Effectively Financing Nursing Home Improvements as a Small Business Owner

Operators of nursing homes and senior care facilities are seeing their industry expand and transform. These business owners are facing shifts in standards of care and technology that are so fundamental they often require new building designs and outfitting. For example, green design for care facilities is developing rapidly. Guidelines are being drafted on a national level and widely implemented. Sustainability also has marketing value for care facilities.

As the demand for senior care increases and current operating facilities become more and more outdated, there will be a need for large amounts of construction financing in the senior care industry, something the SBA 504 loan can help with.

The Need to Build New Senior Care Facilities

Two opposing trends are emerging in senior care: the continuing care community and specialized facilities. The first provides care that can be tailored to a resident’s changing needs in a single location. This is likely to be a large facility that has a number of separate sections with differing floor plans, equipment and staffing. These facilities, where residents may live for many years, tend to be popular with affluent senior citizens, as Medicare provides little support for long-term care.

The second is closer to the traditional understanding of the nursing home, with specialized facilities to accommodate residents who have a high level of needs, such as memory care and skilled nursing. Nonetheless, the facilities themselves are changing to incorporate technology to increase residents’ security and compensate for their memory loss. Building design is changing too to provide greater sensory stimulation and safely allow for residents’ desire to wander.

Because of these new demands, it is often more economical to build new facilities than to upgrade pre-existing ones. However, as the expenses involved in building new facilities rise along with design sophistication and the level of technology incorporated in the building, the cost of financing is becoming an increasingly important question for the business owner.

Finding Financing for Senior Care Construction

Because of the growing market, commercial banks are often prepared to provide construction loans to business owners with experience operating a senior care facility and a good credit record. The borrower should consider the terms of these loans carefully, however. Bank loans typically have down payments of up to 40% and provide loans that have balloon payments at the end. That means a borrower has to come up with a large portion of the project cost in advance to receive a bank loan. Then there will eventually be a balloon payment that represents several years of payments combined into one, very likely forcing the borrower to refinance the loan, adding considerably to the cost of the credit.

An effective way to reduce the cost of credit and improve its terms is to partner with a conventional lender such as a bank or credit union to receive a Small Business Administration (SBA) 504 loan. The 504 loan was created to help small businesses so the terms are attractive and the loan is accessible. The 504 loan is administered by nonprofit Certified Development Companies (CDC). It is one element of the 504 loan in a package that consists of three parts:

  • The first is a loan from a conventional lender for at least 50% of the total amount. The borrower and that lender determine the amount and conditions of that loan, which becomes the first mortgage.
  • The CDC facilitates a separate SBA loan of 35% of the total, up to $5 million, at a fixed, below-market rate. Projects eligible for the SBA’s Green Energy Program can receive up to $5.5 million per project. This is the second mortgage.
  • Then the borrower contributes 15% to the loan as down payment, if this is their first 504 loan. Senior care facilities are among those classified as single-purpose properties by the SBA. Properties classified as multi-use can be financed with a 10% down payment.

When planning your senior care facility, it is a good idea to take energy efficiency into consideration. As building standards increasingly reflect environmental concerns, incorporating sustainability into your architecture puts you ahead of the curve and may help you avoid taking measures in the future. It also enables the 504 loan recipient to unlock additional financing opportunities by taking advantage of the SBA Green Energy Program.

The Green Energy Program provides a higher loan limit ($5.5 million) and the opportunity to exceed the traditional project limit when the borrower:

  • buys or constructs a building that consumes 10% less energy than their current location
  • buys the building they now lease and makes upgrades to consume 10% less energy
  • buys or constructs a building that produces 10% of the energy it consumes or produces fuel to reduce fossil fuel consumption, using equipment financed through the loan

By implementing any of these steps, the borrower will save money on utility bills. Since care facilities are intensive energy consumers, that savings could make a real difference in their cash flow.

You can find out more about obtaining a 504 loan to finance senior care facility construction from TMC Financing’s 504 loan experts. TMC Financing is a leading CDC in California and Nevada and a high-volume Premier Certified Lender with the SBA. Contact TMC today for more information or to begin the 504 loan application process.


Kurt Chambliss is Executive Vice President of Sales and Marketing for TMC Financing, focused on serving small business clients throughout San Francisco’s East Bay. With over 16 years of SBA 504 lending industry experience, Kurt seamlessly guides clients through the loan process helping to secure SBA financing for small businesses and introducing them to the best first mortgage lenders that meet the clients’ needs, supporting them through the entire process. Kurt acts as an advocate for small business owners, and is passionate about helping small businesses grow and succeed.
Kurt Chambliss