An introduction to commercial mortgages for nursing and care homes

The UK’s nursing and care home sector is becoming increasingly appealing to entrepreneurs, with recent research showing a move away from large corporate ownership and an increase in those run by private individuals and small companies. However, these businesses can be expensive to start up and to run and it is likely that a commercial mortgage will be necessary to secure appropriate premises.

This article provides an introduction to what the high street banks and other commercial lenders will consider when deciding whether your application for a commercial mortgage is accepted or rejected. 

What is a commercial mortgage?

A commercial mortgage can be used by both start up or existing businesses to finance the purchase of buildings or land and to make improvements or modifications. It can be arranged through a high street bank or through a commercial lender and can provide up to 85% of the purchase price; however this will vary depending both on the value of the property and on the maximum loan-to-value ratio of the individual lender.

The lender will normally require a deposit of 20-30%, and will want proof that the repayments can be met. Existing businesses will need to provide a full set of trading accounts covering the last two years, while start ups will need to provide a full business plan showing the expected income projections.

How raising a commercial mortgage for nursing and care homes differs from other sectors

People in the UK are living longer and, with recent research predicting that the number of individuals aged over 60 is likely to increase 37% by 2031, it is expected that nursing and care home provision will also need to expand.

However, the stringent regulatory system governing the industry, and the national minimum standards that must be adhered to, can often be a deterrent to commercial lenders. Investing in an existing nursing or care home that complies with current regulations and meets the minimum care standards may be a worthwhile option and may increase your chances of success with a commercial lender.

Whether you approach a high street bank or specialist lender, they will want to know:

• The trading history of the existing business or full financial projections for new ventures
• The amount of deposit you have available
• The location of the premises
• Whether you have an adverse credit history

In addition, lenders will want to know what industry or management experience you have. It is worth being aware that although you do not need industry experience to purchase a nursing or care home, you will need to prove you are a fit person to operate the business and will need to be registered with the relevant regulatory body.

However, whether you plan to appoint a registered manager or manage the home yourself, it is essential that the person responsible for the day-to-day running of the home has at least two years experience in a senior management position in the care industry and holds an S/NVQ at level 4 in management or care.

If you have been approved for a commercial mortgage to purchase the nursing or care home, and have struggled to achieve the interest rate you had targeted, it is worth keeping in mind that you will have the opportunity to re-mortgage with another lender to achieve your optimum rates and terms at a later date.

An independent intermediary can help you find the best commercial mortgage for your situation. They have the knowledge and experience to negotiate with a wide variety of lenders on your behalf. So with their help, hopefully you’ll be welcoming residents to your own nursing or care home in no time.

Contact us to find out more about how The Diverse Finance Company can help you raise a commercial mortgage or take advantage of other business finance solutions.

Copyright © 2006 The Diverse Finance Company

copyright © 2005 Diverse Finance Ltd. All Rights Reserved.