Starting an Assisted Living Facility in California: A Checklist

The number of Americans age 65-84 is expected to double from 2010 to 2030. Demand for senior care is increasing and so are the opportunities for business owners running assisted living facilities. There are currently approximately 7,500 assisted living facilities in California, and that number will rise along with the population of elderly.

An assisted living facility can be set up through a series of significant but manageable steps. These steps are applicable to opening your first residential care facility, but are also extremely relevant to expanding your existing business. If you are looking to expand your operations to a new location, the Small Business Administration (SBA) 504 loan program can be an important part of your financing process.

How to Start an Assisted Living Facility

An assisted living facility generally has at least 16 residents in order to be called such. Smaller facilities, which make up 80% of all facilities, are referred to as board and care facilities and may have as few as four beds. Together, they are referred to as residential care facilities. These facilities provide room, meals, housekeeping, supervision, storage and distribution of medication, and personal care assistance with basic activities like hygiene, dressing, eating, and bathing, according to the website of the California Advocates for Nursing Home Reform.

If you are looking to open a new assisted living facility or expand your current operations, here is a handy checklist on what you need to do.

1. Obtain appropriate training. In California, residential care administrators are required to have 80 hours of training and pass a 100-question exam. This training is available from community colleges and trade schools. In addition, administrators of facilities with 16-49 beds need 15 college credits, and administrators of larger facilities should have two years of college or three years of experience. Staff at residential care facilities have training requirements, too.
2. Identify your market. Residential care is a highly competitive industry. Thorough market research is necessary to judge local demand and market saturation. There are many professional groups in this field, such as the National Center for Assisted Living, and membership in them could provide you with valuable market information. Be aware of potential specialized markets in an area, such as members of a single ethnic or religious group.
3. Find a facility. Assisted living facilities are typically purchased rather than rented. If you are purchasing a new facility to expand your operations, you are probably eligible for a 504 loan, which could provide you with $5 million or more to put towards your project, funded through a local Certified Development Company (CDC). If you are just starting out, keep the 504 loan program in mind as your business grows.
4. Be prepared to provide service. Residential care facilities must be licensed and inspected by a state agency. They must also conform to local zoning laws and have liability insurance for the facility and vehicles associated with it. Memory care—specialized services for residents with cognitive impairment—can be provided after additional licensing and staff training. About a third of the people in residential care have some form of cognitive impairment, and their care usually costs 50% more than general care. Larger facilities often have a tiered model of service and pricing.

Finding the Best Financing

Banks are typically willing to finance assisted living facility purchases, but they may raise the down payment to as high as 40% because the facilities are considered single-use properties. Assisted living facilities are ideal for financing with a 504 loan, as the 504 loan can be used to:

• purchase land or commercial buildings
• construct buildings
• purchase equipment with a service life of ten years or more
• improve or renovate buildings

Thus, business owners can take advantage of the great loan terms to make improvements to their current facilities as well as to expand their operations. Owners who utilize the 504 loan can purchase a property with only 15% down and a long term, below market fixed interest rate.

How The 504 Loan Can Help Expand Your Assisted Living Facility

The 504 loan is administered by a CDC, such as TMC Financing, and loans are granted in conjunction with a conventional lender. The conventional lender provides 50% or more of the project total and receives the first lien position. The CDC facilitates the SBA loan for up to 40%, or $5 million ($5.5 million if the project includes energy-efficiency measures), at a fixed, below-market rate over a 10- or 20-year term with no balloon payment. The borrower provides 15% of the project cost as a down payment—this is the SBA’s down payment rate for single-use properties.