As health care consumer preference drives more skilled nursing operators to invest in private rooms and suites equipped with modern amenities, U.S. Department of Agriculture loans may be an option for operators in need of financial support for renovation and construction projects.
Through the USDA’s Community Facilities Direct Loan & Grant program, the agency provides affordable funding in the form of low interest direct loans and grants to rural non-profit community facilities, such as nursing homes.
Rural areas eligible for the program have no more than 20,000 residents. The funds can be used to purchase, construct and improve facilities, purchase equipment and more.
The loans have been used in the past for funding in projects that include a hospital in Nebraska, a nursing home in southeast Illinois and a nursing education facility in southwest Missouri, but some see it as a tool not yet utilized enough in the skilled nursing space.
The program proved essential for Lakeview Methodist Health Services in completing a brand new 72-bed skilled nursing facility in Fairmont, Minn. after the previous facility had become old and outdated.
“We are a rural community of less than 20,000 so because of that we were able to apply to the USDA for funding,” Lakeview Executive Director Deb Barnes told Skilled Nursing News. “It was a major process. The application is pages long and the requirements are very in-depth and very detailed.”
She expected an interest rate between 2 and 3% for the loan, which according to VIUM Capital Executive Managing Director Steve Kennedy, is pretty typical.
“Right now the fixed interest rate is around 2.25% for up to 40 years, so it’s great capital if you can get it for your non-profit,” Kennedy told SNN. “You can’t beat it.”
Kennedy added, however, that the funding tended not to be too “prolific” and differed widely from state-to-state.
“Each state has a USDA director, and then within each state, there’s different local offices and you basically work with the local office in the area where your projects are being funded,” he said. “It can vary quite a bit based on the experience of the local office, just something for borrowers and operators to be aware of.”
With its mission to be the bank for small businesses, Live Oak Bank is extremely active in the USDA lending space, though Joey Pardo, vice president of community facilities and USDA lending for Live Oak, admitted the bank hasn’t explored SNF USDA lending to this point.
“[I think it could be] a great platform for skilled nursing as many conventional lenders do not want to lend in the rural space, but this could be an opportunity for those looking to put capital into an existing building or acquire a new building as way to help operators in rural markets modernize,” he said.
Pardo sees USDA lending in the skilled nursing space as a “relatively untapped market”, though he admitted it can be a “relatively hands on program.”
With regional consolidation occurring across the skilled nursing market as some mom-and-pop providers see escalating SNF prices as the perfect time to get out given the challenges the industry currently faces, USDA loans might be one way to keep more of those operators around.
“It could be a lifeline to some of those independent operators,” Chad Borst, senior loan officer and vice president for seniors housing for Live Oak, said. “A lender with the government guarantee and the programs that USDA offers would enable us to lend to a mom-and-pop or less sophisticated operator.”
Companies featured in this article:
Lakeview Methodist Health Care Services, Live Oak Bank, VIUM Capital
