New ASB Provisions Drive Increase in Assisted Living Acquisitions and Fundraising
As financial distress from the pandemic hit the retirement home industry last year, small vendors were particularly vulnerable. But some small assisted living owners and operators have managed to survive 2020 and are now taking advantage of market dislocation and new Small Business Administration (SBA) loan arrangements to grow and refinance.
“We started to see a lot more [activity] at the end of the year, and that continued into the beginning of this year, ”Hetal Engineer, SBA director and sales manager at The Bancorp, told Senior Housing News.
With $ 6.2 billion in total assets, The Bancorp is a national preferred lender to the SBA. The bank is making large SBA loans in the assisted living space, the engineer told SHN. Bancorp’s clients in the industry typically own and operate Assisted Living Centers (ALFs) between 20 and 50 beds, he said, although some are closer to 100 beds and some own small retirement homes.
Last year, The Bancorp helped many of its clients live with assistance in obtaining Paycheck Protection Program (PPP) loans, as well as Economic Disaster Loans (EIDL) through the SBA. In addition, the SBA provided up to six months of debt relief on the principal and interest of certain borrowers.
These sources of financial support were essential, but some clients have also been successful in maintaining a stable occupancy rate during the pandemic, and now that communities are able to reopen themselves to visits and increase their marketing activities, they even create waiting lists, according to the engineer.
Since the pandemic has prompted some owners to quit the industry or downsize their portfolios, there are now chances for small vendors to expand if they choose.
“What we’ve seen from our customer base is… an increase in the opportunities for them to acquire another ALF,” said Engineer.
And, The Bancorp is seeing increased activity not only in acquisition finance, but in various other types of products. This includes consolidating other loans into SBA loans; loans to an owner to buy out a partner; and the financing of entrepreneurs who start an assisted-living business.
Now is the time to seek such financing because, until September 2021, the SBA waived the borrower guarantee fees and covered three months of principal and interest repayment. In addition, the SBA guarantees a greater proportion of loans, so that banks can lend more easily.
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It is perhaps not surprising, given these arrangements, that Bancorp sees and hears increased activity among its competitive set of SBA lenders, Engineer said.
While conditions are favorable for loans to small businesses, The Bancorp is carefully assessing each individual case, as the pandemic continues to create short-term pressures and uncertainty in the senior living sector.
For example, when considering a start-up, the bank is more likely to seek excess liquidity after closing, Engineer said. And the SBA Covid-19 questionnaire intended for potential borrowers is “very, very detailed”.
Still, the engineer wouldn’t say there has been a significant change in the way the bank underwrites, and he notes that The Bancorp’s assisted living clients are pursuing transactions of various types across the country, including Arizona, the Midwest, and Florida.
“Many borrowers understand that they are taking advantage of the great programs available and a lower interest rate environment,” he said. “They see it as the right time to move forward with their plans.”