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Anthony Newman, specialist healthcare relationship manager at Allica Bank, considers how to meet growing healthcare demand with sustainable finance.
Care home operators are facing a growth paradox. Demand is rising as the UK’s population ages, and many lenders are keen to support the sector. But higher demand does not automatically mean easier growth. Staffing costs, energy bills, regulation and funding pressures mean operators need finance that’s structured around the realities of running a care business.
This is especially the case for those that fall into the established business category with 5-250 employees. According to a report by economic advisory firm Oxford Economics, these businesses make up 28% of private sector employment in the sector. Too complex for off-the-shelf small business banking, but without the scale or in-house finance teams of larger healthcare groups, they often struggle to find finance that is genuinely fit for purpose.
The good news for care home operators looking to invest is that we have seen the base rate decline over recent years, making it cheaper to borrow and invest in much-needed staff and facilities. And, while the latest Bank of England decision kept rates at the same level, this stability – paired with an easing of inflation – does mean many care providers I’ve spoken to are confident to invest and grow their business.
A sector in demand
A positive quirk of the care home sector currently is that there are a lot of lenders keen to be part of the sector’s growth. Unlike the rest of the economy – where established businesses are really struggling to get support – care home operators are telling me that they actually have a good deal of choice when looking for finance.
That makes the care home market something of an exception, but while positive in the short term, operators need to take care to find a lender that they can build a relationship with, and that can support their long-term growth plans. In my experience, a healthcare operator choosing the right finance partner can be just as important as securing the funding itself. Many lenders may try to support the sector’s expansion, but not all have the specialist knowledge needed to understand its day-to-day realities.
Operators need a bank that knows their CQC from their ICB – and understand how occupancy, staffing ratios, fee rates, compliance costs and property investment all affect the resilience of a care business. The right finance partner should be able to look beyond the headline loan request and understand what sustainable growth actually requires.
Existing structural issues
That expertise matters because the pressures facing care providers are rarely simple.
Alongside the challenge of fluctuating rates and high demand, staffing remains a real concern, with wage inflation, minimum wage increases, and National Insurance hikes all putting a strain on businesses when it comes to hiring and retaining staff. This is driving businesses to rely on agency workers, and as a result of the increased demand, the cost of acquiring these workers has spiked. Many providers also historically relied on recruiting internationally, however recent government restrictions around hiring overseas workers have made this more complex.
In addition, despite investors and care home operators having the desire and cash available to buy new properties and expand their groups, there is a lack of available homes coming on the market. An increasingly tight regulatory landscape may also make long-term business planning difficult as rising compliance costs, data protection and workforce requirements all impact businesses’ ability to grow.
These are not side issues. They directly affect cash flow, investment decisions and the level of headroom a business needs.
Turning finance into sustainable growth
With rates held, loan repayments and financing costs are unlikely to rise immediately, providing greater certainty in terms of financial planning. The question now is, how to capitalise on this relative stability and make the right investment?
At a time of increased financial pressures, businesses should look to prioritise investing in areas already proven to be growth drivers, but when margins are tight, freeing up the cash to make these investments can feel like a headache.
These are the details that should be brought into funding conversations early. Clearly articulating barriers to growth, such as staffing challenges, regulatory requirements and operational costs, helps lenders better understand what success looks like in practice.
Lenders with healthcare expertise can also help businesses make more informed investment decisions and deploy capital more effectively by benchmarking performance against competitors, assisting with day-to-day cash flow planning, giving informed options on investing surplus cash to optimise interest returns, and supporting long-term growth.
To propel long-term growth, however, long-term banking relationships should also be a key consideration. Having a lender dip in and out of the market when it suits does not create the stability needed to thrive in such a long-term investment sector. Instead, look for a lender that has invested in the sector, brought on specialists with real knowledge of the market and its headwinds and opportunities, and is able to support you from your first deal to your last. I have worked alongside many care providers for many years, and it’s been a privilege to support them in their growth.
Funding alone will not solve the pressure care providers are facing. But structured well and supported by lenders who understand the sector and truly care about the businesses they support, it can help operators invest with confidence: strengthening facilities, protecting cash flow and building businesses that are better placed to meet growing demand sustainably.
