SBA Loans for Assisted Living Facilities
SBA financing can be a great solution if you need an assisted living facility loan as the loans can be used for the refinance, acquisition, expansion or construction of licensed Senior Care and Assisted Living facilities.
SBA loans are offered for both large or small facilities and 100% financing is available up to at least $5 million for experienced borrowers/owners.
Specifically, the SBA 7a program can be used for the purchase of an assisted living facility (either just the business or the business + property), ground up construction, refinance, expansion and even partner buyouts, but the program is typically limited to loans of $5 million. There are however, a few lenders who will allow transactions with $10 million in total financing under the right circumstances for truly strong 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.
Many types of properties and businesses in the Assisted Living space are SBA eligible including the following:
- Assisted Living Facilities
- Board and Care Homes
- Adult Family Homes
- Adult Foster Care Homes
- Adult Day Care
- Residential Care Facilities for the Elderly
- Nursing Homes
- Alzheimer’s Facilities and Memory Care
- Retirement Homes
- Disability Care
- Skilled Nursing Care
- Intermediate Care Nursing
- Personal Care Nursing Facilities
- Drug and Alcohol Centers
- Psychiatric Facilities
- Rehab Hospitals
- other “special purpose” facilities
No Down Payment SBA Financing For Assisted Living Facilities
By definition, the SBA 7a can be used for “any legitimate business purpose” and it is probably the most flexible type of financing available if you need some type of senior care business loan.
It can be used for all kinds of business loans for senior care or assisted living financing, but also for business acquisitions in related industries – for instance, it is frequently used by borrowers to finance home health care agencies.
Many different property types and businesses can be financed with the 7a and you can legitimately get 100% financing – or in some cases over 100% financing – if you currently own and operate a profitable senior care business and are looking to purchase another business of the same type* – or you are looking to move from renting space to owning.
*As of May 11, 2023, you need to be purchasing a business with the same NAICS code if you are trying to get 100% financing.
Please visit our 100% financing page for more information on what it takes to qualify.
SBA Loan Assisted Living Construction Financing
SBA loans (in particular the 7a) are the path of least resistance when it comes to assisted living construction financing. Most SBA lenders will offer a maximum loan of $5 million under the 7a, but if you have a truly strong scenario it may be possible to borrow up to $9 to $10 million by putting an un-guaranteed 2nd mortage behind the first.
(Again, the 504 can accomodate MUCH larger projects but requires 15% to 20% down).
The 7a program is also a hyper-flexible program with regard to the leverage available, although the level of flexibilty is somewhat dependent on the lender making the loan.
It allows 100% ground up construction financing for experienced assisted living facility owners and the financing can include not only the purchase of the land and all construction and construction-related costs, but all closing costs and a significant amount of working capital.
Some lenders will even finance the first 1 to 2 years of payments into the loan.
If you are applying for construction financing for your first assisted living facility then you will need 10% down when utilizing the program, but see below regarding acceptable sources of down payment as there is also flexibility with the that – including the possibility of borrowing the down payment.
SBA Nursing Home Financing
Nursing Home financing is also available with a 7a or a 504.
Nursing homes provide a higher level of care than most types of assisted living and an SBA loan could be the right fit depending on the borrower’s circumstances.
Residential Assisted Living Facility Financing
Residential Assisted Living facilities have become especially popular over the last 5 to 10 years and are known by many names:
- Residential Care Facilities for the Elderly (RCFE)
- Adult Family Home
- Adult Foster Home
- Residential Care Home
- Residential Board and Care Home
By whatever name, they can be financed for up to 25 years with no down payment for experienced borrowers and with either 5% or 10% down and for others.
In order to get 100% RCFE financing, you would have to (currently) own a profitable care home for long enough to prove to a lender that you can capably (and profitably) own and operate another.
If you do not have a long enough successful track record of adult care home ownership, then a down payment is required if you are purchasing a facility or starting your first facility.
Acceptable Sources of Down Payment
- 5% to 10% down is required when purchasing a care home from someone else, again, unless you already own a facility, in which case, a down payment may not be necessary.
- 5% is possible if and only if the seller is willing to hold another 5% on “full standby.” Full Standby means that you are not supposed to make payments to the seller for 24 months.
- 10% is required from you if the seller is unwilling to hold a second mortgage on full standby or if you are starting a new business, BUT the SBA is flexible (within reason) with regard to where you come up with your down payment and the following are all possible:
- money that is borrowed from another source
- certain retirement account rollovers
All of the above are possible sources of your 5% or 10%, but lenders will require that you have enough “skin in the game,” although how lenders define “skin” is very subjective.
The key theme here is that while the SBA gives all lenders the same set of guidelines for how they must do things, there is a lot of subjectivity in how different lenders interpret the guidelines and how they are applied to different types of businesses as well as different borrowers.
Borrowing the Down Payment
Borrowing the down payment for an SBA loan for assisted living is typically the easiest and most straightforward of the above options. The hard part can be finding a lender who will lend you the money as in almost all cases, it cannot be borrowed from the SBA lender.
An approval requires you to have enough of the right traits that SBA lenders look for…which is to say, you need enough skin in the game, good enough credit, relevant experience and some reserves/post-closing liquidity, but every lender evaluates these metrics differently so, be mindful that the definition of the “right” traits or qualifications can vary widely from lender to lender due to the fact that the SBA does NOT dictate all the rules for underwriting to lenders.
For instance, the SBA gives no real guidance to lenders regarding lending to borrowers with past credit issues and there is no minimum credit score (per SBA rule) for most loans.
Many lenders do however, have a minimum score, but most are flexible if you have a good explanation as to why your score is lower than it might normally be.
The same keys apply when you are borrowing the down payment.
You must show that you have decent enough credit, relevant experience, job/income stability and most importantly, enough outside income from another source (or a spouse with enough income) to be able to afford the payments on the money you would borrow for down payment without putting yourself in a precarious position financially.
i.e. you (or if married, your spouse), need to be able to handle the payments on the money borrowed for the down payment without disrupting your ability to pay your bills.
One key guideline that the SBA requires is that you must be licensed to own an assisted living facility or nursing home and you must provide some type of “medical services” for your residents, but the SBA is pretty vague about the deifinition of medical services and the current definition as of December 2022 reads as follows: “wellness checks, monitoring and/or helping take medications, monitoring blood sugar levels, having medical staff onsite (even on a part-time basis)” can all be considered “medical services.”
So, something as simple as making sure a resident takes the proper dosage of a medication can be enough. You can get more information about residential assisted living facility loans from our blog here: Care Home Mortgages.
SBA Assisted Living Facility Refinancing
The SBA 504 program as well as the 7a are well suited for Assisted Living Facility financing or refinancing,* and the 7a program in particular is an excellent way to get smaller projects (under $5 million) financed.
Click here for more info on the 7a. As of September 1, 2023, many borrowers who have SBA 7a loans with a high rate are opting to refinance into a low rate 7a loan or a 504 loan as both are definitely possible.
Please visit our 504 refinance page for up to date information on how to use that program to refinance a 7a.
SBA Credit Requirements
SBA loans have less stringent credit requirements than most other types of financing 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
Relatively recent changes to the 504 program allow larger loan amounts than ever before. 504 loans are now available for projects up to approximately $20,000,000 (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 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 can significantly lower your long term energy and operating costs, possibly getting federal, state or local tax incentives and you will be doing it with the least possible out of pocket expense.
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. The primary differences between USDA and SBA financing is the USDA requires at least 20% down, does not require that you own and operate the building/business and the loans are 30 year loans.
Like SBA, USDA loans for assisted living have a lot of rules, but can be a great solution.
Please contact us for more details if you have a rural request.
Conventional Financing for Assisted Living and Senior Housing Developments
Obtaining SBA, USDA or HUD financing can take anywhere from 2 to 8 months. Conventional financing can be quicker, but is only available for strong projects with strong sponsors and enough 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, but not through the SBA or USDA programs.
Please contact us at 1-800-414-5285 for more information about financing for non-profits as there are some very attractive, sometimes high leverage products available.
More SBA 504 Loan info: 504 Loans