Top Loan Options to Kickstart Your Assisted Living Business
Aug 27, 2024
This blog will examine the many funding options available to help you start your assisted living business. Many assisted living entrepreneurs face major financial challenges. However, you may overcome this challenge and effectively establish your business with the proper information and resources.
Starting an assisted living business requires a significant investment, from purchasing or leasing property to remodeling facilities and maintaining regulatory compliance. The financial expectations can be frightening, but understanding the many financing alternatives available can allow you to make more informed selections. Choosing the correct funding approach can lay a solid financial basis for your company's growth and sustainability.
This blog will explore several loan types, including typical bank loans, Small Business Administration (SBA) loans, and alternative funding possibilities. Each has its own set of requirements, advantages, and disadvantages. We will also discuss how to write a compelling loan application, what lenders look for, and how to improve your chances of receiving the necessary finances.
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SBA Loans
What is SBA Funding?
The Small Business Administration (SBA) offers federally backed loans through various banks and credit unions. These loans are popular due to their favorable terms and support for new businesses. SBA loans come in two main types: 7(a) and 504 loans.
Finding SBA Lenders
SBA lenders can be national banks, local banks, or credit unions. I recommend working with small local banks or credit unions for better terms and customer service. To find SBA lenders, a simple internet search like “SBA lenders in [your city/state]” will yield a list of potential lenders.
The Application Process
Once you've found a lender, contact their customer service and convey your interest in obtaining an SBA loan to start an assisted living business. Prepare to show a comprehensive business plan and underwriting information. Our Business Planning Guide can be a great resource for gathering relevant information.
Traditional Mortgages
How Traditional Mortgages Work
Traditional mortgages for assisted living facilities work similarly to personal homes, but with some differences, since it's an investment property. Typically, you'll need a down payment of 25-30%.
Benefits and Considerations
Traditional mortgages are readily available, with most banks and credit unions providing real estate loans. In contrast to SBA loans, these loans frequently do not include operating capital. You may require additional funding for operational expenses.
Hard Money and Private Money
What is Hard Money?
Hard money and private money are important alternative funding options among real estate investors. These loans are often interest-only for a set period of time (e.g., three years), after which they can be refinanced into regular or SBA loans.
When to Use Hard Money
These options are appropriate if you have bad credit or cannot obtain standard or SBA loans. Hard money lenders typically want a lower down payment and are more flexible, but they like to have a lien on the property.
Construction Loans
Ideal for New Builds
Construction loans are a great option if you’re building a new facility from the ground up. These loans cover the construction cost and can often be converted into traditional mortgages once the build is complete.
HUD Loans
Long-Term Financing
HUD loans offer long-term, low-payment options but come with strict regulations and regular audits. They are best suited for those who have been operating for a while and want to expand their portfolio.
Final Thoughts
Exploring these finance sources will help you start your assisted living business. A sound business plan is essential whether you use SBA loans, regular mortgages, hard money, construction loans, or HUD loans. For further information, see Assisted Living Investing.
If you are ready to take the next step, download our Business Plan Checklist to ensure you have everything you need for your loan applications. Additionally, check out our Underwriting Calculator and consider applying to the Assisted Living Investing Mastermind program for more in-depth guidance and support. This program covers five core concepts: building a business plan, finding the property, getting the funding, obtaining the license, and running and scaling the business.
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