As health care consumer preference drives more skilled nursing operators to invest in private rooms and suites equipped with modern amenities, US 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 financing in the form of low-interest direct loans and grants to rural nonprofit community facilities, such as retirement homes.
Rural areas eligible for the program have no more than 20,000 inhabitants. Funds can be used to purchase, build and upgrade facilities, purchase equipment and more.
Loans have been used in the past to fund projects that include a hospital in Nebraska, a nurse in southeastern Illinois and a nursing education institution in southwestern Missouri, but some see it as a tool not yet widely used 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, Minnesota after the previous facility had grown old and obsolete.
“We are a rural community of less than 20,000 people, which is why we were able to apply for USDA funding,” Deb Barnes, Lakeview’s chief executive, told Skilled Nursing News. “It was a major process. The application is multi-page and the requirements are very thorough and very detailed.”
She expected an interest rate of between 2 and 3% for the loan, which VIUM Capital Executive Managing Director Steve Kennedy said is fairly typical.
“Right now the fixed interest rate is around 2.25% for up to 40 years, so that’s great capital if you can get it for your nonprofit,” Kennedy told SNN. . “You can’t beat him.”
Kennedy added, however, that funding tended not to be too “prolific” and differed widely from state to state.
“Each state has a USDA director, and then in each state there are different local offices and you basically work with the local office in the area where your projects are funded,” he said. “This can vary widely depending on local office experience, just something borrowers and operators should be aware of.”
With its mission to be the bank for small businesses, Live Oak Bank is extremely active in the USDA lending space, although Joey Pardo, Vice President of Community Facilities and USDA Lending for Live Oak , admitted that the bank had not explored SNF USDA loans to this point.
“[I think it could be] a great platform for skilled nursing as many conventional lenders are unwilling to lend in the rural space, but this could be an opportunity for those looking to invest in an existing building or acquire a new building in order to ‘help rural market operators to modernize,’ he said.
Pardo considers USDA loans in the area of skilled nursing a “relatively untapped market,” although he admitted it can be a “relatively convenient program.”
With the regional consolidation occurring in the skilled nursing market, as some family providers see rising NFC prices as the perfect time to exit given the challenges the industry is currently facing, loans from l ‘USDA could be a way to keep more of these traders around.
“That could be a lifeline for some of these independent operators,” said Chad Borst, senior loan officer and senior housing vice president at Live Oak. “A lender with the government guarantee and the programs offered by the USDA would allow us to lend to a family or less sophisticated operator.”