New SBA Provisions Propel Increased Acquisition, Financing Activity In Assisted Living

As pandemic-related financial distress hit the senior living industry last year, smaller providers were particularly vulnerable. But some smaller assisted living owners and operators managed to weather 2020, and now are taking advantage of market dislocation and new provisions in Small Business Administration (SBA) lending to expand and refinance.

“We started to see a lot more of that [activity] coming into the end of the year, and it’s continued at the beginning of this year,” Hetal Engineer, director and SBA sales manager at The Bancorp, told Senior Housing News.

With $6.2 billion in total assets, The Bancorp is an SBA National Preferred Lender. The bank does significant SBA lending in the assisted living space, Engineer told SHN. The Bancorp’s clients in the sector typically own and operate assisted living facilities (ALFs) between 20 and 50 beds, he said, although some are closer to 100 beds and some own small residential care homes.

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Last year, The Bancorp helped many of its assisted living clients with obtaining Paycheck Protection Program (PPP) loans, as well as economic injury disaster (EIDL) loans through the SBA. In addition, SBA was granting up to six months of debt relief on principal and interest payments for some borrowers.

These sources of financial assistance were critical, but some clients also managed to keep occupancy stable during the pandemic, and now that communities are able to re-open to visitation and increase marketing activities, they are even building waitlists, according to Engineer.

Given that the pandemic has prompted some owners to exit the industry or shrink their portfolios, there are now chances for smaller providers to expand if they desire.

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“What we’ve seen from our client base is … an uptick in opportunities for them to acquire another ALF,” Engineer said.

And, The Bancorp is seeing increased activity not only in acquisition financing but in various other product types. That includes consolidating other loans into SBA loans; loans for an owner to buy out a partner; and financing for entrepreneurs starting up an assisted living business.

Now is a good time to pursue such financing because — through Sept. 2021 — the SBA has waived borrowers’ guarantee fees and is covering three months of principal and interest payments. In addition, the SBA is guaranteeing a larger proportion of loans, so banks can lend more readily.

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Perhaps not surprisingly, given these provisions, The Bancorp is seeing and hearing of increased activity among its competitive set of SBA lenders, Engineer said.

While conditions are favorable for small business lending, The Bancorp is carefully weighing each particular case, given that the pandemic is still creating near-term pressures and uncertainty in the senior living sector.

For example, when considering a startup, the bank is more likely to look for excess post-closing liquidity, Engineer said. And, the SBA Covid-19 questionnaire for potential borrowers is “very, very detailed.”

Still, Engineer would not say there has been a material change in how the bank underwrites, and he notes that The Bancorp’s assisted living clients are pursuing transactions of various kinds across the country, including in Arizona, the Midwest and Florida.

“Many borrowers understand they’re taking advantage of great programs out there and a lower interest rate environment,” he said. “They look at it as a good time to move forward on their plans.”

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