Care Home / Nursing Home Banking Services
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Overview • All Banking Services Business Listings
Jeremy Huband, Director Healthcare, London Commercial Banking at The Royal Bank of Scotland (“RBS”) looks at the issues people need to consider when planning to buy a care home, expand their business or sell their business in order to retire. The care sector is thriving and there is much to be positive about - standards of care in privately run care homes have never been higher, and the quality of the environment that clients can expect is ever increasing too. The aging population, rising fees and buoyant occupancy levels make this a sector which can offer great opportunities for care providers. The key issue to consider when buying, running or selling a care home is how you approach it. You have to start with a business mentality. Whilst the provision of care is the most important aspect of your operation, you have to treat the home as a business to ensure not only survival of the home, but the ability to make the home profitable. When a lender is approached by a care business for finance, the amounts they are willing to lend, the interest rate and loan term all depend on a number of factors and are individual to each customer. The lender needs to understand what it is they are being asked to fund and what risk it represents and this determines how and what they will lend. The National Minimum Standards (NMS) including room size and the ratio of single and en-suite accommodation tend to be a large focus for lenders. Compliant stock will attract funding more easily than a property that could fall foul of future changes or enforcement of the Standards. Term loans or mortgages are usually spread over a maximum of 15-20 years for mature stock or for new builds 20-25 years. When considering the length, we consider the quality of the asset, compliance with NMS and the age of the owners. If you are looking to have a 20-year term loan we would seek reassurance of your ability to adapt to the changing market conditions and desire for diversification when required. The vast majority of RBS term loans are base rate linked with an interest rate margin added which reflects the perceived risk weighting within the deal overall. Consequently, our lending book comprises a multitude of loans with differing margins as a “one size fits all” approach cannot simply work in such a complex market place. Interest rates will obviously fluctuate (unless interest rate hedging is applied) therefore it is vital to have a strong cashflow which will act as a margin of safety. Looking at the Loan To Value (LTV) ratio this is typically around 70-75%. The amount of coverage is dictated by the business’ serviceability, cashflows and management’s ability to manage debt levels without over-stretching the business. 100% funding can also be provided by revaluing existing assets subject to the evaluation of individual circumstance and prevailing cashflows. Due to the strong performance in the care sector over the last few years there is an abundance of new lenders keen to offer deals to care providers. It is important to choose a bank with experience in the care sector that understands the dynamics and will be sympathetic if the market turns difficult. RBS are experts in lending to this market with extensive commitment and experience and match resources with customer’s locations and have a team of experienced managers around the UK. Services include: current account banking and money transmission, finance for development, acquisition opportunities, remortgage opportunities, interest rate hedging, mentoring on healthcare issues and introductions to external expertise e.g. capital allowances. The relationship management team will meet with the provider looking for finance to gain a real understanding of the project and tailor a funding package to meet individual requirements and examine various issues for example from the asset quality in relation to the environmental standards, to location and demand for services. The Bank’s principal external due diligence is via a bank appointed valuation of the target home, which will comment in detail on the businesses current and maintainable position in the industry, with expected trading profiles and finally a capital value. After reviewing the valuers outputs the proposals will then be presented to the Bank’s credit committee for formal underwriting approval. Thereafter, the logistics of the Commission for Social Care and Inspection (CSCI) can be approached. The value process can typically take around 2 weeks. Bank credit can take between 3-4 working days. CSCI registration can take up to 12 weeks for the first registration. We have a key focus on relationship management and delivering excellence for our customers. Each customer is assigned a locally-based Healthcare Manager with direct telephone, mobile and email access to help maintain a personal approach. We aim to work as a trusted business advisor and can refer customers to our colleagues in other areas of the bank such as Private Banking, Invoice Finance, Banking Relationship Services and Lombard, thereby providing a joined up approach to their financial requirements. Customer service is an integral part of our values and is essential if we want our customers to view us as their long-term relationship bank. Operators should talk to their bank early in the business planning cycle. This allows the bank to put in place the correct funding structure to support the care home proposal. Like many of the general business proposals we see, for the care home operator the bottom line is that they need to generate adequate cash flow to service their debt levels. This allows them to trade in a viable way and ultimately provide the level of care that their residents and families demand. Timing is everything in deals, and failure to be in a position to make an informed decision can cost you the deal. For further information please contact The Royal Bank of Scotland Group ("RBS Group") is one of the world's leading financial services companies providing a range of retail and corporate banking, financial markets, consumer finance, insurance, and wealth management services. RBS Group operates in Europe, the US and Asia Pacific serving more than 36 million personal customers world-wide and employing more than 140,000 people. In addition to the provision of a full range of banking services under The Royal Bank of Scotland and NatWest brands, RBS Group also includes Citizens Financial Group, Ulster Bank, Coutts Group, Direct Line and Churchill. |
