How do you finance the purchase of an assisted living facility?

Two assets, one set of cash flows

An assisted living facility earns a monthly fee from each resident: a base charge for the room, meals and housekeeping, and a care charge that rises with the help the resident needs, from medication management to bathing and dressing. Most residents pay privately, from savings, family support or long-term care insurance. In many states a Medicaid waiver program pays for the care of some residents, at a rate the state sets. The facility's margin comes down to two numbers: how many beds are filled, and what it costs to staff them.

The building is only worth what that operation earns. A purpose-built facility has few other uses, so if the license lapses or the census falls, the real estate falls with it. That is why a lender does not underwrite the property and the business as separate credits even when they are bought by separate entities. Many buyers hold the real estate in one company and run the facility in another; SBA can finance that arrangement through an eligible passive company that owns the building and leases it to the operator, and conventional lenders see it as a propco-opco structure. SBA treats a facility that delivers care and services, not just housing, as an operating business rather than a landlord, which is what makes it eligible. The SBA lending data for assisted living facilities shows how active SBA lenders are in the sector and how its acquisition loans compare with the rest of the program.

What lenders read in the operating numbers

Annual totals hide most of what matters in this business. Lenders ask for monthly figures, because occupancy moves resident by resident and a facility can lose a meaningful share of its census in one bad season.

Coverage is then measured on the earnings that result. Suppose a facility's earnings available for debt service are 1,380 and the proposed payments on all its debt are 1,200. Coverage is 1.15x: enough to meet SBA's minimum before 1 October 2026, but not the 1.25x on historical results that SOP 50 10 8.1 requires for a change of ownership from 1 October 2026, and not what conventional banks commonly look for. The loan would have to shrink, or the equity grow, until historical earnings cover the payments by that margin.

A facility bought because it is half empty is a turnaround, and turnarounds are financed on history, not on the lease-up plan. SBA's historical coverage test from 1 October 2026 makes that explicit.

Buyers of under-occupied facilities usually need more equity, a larger seller note, or a lender that finances value-add real estate on a shorter bridge before moving to permanent debt. See financing an acquisition with declining earnings.

The license does not come with the keys

States license assisted living facilities to a specific operator at a specific location, and in most states the license does not simply pass to a buyer. A change of ownership usually needs a new license application or the state's prior approval, often with background checks on the new owners and a named, qualified administrator. How long that takes, and whether the state inspects before approving, varies widely. A lender will not fund the purchase of a facility the buyer cannot legally operate, so the licensing approval becomes a condition of closing.

The handover itself is usually governed by an operations transfer agreement, separate from the purchase agreement. It covers who employs the staff on the transfer date, how resident agreements, deposits and any resident trust funds move, which vendor and pharmacy contracts are assumed, how records are handed over, and, where the license is still pending at closing, whether the seller keeps operating under an interim arrangement. Lenders read that document as closely as the purchase agreement, and change-of-control consents for Medicaid waiver agreements and key contracts belong on the same list.

The state's inspection record matters just as much. Lenders ask for recent survey reports, any deficiencies and plans of correction, complaint investigations, and whether the license carries conditions or sanctions. A pattern of repeat deficiencies in medication handling or staffing is read as a risk to the license itself, which is the one asset every other asset depends on.

The building

Where the real estate is part of the purchase, the lender orders an appraisal of the property, and usually wants it split between the real estate, the furniture and equipment, and the value of the going business. That split drives two things. It sets how much of the loan can run on the longer real estate term. And it determines whether SBA's valuation rule applies: where the amount financed, less appraised real estate and equipment, exceeds $250,000, SBA requires an independent business valuation from a qualified appraiser, and the loan for the purchase cannot exceed it. See SBA's business valuation requirement.

Lenders also look at what the building will cost to keep. Life-safety systems, sprinklers and fire alarms, accessibility, roof and mechanical systems, and the state of resident rooms all feed a capital expenditure estimate that comes off the earnings before coverage is tested. An older facility with deferred maintenance supports less debt than its income statement suggests. Where the operator leases the building instead of buying it, the lease becomes the collateral question: it must be assignable, and its remaining term should outlast the loan.

SBA 7(a), SBA 504 or conventional

SBA's size limit binds quickly here. A facility bought with its building can cost more than a 7(a) loan can carry, which is why 504 and 7(a) are often used together, and why larger deals go conventional. The trade-offs are set out in SBA 7(a) vs 504 and buying a business with its real estate.

Three more SBA rules shape these deals. From 1 October 2026, a change-of-ownership loan amortizes over no more than 10 years except the real estate share, so the business portion carries a heavier payment than the building. A quality of earnings report is required on acquisitions of $3 million or more excluding real estate, and financial due diligence on every change of ownership. And the seller, often the operator and sometimes the licensed administrator, may not stay on as an owner, officer or employee after a complete change of ownership; the seller may consult for up to 12 months, or up to 24 months from 1 October 2026. A seller note can count toward the equity only on full standby for the life of the loan; see seller notes and SBA's full-standby rule.

The risks lenders price, and what answers them

• Staffing. Care staff are hard to hire and keep, and agency staff cost more. A buyer who can show the administrator and lead nurse are staying, and a plan to reduce agency hours, answers the largest operating risk.
• State-set rates. Where Medicaid waiver residents are a large share, the facility's income depends on a rate it does not control. Lenders look at the state's rate history and at the private-pay share.
• Regulatory action. A conditional license, repeat deficiencies or an open complaint investigation can stop a closing.
• Liability and insurance. Lenders ask for liability claims history and the cost of coverage, which can move sharply after one claim.
• Competition. New facilities nearby draw residents and staff at once. Lenders ask what has opened or been approved in the market.
• Buyer experience. Lenders want someone in the ownership or management who has run a licensed care facility; see industry experience requirements.

What goes in the file

Start with the standard acquisition documents in what lenders need to finance an acquisition: business tax returns for two to three years, P&L, balance sheet, a year-to-date P&L, the target's latest full year of figures (never an older year), the debt schedule, the letter of intent, and personal returns and a personal financial statement for each 20% owner. For an assisted living facility, add:

• Monthly census reports, with move-ins and move-outs.
• A resident roster showing payer and care level for each resident, and the current rate schedule.
• Payroll by role, the staffing schedule and agency staffing spend.
• The license, the most recent state surveys, plans of correction and any complaint findings.
• Liability insurance policies and claims history.
• A property condition report and capital spending for recent years, or the lease if the building is not being bought.
• The draft operations transfer agreement.

With those in hand, Transparent builds the lender package, the financing model, lender presentation, blind teaser and underwriting memo, in a day, and takes it to lenders in its book that finance care facilities, from SBA 7(a) and 504 lenders to conventional and private credit. How that package is built is on the package.