Unlocking Opportunities in Home Healthcare with SBA Loans

Driven by the “silver tsunami” of baby boomers preparing to enter the next stage of their lives, the home healthcare industry is witnessing significant growth. Over the next decade, the population of adults ages 65 and older is projected to grow over 30 percent, and with this comes an expanded demand for home healthcare services that can meet the diverse needs of a new generation of seniors.¹

Today’s seniors live further away from family members than their parents and grandparents did at their age, and older adults who cherish their independence are turning to home-based healthcare services that allow them to age in place. As the demand for these services grows, many entrepreneurs recognize the opportunity to capitalize on the growth in this sector and are looking to acquire or expand in-home healthcare businesses. These entrepreneurs are increasingly turning to SBA loans to finance their home healthcare businesses for the flexibility and security this loan type offers.

Here’s how SBA loans can be used to finance in-home care, home health care, and hospice care, with essential steps and considerations for prospective borrowers.

Understanding the home healthcare industry

With around 25,700 firms employing 1.5 million workers and generating $116 billion annually, the home health care industry is a highly diverse and fragmented landscape.¹ These companies offer services that range from skilled nursing care to personal care and rehabilitation therapy, and while large providers dominate part of the market, many smaller, independent operators continue to serve as the supportive backbone for the seniors in their local communities. Given the industry’s complexity, starting or expanding a home healthcare business requires careful financial planning. That’s where SBA loans, particularly the SBA 7(a) loan program, come into play.

What is an SBA 7(a) loan?

The SBA 7(a) loan is the go-to financing option for many small business owners, and it’s an especially good fit for the home healthcare industry. This loan type is commonly used to fund change-of-ownership transactions—ideal for those looking to purchase an existing business in this growing field. With terms of up to 10 years for most uses, no balloon payments, and the ability to buy a business with as little as 10% down, the SBA 7(a) loan offers flexibility and security.

Why choose an SBA loan for home healthcare?

SBA loans, especially the 7(a) loan, offer unique advantages for home healthcare entrepreneurs, such as:

• Low Down Payments: Buyers can acquire a business with as little as 10% down or even less in certain cases.
• Flexible Terms: The SBA 7(a) loan offers a 10-year, fully amortizing loan with no balloon payments, making it easier for owners to manage cash flow.
• Industry Expertise: Understand the nuances of home healthcare, from regulatory requirements to key performance indicators such as census data (the number of clients served) to ensure that your loan application is approved and tailored to your business needs.

How to qualify for an SBA loan

While SBA loans provide great benefits, there are certain qualifications and conditions that borrowers need to meet. Here are what the lenders look for:

1. Strong cash flow: The business you are buying or expanding needs to demonstrate a strong cash flow to cover the loan payments and provide a salary for the owner.
2. Industry experience: Experience in the home healthcare industry is a huge plus. However, if you lack direct experience, having profit and loss (P&L) management experience or a strong background in business operations can also help.
3. Good credit: Personal credit scores play a significant role in qualifying for an SBA loan, and good credit is a must for securing favorable terms.
4. Fallback liquidity: Lenders prefer buyers who have some form of fallback liquidity, such as savings or additional assets, in case of unforeseen financial hiccups in the business.

Leveraging SBA loans for business growth

In addition to buying an existing business, SBA loans can also be used to expand current home healthcare operations. Whether it’s adding new services, hiring more staff, or investing in technology to improve efficiency, SBA loans provide the flexibility to help home healthcare businesses grow.

For example, many home healthcare businesses are increasingly incorporating telehealth and point-of-care technology allowing caregivers to communicate with physicians and schedule patient visits more efficiently. Investing in these technologies not only improves patient outcomes, but also helps businesses streamline operations and reduce costs.

Considerations for home healthcare business owners

A key concern in home healthcare is hiring and retaining qualified staff, particularly caregivers and skilled nurses. The industry is known for high employee turnover, and wage inflation is becoming a growing challenge, as pay rates for caregivers have steadily increased to meet demand.

Additionally, Medicare and Medicaid programs, which are significant payors in the home healthcare space, often dictate the reimbursement rates for services. Companies need to ensure they can operate efficiently even with lower reimbursement rates. By leveraging information technology, home healthcare businesses can streamline billing, manage schedules, and ensure accurate coding – all of which are critical to maintaining profitability.

Despite regulatory and operational challenges, the long-term outlook for home healthcare is promising. As the population ages and more individuals prefer to receive care at home rather than in institutional settings, the demand for home healthcare services is only expected to grow. This macroeconomic trend presents a significant opportunity for entrepreneurs looking to enter or expand in this field. With the right financial partner to help navigate the complexities of the home healthcare landscape, SBA loans offer the capital needed to purchase, grow, or improve a home healthcare business and set up a path to success.

As a top SBA lender nationally, our lending specialists understand the Home Health business and have the authority to make credit decisions in-house, for a quicker, more streamlined approach to getting your business the financing it needs. Get in touch.