Children's care home finance for established providers

Income comes from placement fees agreed with the placing local authority for each child, either through a regional framework or as a spot purchase. Weekly fees are high compared with adult care, but so are costs: staffing ratios are intensive, waking night staff are common, and homes registered for one or two children carry much of the fixed cost of a larger home. Invoices typically go out monthly in arrears, and some councils pay slowly or query invoices when a placement changes.

Occupancy behaves differently too. A bed can sit empty not for lack of demand but because the right match has not been found: the registered manager must be satisfied that a new child will not put existing residents at risk. Lenders unfamiliar with the sector read an empty bed as weak demand; specialists understand matching but still want to see how long vacancies typically last.

• Opening another home. Each new home needs its own registration, a registered manager and a recruited, trained team before the first child arrives, so months of cost come before any fee.
• Buying the property instead of leasing it. Many providers start in rented houses and later buy, to control the building and stop paying rent.
• Adapting or refurbishing. Work to meet the Quality Standards, improve safety or turn a solo-placement home into one suitable for two children.
• Acquiring another provider. Buying a company with existing registered homes, staff and commissioner relationships.
• Bridging slow council payments. Covering payroll when a large council invoice is weeks overdue.
• Adding education or supported accommodation. An on-site school or a 16 to 17 supported accommodation service, each with its own registration.

A house used as a children's home is a business premises, so it needs commercial lending. A house bought by an individual with a residential mortgage and then let to a provider is a residential arrangement that is outside what we arrange, and may breach that mortgage's terms. Lenders also want to see that the planning position is settled: whether a particular home is a change of use depends on its size and how it is staffed, and councils take different views. Neighbour objections, restrictive covenants and insurance for the specific use all come up in legal work.

Each home must be registered with Ofsted, and the provider and registered manager are assessed for fitness; the registration guide for children's social care services sets out the requirements. Inspection judgements, independent monthly visits and any restriction of accommodation notices are all read by lenders.

Profitability is also under political scrutiny. The Competition and Markets Authority's children's social care market study found high profits among the largest providers, and reforms in England since then include greater financial oversight of larger providers and a backstop power to limit profits. In Wales, the government has begun removing profit from the care of looked-after children, which affects any provider operating there. Lenders will ask how your business model holds up under these changes, especially if you plan to expand into Wales.

A single safeguarding incident can lead to placements ending, a restriction on new admissions or a poor inspection, removing a large share of a small home's income at short notice. Concentration on one council exposes you to changes in its commissioning or fee policy. Expansion is the riskiest stage: borrowing to open several homes at once multiplies the pre-income period. Personal guarantees are usual for privately owned providers, and property used as security is at risk if repayments fail. Growing one home at a time, leasing before buying, and keeping a cash reserve against vacancies are all worth weighing against the speed that borrowing allows. Related services are covered on our pages for supported living and independent schools.