Where to Find Funding for a Senior Home Care Business

Types of Funding Available for a Senior Home Care Business

Today’s home health-care business market is booming, with the U.S. market on track to expand 7% annually from $103 billion in 2018 to $173 billion by 2026, according to Business Insider Intelligence. This growth is creating opportunities for entrepreneurs in all segments of the home-care business market.

To sustain this growing market, lenders are making an increasing variety of financing options available. No matter your business model, whether you run a senior day care business, a personal home care business or even a nonmedical home care business, many forms of financing are available, including:

• Conventional small business term loans
• Alternative online business loans
• Business lines of credit
• Business credit cards
• Health-care cash advances
• SBA loans

Conventional Small Business Term Loans

Conventional loans represent one of the best-known forms of financing, and they remain one of the major sources of funding for small businesses, including home care companies. As the name implies, a term loan advances you a set amount of cash which you must repay over a designated term period at a specified interest rate.

Terms can range from short-term loans of 2 years or less to long-term loans of 5 years or more. Interest rates vary by lender and based on factors such as your income, the length of time your company has been in business, your business and personal credit rating and your collateral.

These factors also help determine whether you qualify for a conventional loan. As a rule of thumb, your chances of qualifying increase with your income level, the number of years you have been in business, your credit score and the amount of collateral you are able to put up. Conventional lenders will usually want to see a business plan with financial statements demonstrating that you are generating enough income to repay your loan.

Alternative Business Loans

Alternative lenders include nonbank lenders such as mortgage lenders as well as online lenders. These lenders often aren’t subject to the same regulations as banks, allowing them more flexibility in extending loans to borrowers who might not qualify for a conventional loan. This can make them a resource for companies that struggle to qualify for bank loans.

Because alternative lenders take on additional risk by lending to borrowers who may have lower qualifications, their interest rates tend to be higher. The trade-off for this is that it isn’t as difficult to qualify for an alternative loan. The application process usually is simpler than a conventional loan, with less documentation required.

Alternative lenders are less likely to require you to provide a business plan and financial statements, often settling for recent bank statements demonstrating your income. However, some alternative lenders may have stricter requirements, especially if you’re trying to qualify for a loan with a lower interest rate.

Business Lines of Credit

Business lines of credit offer another funding option for home care businesses. A line of credit allows you to access funds up to a set credit limit, just as you would with a credit card. However, unlike a credit card, the money gets transferred to your business bank account, so you have the flexibility to write a check with it or withdraw it as cash.

You are charged interest on the amount of your credit line that you use and you must make minimum payments on a fixed schedule, such as monthly, weekly or, in some cases, daily. After you repay money into your account, you can spend it again, up to your limit. Credit limits for business lines of credit tend to be lower than the amounts lent through term loans. Interest rates tend to be higher, but lower than credit cards.

Qualifying criteria for business lines of credit typically include your company’s revenue level, how many years you’ve been in business and your credit rating. Most business lines of credit with low credit limits are unsecured, meaning they don’t require collateral. However, you may need to secure your line with collateral if you have a low credit rating or if you are seeking a credit line with a high limit.

Business Credit Cards

As with a line of credit, a business credit card works similar to a consumer credit card. You can spend funds up to a set credit limit. After you repay what you spend, you can spend it again, up to your limit. Unlike a line of credit, a business credit card only allows you to make purchases or take out cash withdrawals, and funds can’t be transferred directly into a bank account to write checks. Cash withdrawals cost extra fees.

Credit cards generally have lower limits and higher interest rates than lines of credit. They are best suited for smaller business expenses, such as monthly utility bills or business travel expenses.

You can apply for a business credit card if you own a business or are in the process of starting a business. When evaluating your application, providers consider qualifications such as your business and personal income, time in business and business and personal credit score. If you’re still in the start-up phase and haven’t yet established a business credit history, providers will place more weight on your personal income and credit score. If you’re a more established business, your business income and credit score carry more weight.

Health-Care Cash Advances

A health-care cash advance (HCA) is a special type of merchant cash advance designed exclusively for companies in the health-care business. With an HCA, your lender fronts you a cash advance based on the strength of what your company is owed from forthcoming insurance reimbursements and credit card receivables. You repay what you borrow, plus interest, through automatic payments to your lender. Interest rates tend to be high.

Because your reimbursements and receivables effectively serve as collateral, HCAs are easier to qualify for than other forms of financing. If you can document that you have unpaid reimbursements and receivables due, lenders may be willing to extend you an advance even if you have a low credit score.

SBA Loans

For businesses that don’t qualify for other types of financing, the SBA works with a network of approved lenders to make special low-interest loans available. Under the SBA’s loan programs, the SBA backs loans from lenders up to a certain percent of the amount borrowed, reducing the risk to the lender. In return, lenders agree to keep interest rates below a maximum set by the SBA.

SBA loans typically offer lower interest rates than other types of financing. To qualify, you must first have explored other financing resources, including using your personal finances, before seeking assistance. Providers will consider factors such as your income level, time in business and credit score. Lenders will typically expect you to provide financial statements and a business plan, and to put down a down payment as collateral.

How to Apply for Financing for Your Home Health Care Business

Exact procedures for applying for financing will vary by lender and the type of funding. That said, following these steps should expedite the process and improve your chances of approval.

1. Determine Your Funding Needs

To set your application process on a track for approval, start by reviewing your financial statements to determine how much money you need. This will help you decide which financing options are best for your needs.

Key financial statements that can help you evaluate your funding needs include:

• Profit-and-loss statements (income statements)
• Balance sheets
• Cash-flow statements

Some lenders will require you to provide these statements, especially for loans. However, even if your lender doesn’t require them, having them will help you make an accurate assessment of your company’s financial needs.

2. Write a Business Plan

If you’re applying for a loan, most conventional lenders will require you to submit a business plan. Even if your lender doesn’t require one, writing a business plan can help you flesh out how much funding you need as well as what you’re going to do with your loan and how you’re going to repay it.

The SBA recommends that a business plan should include:

• An executive summary of your overall plan
• A description of your company
• An analysis of your market
• A description of your company’s legal and operational structure
• An explanation of your main product or service lines
• A marketing and sales strategy
• A funding request
• Projections based on your financial statements

3. Research Lender Requirements

Once you know how much funding you need and have a financing plan, you can begin researching individual lenders. Many lenders have similar requirements to apply for funding, but details can vary from one lender to the next.

For instance, lenders may have different requirements for what minimum credit score you need to qualify for a loan. Lenders also may have different requirements on what type of paperwork you need to submit for documentation. Knowing a lender’s requirements before approaching them can improve your chances of qualifying for financing.

4. Optimize Your Credit

Most lenders consider your business and personal credit score when evaluating your application. You can improve your credit score by taking steps such as:

• Paying all bills on time
• Lowering your balances to no more than 30% of your credit limit, as recommended by Experian
• Taking out a small credit builder loan and repaying it on time
• Obtaining a business credit card, keeping your balance low and paying your bills on time
• Applying for a D-U-N-S Number from Dun & Bradstreet, which will help build a business credit score profile for your business

5. Assemble Your Documentation

Different lenders and types of loans have varying documentation requirements. For some types of online financing, you may only need to submit recent bank statements and verification of identification. For conventional loan and online financing solutions with stricter requirements, you may need to submit items such as financial statements, tax returns or accounts receivable invoices. Finding out what type of documentation you need before you begin the application process can save you time and stress.

6. Submit Your Application

After completing the above steps, you’re ready to submit your application. Different lenders have different application processes. As a rule of thumb, online loans with minimal qualification requirements have the simplest and fastest application process, while conventional and online loans with stricter requirements or for higher amounts may take longer. Research your provider’s application process carefully and follow their directions closely.