Going-concern and operator finance

Who can borrow and what lenders look for

Going-concern finance is for genuine operators, so lenders underwrite the business as much as the property. They want trading accounts that show a sustainable EBITDARM, stable or rising occupancy, a sensible split between private and local-authority fees, controlled staff and agency costs, and a Good or Outstanding CQC rating. They look at length of stay, the local market and the quality of the management team, because a home is only as strong as the people running it. A first-time operator can still access this framework where an experienced registered manager is in place and the projections are credible, though the multiple and leverage will be more conservative until a trading record builds. We normalise the accounts to present a defensible EBITDARM, explain any historic variance, and put the operating strength of the business in front of the lenders that lend on it.

How much you can borrow

Operator finance is sized in two linked steps. First, the lender sets a going-concern value by applying a multiple to a sustainable EBITDARM, so the stronger and more stable the trading profit, the higher the value. Second, they lend up to around 70 percent of that going-concern value, and they size the loan so that EBITDARM covers the debt service comfortably, often at around 1.4 to 1.5 times. Because both steps key off EBITDARM, improving the trading profit lifts both the value and the affordable loan, which is why a home running at high occupancy with a strong private-fee mix borrows materially more than a similar building trading weakly. With sector EBITDARM margins around 30.1 percent of income, per Knight Frank for FY2024/25, a well-run home generates real borrowing capacity. We model the sustainable EBITDARM and the resulting loan before approaching lenders, so the figure is grounded in the business.

Rates and costs

Operator finance is priced as a commercial mortgage, indicatively from around 7 to 9 percent, set by the strength of the trading, the CQC rating, the leverage and the term, and quoted as a fixed rate or a margin over base or SONIA. The stronger the EBITDARM and the more stable the occupancy, the keener the pricing, because the loan is better covered. Expect a lender arrangement fee of around 1 to 2 percent, a specialist going-concern valuation, which costs more than a bricks-and-mortar valuation because it assesses the business, legal fees, and sometimes an annual trading review on larger facilities. We disclose our broker fee in writing, compare the total cost across the lenders that underwrite on EBITDARM, and never claim an exclusive tie to any lender, so the deal is chosen on its merits.

Operator finance, a bricks-and-mortar loan or a lease

Going-concern operator finance is the right framework when you run the home and the value of the business exceeds the value of the building. A plain bricks-and-mortar commercial mortgage, sized only on property value, would lend less and miss the trading strength, so it suits an investor buying to let rather than an operator. If you would rather release the property value entirely and run the home under a lease, a sale and leaseback splits the operating company from the property company and is the alternative to holding the freehold with operator debt. Most operators use going-concern finance because it rewards the business they have built; we will model it against a lease structure where releasing capital is the priority, so you can see both routes.