Care operators - is your lender ready, steady to lend?

As the usual summer recess comes to an end, professionals across various industries are returning to work, feeling refreshed and energised. With a renewed sense of purpose, many are eager to progress deals and transactions that have been put on hold due to a cautious market sentiment influenced by interest rate hikes over the past year. The subdued market confidence that prevailed during this period is now surely being replaced by a growing determination to complete or initiate these projects, as individuals and businesses adjust to the new norm of the cost of debt and strive to make up for lost time and capitalise on new opportunities. 

Monica Macheng (Head of Corporate Healthcare), asks Derek Breingan (Head of Health and Social Care, Virgin Money), Dan Hewitt and Stephen Wilson (Healthcare Directors, Cynergy Bank) how can care home operators ensure they are engaging with the right sector lenders to support with their funding needs.

Q: How can care home operators assess a lender’s understanding of the care home industry?

A: Care home operators can assess a lender’s understanding of the care home industry through various means. Operators can engage in detailed discussions with potential lenders to gauge their knowledge of industry-specific challenges, regulations, and trends. They can also ask for case studies or references from previous care home projects the lender has financed to assess their level of expertise and familiarity with the sector.

Derek Breingan: We believe this is a partnership and our customers and prospects should be able to ask us for our credentials just as we would them.  We have numerous customer testimonials and reference points which can be provided.  Crucially the team at Virgin Money is dedicated to working in the sector, nothing else.

Dan Hewitt: Cynergy Bank are experts at lending to the care sector, with over 50 years of collective healthcare finance experience within our team. Whilst our expertise can be evidenced through various sources such as deal summaries for previous transactions, references from other operators and professionals in the sector etc., we believe this is also demonstrated though the customer experience. The questions we ask, the solutions we propose and the bespoke facility structures we are able to put in place for every deal – all demonstrate our deep understanding of both the challenges and opportunities in the sector.

Q: Are there any specific financing solutions that care home operators should look for in a lender?

A: Care home operators should look for lenders who can provide a range of financing solutions tailored to the unique needs of care homes. This may include options such as development loans for new care home developments, acquisition financing for purchasing existing care homes, refinancing solutions to optimise existing debt, and working capital loans to support day-to-day operations. Care home operators should seek lenders who can offer flexibility in structuring these financing solutions to meet their specific requirements.

Derek Breingan: At Virgin Money we know that one size does not fit all.  Flexibility, creative thinking and structuring and sensible rationale are key.  In the disruptive economy we now live in we need to be fluid in order to continue to lend.

Stephen Wilson: For example, we fund freehold care home assets across all stages of their lifecycle (development, turnkey, fill-up and maturity), including through acquisition funding.  We structure facilities around the expectations and strategic plans of our customers to ensure the solutions we provide are fit for purpose and specific to the customer in question.  Due to our flexible and broad offering, we can support a wide range care home customers in terms of size and complexity.

Q: How important is the lender’s reputation and relationship management in the care home financing process?

A: The lender’s reputation and relationship management in the process plays a significant part. A lender with a strong reputation in the industry is more likely to have established relationships with key stakeholders, such as regulators and industry professionals, which can facilitate the financing process. Additionally, a lender with a reputation for excellent relationship management can provide ongoing support and guidance throughout the life of the loan, fostering a positive and collaborative partnership with care home operators.

Dan Hewitt: This is the approach we employ at Cynergy Bank, with Healthcare Directors managing customer relationships throughout their entire lifecycle. In addition, should customers require development finance we would bring in a member of the Development Finance Team to provide additional expertise until practical completion of the works.  Through this flexible provision of skilled sector and development expertise, we can help customers capitalise on growth opportunities in this critical sector- especially during a time when there is increasing demand despite a declining supply of adequate facilities.

Derek Breingan: As stated previously this is a partnership.  Care homes are by nature active and ever-changing businesses, so it is important that the lender is conscious of the current market for all its positives and of course where there are potential trip wires.  A customer should take confidence from an engaged lender that they are a key component of a successful business.

Q: What role does the lender’s financial stability play in the selection process?

A: The lender’s financial stability is an important consideration in the selection process. Care home operators should assess the lender’s financial strength and stability to ensure they have the capacity to provide the necessary funding and support over the long term. A financially stable lender is more likely to weather economic fluctuations and be a reliable partner for care home operators throughout the duration of the loan.

Derek Breingan: Some customers will seek to check credit market standings of lenders.  As 6^th largest high street bank in the UK Virgin Money is subject to heavy regulation and surveillance to ensure ongoing that it has the stability and capital required to meet its objectives.  As a FTSE 250 company the annual and quarterly reports are publicly available also.   We have consistently lent to the sector for over 10 years unlike some other institutions.

Stephen Wilson: As a regulated UK bank with a diverse deposit book, Cynergy Bank has a solid balance sheet and strong credit appetite to lend – and our customers benefit from a continuous and supportive experience throughout their business’ lifecycle.

Q: How can care home operators balance the need for competitive interest rates with other factors when selecting a lender?

A: Care home operators should consider interest rates as one factor among many when selecting a lender. While competitive interest rates are important, care home operators should also prioritise factors such as the lender’s experience, expertise, flexibility, and reputation. It is crucial to strike a balance between securing favourable interest rates and ensuring that the lender can provide the necessary support and tailored financing solutions for the care home project’s success.

Dan Hewitt: We don’t take a one-size-fits-all approach when it comes to the facilities we offer. Arrangements fees and interest rates are just one of the numerous key terms of the facilities we provide. We aim to offer exceptional value to customers through a combination of our sector-focused approach, bespoke facility structuring and flexible loan repayment profiles. This way, we are able to support customers in focusing on re-investment and growth, which in turn creates additional profit and capital value - all at a fair and reasonable price.

Derek Breingan: Interest rates should be a reflection of risk of a transaction.  The higher the perceived risk then the more likely that the lender will charge a premium for taking the share of that risk, in some cases quite significantly compared to the borrower stake.  It is therefore a balance of what is sustainable and what amount of debt can be managed by any business allowing for downsides in trading, rising costs etc.

Q: What role does the lender’s responsiveness and efficiency play in the care home financing process?

A: The lender’s responsiveness and efficiency in the care home financing process is really important. Operators should seek lenders who are proactive, communicative, and able to provide timely responses to inquiries and requests. Efficient processes, from application to funding, can help care home operators meet their financing needs promptly and ensure a smooth and streamlined experience.

Derek Breingan: At Virgin Money we have continued to listen to our customers and advisors and change processes to improve efficiency and service as we have grown.  We have also recruited more colleagues to ensure that the customer relationships are not diluted or stretched.  This allows us to be more nimble and responsive and customers feel they are important to us no matter the size.  We will be one of the, if not the, largest dedicated healthcare lender team in the country currently.

As a sector specialist team within a collaborative organisation that is resourced for further growth, we are able to progress lending requests quickly - thus providing swift and informative feedback alongside detailed credit backed decisions.  Likewise, transactions can progress equally efficiently post-approval with the assistance of both trusted external lawyers, such as Hill Dickinson, and our internal Transaction Execution Team.  Our customers also benefit from having dedicated Healthcare Directors to manage both the financing process and customer relationship thereafter to ensure a seamless and enjoyable journey.

Q: How can care home operators leverage industry networks and advisors to assist in the lender selection process?

A: Operators can leverage their industry networks and seek advice from trusted advisors to assist in the lender selection process. Engaging with industry associations, attending conferences or events, and networking with peers can provide valuable insights and recommendations on reputable lenders in the care home sector. Additionally, seeking guidance from financial advisors or consultants with expertise in the care home industry can help care home operators navigate the selection process and make informed decisions.

Derek Breingan: We value advisors such as yourself who have that care home and wider health & social care experience when working with us or our borrowers. We and our borrowers’ put a huge amount of value on trusted advisors like yourselves to assist in the lender selection process but also in our ongoing relationship with the borrowers and vice versa.

Stephen Wilson: We would agree with that as that is very much our experience.

Q: What are the potential risks of choosing the wrong lender for care home financing?

A: Choosing the wrong lender for care home financing can pose several risks. These may include inadequate understanding of the care home industry, limited expertise in structuring financing solutions for care homes, inflexible loan terms that do not align with the unique needs of care home operators, and potential delays or complications in the financing process. Care home operators may also face challenges in obtaining ongoing support and guidance from a lender who lacks industry knowledge and experience.

Dan Hewitt: The healthcare team at Cynergy Bank understands both the challenges and opportunities within the care sector and crucially, we are invested in supporting good quality developers and operators with their future financing, growth and investment plans across all stages of their lifecycle. Our collective experience means that we are well-equipped to help customers navigate any complexities along the way.

Cynergy Bank truly believes in the importance of the care sector and understands the role it plays in everyone’s life – whether it’s now or in the future. We are committed to supporting customers in this sector to deliver the best possible outcomes, and that is what drives our approach to finding solutions and win-win outcomes for everyone.

Derek Breingan: At Virgin Money our award-winning track record speaks for itself.  We have a wealth of experience, numerous testimonials from customers, and a growing portfolio of care home loans.  We believe that gives a high level of confidence to customers and prospects.

Hill Dickinson LLP act for Borrowers and Lenders with multi-disciplinary team of Banking, Corporate, Real Estate and Regulatory lawyers.

For further information and support, please get in touch with Monica Macheng.