Best Business Loans for Home Healthcare Company
Home healthcare companies find themselves ideally positioned to grow and increase their revenues. Many elderly and others in need of care have been reluctant to visit hospitals and clinics during the COVID-19 pandemic, driving increased demand. Many believe that the aging of the Baby Boomer generation – with 8,000 to 10,000 Baby Boomers reaching retirement age daily – will also drive continued growth.
In 2020, the U.S. home care services industry had revenue of $96.9 billion. Providers see 15 million patients annually, driving more than 5 billion miles a year. It’s a fragmented market, with over 35,000 companies and no major players with market share above 5%. This makes it an easy and profitable business to break into.
Existing home healthcare companies who plan for growth now will be positioned to meet increased demand.
Questions to Ask Before Applying for a Business Loan for a Home Healthcare Company
Are you already a business owner?
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.
Why do you need capital? How much do you need to borrow?
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.
What can you afford to borrow?
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.
Will the project generate a profit?
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.
Establish the funding timeframe
How long do you plan on using the loan’s funds? Do you just need a few months of working capital while you wait on Medicare reimbursements? Or are you funding a larger acquisition?
For any investment, apply a matching principle. The loan’s repayment term should match the project’s timeline, and the loan should be paid off near when the project is done.
It’s important to know the projected timeline for your project before you apply for a loan because lenders offer loans with varying repayment periods. Traditional lenders prefer to lend for several years – unsuited for a short-term need. Alternative lenders who offer working capital loans could let you borrow for just a few months.
Knowing how long of a repayment term you want will also help you pick a lender.
What is your business and credit history?
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.
Best Business Loans for Home Healthcare Companies
Businesses require capital, and occasionally require borrowed capital to keep operating normally or grow. Each of these loans could support your business at a different stage in its lifecycle.
Working Capital Loans
Working capital is the capital used to cover daily expenses such as rent or payroll. These funds keep the lights on, the phone ringing, and the doors open. Home healthcare companies that accept insurance or Medicare or Medicaid might have to wait months for payment and, in the meantime, could struggle to pay these bills.
Working capital loans helps manage cash flow when you’re waiting to be paid for past work but still have bills coming due.
Typical terms for working capital loans are 12 to 26 months. You could use a working capital loan to pay your first year’s expenses. Shield Funding requires a minimum credit score of 650 and minimum monthly revenues of $10,000 to qualify. Your interest rate will range from 9% to 45% depending on your creditworthiness.
Same Day Business Loans
If you have a substantial unexpected expense or need to fund a smaller project, a same day business loan could meet your needs. It could fund an investment in new technology, a bulk purchase of inventory to take advantage of a discount, or pay for a big advertising push.
Alternative lenders offer same day business loans at interest rates of 9% to 45%, which could be cheaper than a business credit card. Borrowers with good credit will get the best rates. Terms range from just six to twenty-four months.
Shield Funding requires that you have a year in business to qualify and a credit score of at least 650. Your home healthcare business must have minimum monthly revenues that exceed $10,000. You can borrow as little as $15,000, up to $750,000, and there are no prepayment penalties.
Bad Credit Business Loans
If you have a credit score below 720 at some banks, 650 at others, you won’t be able to qualify for funding. Sometimes even borrowers with great credit scores prefer working with alternative lenders and avoiding the hassle of paperwork and longer application and approval processes at traditional lenders. Whether it’s because you have bad credit, or because you prefer an easier borrowing experience, look into bad credit business loans offered by alternative lenders.
Alternative lenders can approve loan applications within 24 hours and disburse funds in as little as a week. With monthly revenues above $8,000 and a credit score of 500, you can qualify for financing for a term of two to eighteen months.. Shield Funding gives borrowers loans in amounts ranging from $5,000 to $1 million, at rates of 12% to 45%, with the better rates available to borrowers with higher scores.
If it’s time for you to borrow to support your home healthcare business’ goals, reach out to Shield Funding today. We help small business owners realize their goals by meeting their capital needs.