It depends on who pays the agency. An agency billing mostly Medicaid waiver programs, managed care plans, veterans' programs or long-term care insurers has real receivables, and can borrow against them on an asset-based line, typically at 80% to 90% of eligible claims, with collections swept from an account the agency owns because government payments generally cannot be assigned to a lender. An agency that is mostly private pay collects quickly and has little to borrow against, so its line is sized on earnings instead. Either way, lenders check electronic visit verification, payroll tax deposits and exposure to state rate changes.
- What decides the structure
- Payer mix: private pay, Medicaid and managed care, insurance, veterans' programs
- Receivables line
- Typically 80% to 90% of eligible claims, net of expected denials
- Private-pay-heavy agencies
- Usually a smaller cash-flow line sized on earnings
- Government collections
- Paid to an account the agency owns, then swept to the lender
- First diligence questions
- Electronic visit verification, authorizations, payroll taxes, licensing
Payer mix is the whole story
Non-medical home care, meaning personal care, companionship, homemaking and help with daily living rather than skilled nursing or therapy, is paid for by a mix of sources. Each one behaves differently as collateral. (Skilled home health agencies bill Medicare and are covered in lines of credit for home health agencies.)
| Payer | How it pays | How a lender treats the receivable |
|---|---|---|
| Private pay (families and clients) | Billed weekly or every two weeks, often by card or bank draft, sometimes in advance | Small balances that turn quickly; little to borrow against. Balances from individuals are sometimes excluded or capped |
| State Medicaid waiver programs, billed directly | Claims submitted after visits, paid on the state's cycle | Eligible once the claim is clean and within authorization; payment cannot be assigned, so collections go through a swept account |
| Medicaid managed care plans | Claims to each plan, each with its own rules and timing | Eligible, with attention to each plan's denial rate and payment speed |
| Veterans' community care programs | Claims through program administrators | Eligible with extra documentation; federal payers carry their own assignment rules |
| Long-term care insurance | Paid to the policyholder or, with an assignment of benefits, to the agency | Case by case; eligible where benefits are assigned and the claim is approved |
| Area agencies on aging and county programs | Contract or voucher billing | Treated like other government receivables, often with a lower advance |
The result is two quite different credits. A Medicaid-heavy agency has receivables worth borrowing against and a fairly predictable cash cycle, but depends on state rates and claims discipline. A private-pay agency has almost no receivables, often higher margins, and a line sized on earnings and the owner's guarantee. Most agencies sit somewhere between, and lenders weigh the receivables case and the earnings case together.
Payroll every week, collections on the payer's clock
Caregiver wages are almost all of an agency's cost, and they go out every week or two. Wage and overtime rules for agency-employed aides come from both federal and state law, and many states set their own wage floors for this work. A caregiver working long shifts or live-in arrangements can generate overtime quickly, and that cost lands on payday whether or not the claim has been paid.
Medicaid and managed care claims are paid after the visit is documented, the claim is submitted and the payer processes it. A new client under a waiver program may also wait on an authorization before the first visit can be billed. The agency therefore funds several weeks of payroll per client before cash arrives, and funds more when it grows. That gap is what a receivables line carries.
Private pay reverses the pattern. Many agencies bill families weekly, some in advance, and collect before or soon after payroll. A private-pay agency's working capital need comes from growth, from a slow long-term care insurance claim, or from an occasional large family balance, not from the basic cycle.
Hours that have been worked but not yet billed or authorized are not collateral. The line starts working when a clean claim exists.
Why government collections go through a swept account
On most business lines, customers are told to pay a lockbox the lender controls. Government health programs generally cannot be told that. Federal law restricts assigning Medicaid payments to anyone other than the provider, so the state or plan keeps paying the agency's own account. Lenders solve this with a two-account arrangement: the payer deposits to an account in the agency's name, and a standing instruction sweeps the balance each day to an account the lender controls. The agency can end the standing instruction in principle, which is why lenders watch it closely and treat interfering with it as a default.
The mechanics are covered in cash dominion and lockboxes and the deposit account control agreement entry. For the agency, the practical point is that setting this up takes coordination with the bank and each payer's remittance records, and it has to be right before the first draw.
Clean claims: EVV, authorizations and denials
States require electronic visit verification on Medicaid-funded personal care: the caregiver's phone or the client's device records the time, place and service of each visit. A claim that does not match the EVV record is denied or held. To a lender, a high rejection rate means billed receivables that never turn into cash, which is dilution, and it can lower the advance rate for the whole base.
Lenders to home care agencies therefore ask for more than an aging. They want claims data by payer: submitted, paid, denied and resubmitted, and how long each stage takes. The items that most often cost an agency availability:
- Visits outside the authorization, in hours, service type or date range. The payer will not pay them, and neither will the lender count them.
- Late or missing EVV check-ins, often from caregivers who forget or clients without reliable service.
- Expired authorizations that were never renewed, discovered only when claims deny.
- Recoupments. A payer that finds overpayments in an audit can take them back from future payments. Lenders treat any open audit or repayment plan as a reason for an availability reserve.
An agency with a clean claims record, a short time from visit to payment and few denials will get a better advance rate and a lighter reserve than one with the same revenue and a messy billing office. Investing in the billing function is often the cheapest way to borrow more.
Sizing the line: receivables or earnings
For a Medicaid-heavy agency the ceiling is the borrowing base: eligible claims, less anything over 90 days, less the excess of any payer above the concentration cap, times the advance rate. A single state program or managed care plan can easily be most of the book, so lenders often set a higher cap for government payers than for commercial customers. Where they do not, the commonly used 20% to 25% cap can remove much of the base. The general method is in how lenders size a working capital line.
For a private-pay agency, or one too small for asset-based reporting, a bank will size a line on cash flow: enough to smooth payroll and absorb a slow month, backed by the owner's guarantee, and often required to be paid down to zero for part of each year. Banks commonly want debt service coverage of at least 1.25x on all of the agency's debt. An SBA CAPLines working capital line is another route, with every owner of 20% or more guaranteeing it as SBA requires.
Transparent's lender book includes 235 lenders that write asset-based loans and lines and 278 that write SBA 7(a) and 504. The right one depends on the payer mix more than on the agency's size.
Rates, licensing and franchise agreements
A Medicaid-heavy agency's margin is set by the state's reimbursement rate on one side and wages on the other. When a state raises its minimum wage or a caregiver wage requirement without raising rates at the same time, the margin compresses. Lenders ask how the agency's states have handled this in the past and whether any rate changes are pending.
Licensing is a condition of being paid at all. Lenders confirm the agency's state license and program enrollments are current, and any survey findings or corrective action plans are resolved. Many agencies operate under a franchise. The franchise agreement matters to a lender because it controls territory, takes royalties off the top of revenue before any cash reaches debt service, and may limit what happens to the business if the lender has to step in.
Worker classification is the other structural question. Some agencies operate a registry or referral model, where caregivers are independent contractors placed with families, rather than an employer model. Lenders look hard at registries for misclassification risk, because reclassified workers bring back payroll taxes and overtime.
Covenants and reporting
- A borrowing base certificate weekly or monthly, with claims aged by payer.
- Claims and denial reports by payer, monthly.
- Proof of payroll tax deposits, since unpaid trust taxes can become a federal tax lien that can take priority over the lender on receivables created after it is filed.
- Notice of any audit, recoupment, licensing action or change in program enrollment.
- A fixed charge coverage covenant, at banks tested regularly and at many non-bank lenders only when availability runs low.
- Periodic field exams that test claims against EVV records, authorizations and remittances.
What trips home care agencies up
- Merchant cash advances taken to cover payroll while claims were delayed. Their daily payments and liens block a line and must be refinanced at closing; see refinancing cash advances for healthcare providers.
- Payroll taxes behind. The first thing a lender checks; see refinancing with unpaid payroll taxes.
- Billing handled by one person, with no reporting the owner can produce on request.
- Growth into a new program before enrollment and authorizations are in place.
- Cash-basis books. A lender cannot see receivables or accrued payroll without accrual statements; see cash vs accrual financials.
Preparing the file
From Transparent's line-of-credit checklist: an AR aging by payer with days outstanding; an AP aging; the balance sheet and P&L; a year-to-date P&L through last month-end; a debt schedule showing existing liens; and, where available, bank statements and two to three years of business tax returns. Home care lenders also ask for revenue and hours by payer, a claims and denial summary, the state license and program enrollments, payroll tax filings with proof of deposit, and the franchise agreement if there is one.
Once the documents are in, Transparent builds the lender package — financing model, lender presentation, blind teaser and underwriting memo — in a day. For SBA program figures in this industry, see SBA loans for services for the elderly and persons with disabilities.
Common questions
- Can a private-pay home care agency get a line of credit?
- Yes, but usually a cash-flow line sized on earnings and backed by the owner's guarantee, not a borrowing base, because private-pay agencies carry few receivables. The line smooths payroll and growth rather than financing a large receivables book.
- Why won't my lender have Medicaid pay it directly?
- Federal rules generally bar assigning Medicaid payments to a lender. Payments go to an account in the agency's name and are swept to the lender daily under a standing instruction.
- Do long-term care insurance claims count in the borrowing base?
- Sometimes. Where the client has assigned benefits to the agency and the insurer has approved the claim, many lenders count it. Where the insurer reimburses the family instead, the receivable is really from the family and is often excluded or capped.
- How do claim denials affect my line?
- Denied and short-paid claims are dilution. A high rate can lower the advance rate on the whole borrowing base, and open audits or recoupments usually bring an availability reserve.
- Is a home care line different from a home health line?
- Yes. Home health agencies bill Medicare for skilled care and carry different documentation and audit risk. Non-medical home care relies on Medicaid waivers, managed care, insurance and private pay, and turns on authorizations and visit verification.