Why care home bridging is different from standard commercial bridging
A standard commercial bridging loan is assessed primarily on the property value and the exit strategy. Care home bridging adds a third dimension: the operational business. Lenders must be comfortable with the CQC registration status, the occupancy rate, the EBITDA of the operating entity, and the likelihood that the business can continue to trade through the bridge term.
Most generalist bridging lenders - including many who handle hotels and pubs - do not have the specialist underwriting capability to assess care sector risk. Those that do represent a relatively small sub-set of the overall bridging market. Doulton's 130+ lender panel includes specialist and private bank lenders who actively target the care sector.
- CQC registration is the gateway - lenders need to understand the current registration status before any other assessment begins
- Occupancy rates drive EBITDA - a home at 90%+ occupancy is a fundamentally different risk from a home at 65%
- EBITDA is assessed alongside the property value, not instead of it - lenders use both the trading accounts and a RICS Red Book valuation
- CQC inspection reports are read by lenders - 'Outstanding' and 'Good' ratings attract better rates and wider lender appetite
- The exit must be credible - refinance onto a specialist care home commercial mortgage or sale to an established operator
Lender criteria and typical terms
Care sector lenders weigh the registration status, occupancy and trading performance of the home alongside the bricks-and-mortar value. The table below sets out the factors that drive appetite and the terms typically available across Doulton's specialist panel.
- CQC registration - Operational homes: active CQC registration required. Suspended registration accepted by some lenders where the borrower has an existing registered home and a clear reinstatement plan. Vacant or shell care homes assessed on VPV only.
- LTV - 60-70% on operational care homes with strong occupancy. 65-75% on vacant possession or shell properties. Specialist private lenders may go to 75% for experienced operators with track records.
- Rates - 0.65-0.95% pm depending on CQC status, occupancy, LTV, and borrower experience. Suspended CQC or poor occupancy pushes rates toward the top of the range.
- Term - 6-18 months. Most care sector bridges are 9-12 months - sufficient time to arrange specialist commercial mortgage finance or demonstrate trading improvement.
- EBITDA requirement - For operational homes, most lenders look for EBITDA cover of at least 1.5x the bridging interest cost. A home generating £120k EBITDA is comfortable covering £60k-£70k of annual bridge interest.
- Trading history - 12+ months preferred for operational homes. Some specialist lenders advance against newly acquired care homes where the borrower has existing registered homes as evidence of operational capability.
- Exit strategies accepted - Refinance onto specialist care home commercial mortgage; trade sale to care group or operator; refinance following CQC reinstatement.
Scenarios where care sector bridging is typically used
Care sector bridging is almost always driven by a fixed deadline or a registration event that mainstream lenders cannot move quickly enough to meet. The most common situations we fund are below.
- Auction purchase of a care home where 28-day completion is required and commercial mortgage timelines are too slow
- Acquiring a competitor's home before it goes to open market - distressed seller or estate sale requiring speed
- Bridging while a new operator's CQC registration application is processed (typically 3-6 months)
- Funding urgent property works required by CQC to maintain or restore registration
- Chain break - operator purchasing a new home before their existing home is sold or refinanced
- Acquiring a shell or de-registered care home with the intention of applying for new CQC registration
- Short-term funding to cover a working capital gap while a specialist care home mortgage is arranged
Case study: suspended CQC registration, 21-day auction completion
A care home group with three existing CQC-registered homes identified a 24-bed home being sold at auction after the previous operator ceased trading. CQC registration was suspended. The group needed to complete within 21 days to secure the property ahead of other bidders.
Doulton presented the case to three specialist care sector lenders, emphasising the borrower's existing three registered homes as evidence of CQC compliance track record. One private lender advanced £1.95m against the purchase price, with the suspension accepted on the basis that reinstatement was straightforward given the borrower's history. Completion achieved in 18 working days. CQC registration transferred within 4 months. Exit onto specialist care home commercial mortgage at month 9.
- Borrower - Established care operator, 3 existing registered homes
- Property - 24-bed residential care home, Midlands
- CQC status - Suspended registration - previous operator ceased trading
- Purchase price - £2,600,000 (auction)
- Loan arranged - £1,950,000 (75% of purchase price)
- Rate - 0.82% pm
- Completion - 18 working days