Living Facility financing or refinancing,* but they are they are typically used for smaller projects – for instance, for the financing of Residential Board and Care homes or RCFE’s (Residential Care Facilities for the Elderly) . The 7a loan program in particular is an excellent way to get smaller projects (under $5 million) financed.
Click here for more info on the 7a program.
Construction can be difficult in the current market – especially for a start up, but those with a track record of owning and managing senior care facilities and who have good outside or global cash flow should have options. Expansion of an existing facility is easier than new construction.
*Debt refinances are available with and without a business expansion. Please visit our 504 refinance page for up to date information.
SBA Credit Requirements
SBA loans have less stringent credit requirements than most other types of finanicng for assisted living facilities.
You need “good” credit, but some lenders can be quite forgiving of past issues including old bankcruptcies depending on the circumstances. You can learn more about what kind of personal credit is required by reading this post: SBA loan after bankruptcy.
Higher Total Project Costs with the SBA Green 504
The HUD programs can handle much larger projects than an SBA loan, but recent changes to the 504 loan program allow larger loan amounts than ever before through the 504 program. 504 loans are now available for projects upwards of $12,000,000 (especially if you go green).
To qualify for maximum financing you must produce enough of your own energy to significantly impact your energy usage and costs. This new version of the 504 – the green 504 loan – is an excellent tool for anyone looking to finance a senior care facility with long term, attractive commercial financing.
By going green you will be helping the environment and possibly significantly lowering your long term energy and operating costs and you will be doing it with the least possible out of pocket expense.
Commercial Financing with 15 to 20% Down
The 504 requires 15 to 20% down at a time when most banks and lenders are looking for 30% or more down. The amount of down payment is dependent on your level of experience in the senior housing industry.
The program is ideal for smaller, locally owned senior housing facilities, since it requires that the owner be “hands on.”
USDA B & I
The USDA Business and Industry (or B & I) program is also a good solution for Assisted Living and Senior Care facilities in rural and semi-rural areas. Please contact us for more details.
Conventional Financing for Assisted Living and Senior Housing Developments
Obtaining SBA, USDA or HUD financing can take anywhere from 4 to 8 months. Conventional financing can be quicker, but is only available for very strong projects with strong sponsors and significant equity. Please contact us if you feel your project might qualify.
Financing for Non-Profit / 501(c)(3) Organizations
Senior care and senior housing financing is also available for 501(c)(3) organizations building or financing facilities.
“A Minus” SBA 504 Assisted Living Facility Financing
The 504 A- program is for refinances and acquisitions for owners who have returned to profitability after a few bad years. Please click here for more info: SBA 504 A Minus Loan.
Please contact us at 1-800-414-5285 for more information.
contact us to find out more!
More SBA 504 Loan info: 504 Loans