Care homes: Why strong risk management and bank funding go hand in hand

When it comes to securing bank funding, businesses not only have to demonstrate loan security, but also the ability to service the loan over the long term.

With those in the healthcare sector facing much tighter regulation and, one could argue, a more immediate threat of failure than many other sectors, it has never been more important to reduce regulatory risk to secure the long-term viability of the business.

In other words, regulators want to see a safe, effective, caring, responsive, well-led and financially strong business, and so do the banks.

When taking a view on financing a care home business, banks will consider a number of key success factors. These include:

• Strong management team (recognising and managing risk)
• Strong CQC inspection reports
• Good staff recruitment and retention policies
• Evidence of investment and re-investment in the business
• Good relationships with local authorities
• A niche offering, flexibility or diversification (e.g. operating in emerging markets)
• Size of the business
• Quality of premises (e.g. purpose built)

In terms of financial management, banks want to see care home owners that have a sound understanding of such matters as occupancy (their breakeven point), average weekly fees, average length of stay, staff costs as a percentage of turnover, maintenance capex per bed and EBITDA per bed.

Put simply, businesses that can evidence this stand a much greater chance of securing funding, but also vastly reduced regulatory risk.

To achieve this, care home businesses need to ensure they put in place strong risk management procedures, both operationally and financially in line with CQC guidelines, but also in the wider business sense, such as from a health and safety and employment law point of view.

As always, we recommend working closely with your professional advisers to ensure financial, legal and health and safety risks are all being managed effectively.

By David Edwards, associate at Harrison Drury, and Michael Garbutt, senior relationship manager for the healthcare team at RBS Corporate Banking.

• For more information on reducing regulatory risk in the healthcare sector, please contact David Edwards on 01772 258321.
• For more information on banking in the healthcare sector, please contact Michael Garbutt on 01772 258311.