Best Business Loans for Home Healthcare Company

Existing business owners with a proven track record of success will find it easier to get funding. Lenders analyze previous year’s income and expenses to predict future revenues and potential growth. Both of these influence your ability to repay a loan.

A business’ financial history is an important part of your loan application. Traditional lenders will want to see previous year’s tax filings, financial statements, and bank and investment account statements. They could also request details on any collateral, such as medical equipment or vans that you could pledge as collateral.

Profitable business owners can borrow with traditional lenders, but even unprofitable businesses have options. If you have enough cash receipts and a business plan that outlines a  path to profitability, alternative lenders will work with you. They also require less paperwork and can approve a loan faster.

Small business owners starting a new business have different funding needs. You’ll need to obtain medicare and medicaid certifications, find and train staff, and apply for any necessary state and local licenses. The estimated start-up costs for a home healthcare agency range from $40,000 for a private pay home care agency to $350,000 for a medicare certified agency.

The stage you’re at in the business cycle helps guide you to the right lenders.

Are you starting up, and need a large amount of working capital to support your first few months in business? Or have you been in business a few years but are planning an expansion to a new area, or adding additional services? Before applying for a loan, have a clear business plan in place. 

Lenders offer multiple loan products designed to meet different borrowing needs. Each loan has an interest rate, repayment schedule, and term designed to fit your borrowing reason. Knowing why you need capital directs you to the best lender for your situation. 

Lenders also offer loans in varying amounts, from $8,000 to 1 million. Traditional lenders prefer to lend larger amounts – it costs the same to underwrite and fund as a smaller loan, but they make more money off a larger loan. Alternative lenders fund smaller amounts for a shorter time frame. 

Getting clear on why you need to access capital and how much you need to borrow will help you decide which loan fits your needs best. 

Can your business’s cash flows pay your monthly loan payment and other fixed expenses, like rent for an office or a car payment? Add up your fixed expenses and calculate the amount of money left in your budget. If your cash flows wouldn’t cover a loan payment, reconsider borrowing (or borrow less).

A loan payment is made up of a portion of the amount borrowed plus interest. Lenders spread capital plus interest over the repayment term. Since borrowing less lowers the amount you have to repay, it also lowers your monthly payments. To estimate your loan payment, use an online calculator or ask your lender for an estimated amount to help you prepare a budget. 

When looking at your budget, include the estimated loan payments. Responsible small business owners will want to ensure that their cash flows cover the payments and leave them breathing room. 

The difference between the costs of a home visit and what you charge your client – or receive in Medicare or Medicaid reimbursement – is your profit margin. Know your margins, set goals and minimums for them, and turn down work that does not meet those criteria. Any larger project or capital investment – such as investing in medical equipment or vehicles – should also generate a profit. 

If you’re evaluating a potential acquisition – for example, if the owner of another home healthcare business wants to retire and has offered you the opportunity to purchase their business – take a hard look at their numbers. Would the increased sales and profit be higher than the cost of the loan to buy them out? 

Any project or acquisition that you plan on borrowing to fund should turn a profit, and have a return on investment greater than the cost to borrow. Otherwise, you’re losing money.   

Before applying for a loan, small business owners should request a free copy of their credit report and check their credit score. With a score below 650, it’ll be harder to borrow from traditional lenders. To save yourself time, approach alternative lenders, instead.

Your credit score is an important part of the loan application process. Lenders view it as an indicator of your creditworthiness. Small business owners with a lower score present more risk, and will pay a higher interest rate to borrow. 

That’s because most lenders compensate for risk by charging more for the loan. They could also include prepayment penalties to lock in their profit. If you know your credit score, you can make an educated guess of how much you’ll pay to borrow. 

Once you’ve thought about the top considerations for a business loan, it will be easier to identify the loan type that will best meet your needs.