The Care Sector Finance Need

The UK care sector has been in and out of favour with lenders and likely will continue to be that way. What can’t be argued is the size of the sector and demand coming in the years ahead.

In the UK:

• In 2020, there were approximately 11,300 care homes in the UK, providing care for the elderly and individuals with various healthcare needs
• These care homes had around 291,000 beds, and they provided care for approximately 291,000 residents
• A significant portion of care homes are privately owned. In 2020, around 84% of care homes were in the private sector, with the remaining 16% being run by local authorities or voluntary organisations
• The UK has an aging population, which has been a key driver of demand for care home services. The proportion of people aged 85 and over is expected to increase significantly in the coming decades, leading to a higher demand for care home services

So that’s a growing sector, with no end for demand in site and a supply already fully utilised.

These facts are slowly filtering through to lenders who are starting to offer better terms to new and existing operators.

What Is Important to a Lender

Just because the care sector is growing doesn’t mean every care home is successful financially. This is the challenge for lenders and they are looking at a few key criteria that are statistically proven in cases that have failed or succeeded:

• For existing care homes, the CQC rating should be at least ‘good’. Where it isn’t then the lender will want more owner experience and a track record of ‘good’ elsewhere
• For new purchases, a strong, experienced existing management team must remain in position post-purchase
• Average occupancy must have been 90% or more over last six months for current trading units. Again, where this isn’t the case the lender will want more experience
• Care home must be located within three hours travel time or less of the applicant’s home address (if they do not plan to relocate)

In short, there can be a trade off between past experience and existing performance, where existing performance is poor (which is why you have the opportunity to buy) then get the other bits filled in. Experience is not 100% essential if you can substitute that with retaining a good management team.

Weirdly for lenders, these ‘non financial’ aspects are often more important than the ‘financial’ aspects of a proposal, a point often missed by many care home mortgage applicants.

If you want to know your options for financing a care home or expansion within this sector then get in touch.

By Dave Farmer