Care sector finance for care homes, home care and supported living

Care sector finance is business borrowing structured around two facts: care providers carry heavy, regular staff costs, and much of their income comes from local authorities and NHS bodies that pay after the care is delivered. Property-based providers, such as care homes and residential rehabs, can borrow against their buildings. Community providers, such as domiciliary and supported living services, have few physical assets, so lenders look at the invoices they raise and the contracts behind them.

In every case, the regulator's view of the service matters as much as the accounts. A poor inspection can reduce occupancy, trigger embargoes on new placements and change a lender's appetite overnight.

Care sector finance suits providers with a satisfactory or better inspection rating, a stable registered manager, a track record of delivery and a spread of commissioners or residents. Established groups adding a home, or agencies growing into new council areas, are often well placed.

It is much harder for services with a recent inadequate rating, enforcement action or a placement embargo, for start-ups without registration, and for providers that rely on a single commissioner whose contract is ending. Some specialist lenders will still look at turnaround cases, usually with tighter terms and more security.

If you are planning a new home rather than funding an established one, our guide on how to start a children's care home covers Ofsted registration, start-up costs and funding the months before placements begin.

Asset finance and unsecured working capital can reach a decision within a few working days in straightforward cases. Invoice finance usually takes a few weeks while the funder reviews the ledger and contracts. Care home purchases and mortgages take longer because of specialist valuations, legal work and changes of registration. Timings depend on the lender and the case.

Property lending is secured on the home or premises, usually valued as a trading business, which means the valuation depends partly on performance. Invoice finance is secured on the debtors. Unsecured facilities usually need personal guarantees from directors, and larger facilities may add a debenture. Our guide to personal guarantees explains the commitment.

Mortgages and term loans carry interest, an arrangement fee and valuation and legal costs; specialist trading valuations are often more expensive than standard ones. Invoice finance combines a service fee with a discount charge on money drawn, and may include minimum fees and a notice period. Revolving facilities charge interest on what is drawn plus a fee for the limit. Asset finance is priced into fixed rentals.

Negotiating payment on account with commissioners, moving private clients to payment in advance and tightening visit reconciliation can all shorten the cash gap. Owned vehicles and equipment can sometimes be refinanced. Where security is limited, some lenders use the British Business Bank's Growth Guarantee Scheme, which supports the lender rather than the borrower.