SBA 504 Loans Can Lend Support to Assisted Living Projects

by Jeff Shaw

By Barbara Morrison, founder and president, TMC Financing

According to the Centers for Disease Control and Prevention (CDC), there are around 28,900 residential care and assisted living facilities in the U.S.. The majority of the facilities are well established and contribute greatly to the country’s social and economic fabric.

However, despite the importance of these facilities in our society, they often struggle to find affordable financing to expand or improve their services.

Fortunately, the Small Business Administration (SBA) 504 loan program provides an affordable way to obtain funding for building or improving an assisted living facility. The SBA 504 program significantly reduces the amount assisted living facilities have to pay for a down payment and provides a long-term, below-market, fixed interest rate.

Why assisted living facilities are an ideal fit

SBA 504 loans enable a business owner to purchase, renovate, construct or refinance commercial real estate with only a 10 percent down payment. With the low down payment, businesses can retain precious working capital so that the company can continue to grow. Renovations, equipment, closing costs and soft costs can be financed as part of the total project cost, and the down payment is only 10 percent of that total.

SBA 504 loans are designed to solve important challenges. Recent census data indicates that there are around 76.4 million baby boomers in the United States. The first baby boomers were born in 1946, which means those 76.4 million people are at or quickly approaching the age of 76 years old.

As these valuable members of society get older, they often need assisted living arrangements to ensure a high quality of life. The SBA 504 loan program provides business owners with access to the funding they require to own and manage facilities that help care for the nation’s aging population.

The SBA 504 loan process streamlines funding and reduces the risk for lenders as well as assisted living facility owners.

How SBA 504 loans work

The structure of an SBA 504 loan is designed to mitigate the risk associated with lending without limiting the amount of capital borrowers gain access to. Here’s how that’s done:

  • The loan can consist of two mortgages. The first mortgage is provided by a conventional lender, representing approximately 50 percent of the total project cost. The SBA 504 second mortgage, representing generally 40 percent of the total project cost, has a long term, up to 25 years, and fixed interest rate, fully amortized for the full term of the loan.
  • The rest of the funds come for the borrower as a down payment, meaning it is possible to borrow as much as 90 percent of the money needed, paying the remaining 10 percent out of pocket.
  • Monthly payments are fixed for the life of the loan, providing small business owners with affordable payments that enable them to control overhead costs for the long term. The interest rate is below-market and to the current market rate for five-year and 10-year U.S. Treasury notes, always being a certain amount above it.

By distributing the sources of funds between conventional lenders, the SBA and the small business owner, the risk each party assumes is significantly reduced. The borrower receives the funding they need to grow their business.

The low down payment of the SBA 504 loan enables borrowers to retain their working capital. Financing an assisted living facility conventionally could require a down payment of 30 percent or more. However, the 25-year fixed rate gives business owners peace of mind knowing their monthly payments are fixed for the life of the loan.

When considering the financing for assisted living facilities, the attributes of the SBA 504 loan make them an ideal fit for business owners looking to own their property or expand their business.

How to use SBA 504 loans

The maximum portion from the SBA is $5 million — or $5.5 million if there is a goal of implementing green efficiencies — to either build or improve an assisted living facility. However, there is no limit to the total project cost.

New construction

For an assisted living facility, an SBA loan can be used to:

  • Purchase land for both the building itself and recreational areas surrounding the structure.
  • Pay for materials and labor in connection with the project.
  • Pay for equipment with a service life of 10 or more years that will be used on a long-term basis, which may include bed lifts, elevators and emergency defibrillators.
  • Pay for essential assisted infrastructural elements, such as wheelchairs, patient call systems and specialized HVAC systems designed to optimize resident comfort.

Renovating and remodeling

To renovate or remodel an existing assisted living facility, an SBA 504 loan can cover virtually all facets of the project, including common items such as:

  • Adding an additional wing.
  • Adding or expanding medical services to reduce the frequency with which residents must go to the hospital.
  • Adding more equipment to accommodate a growing patient population.
  • Remodeling rooms to make them more accessible for residents with extremely limited mobility as well as the staff needed to support them.
  • Expanding food service and prep areas to make room for more residents.
  • Expanding or diversifying the kinds of recreation that is offered to residents.
  • Building a rehab facility connected to an existing building or on a current campus.

How to increase funding for assisted living facilities

Qualifying for the SBA’s Go Green program increases the SBA’s maximum contribution from $5 million to $5.5 million per project. When business owners ‘go green’ they can receive as much as $16.5 million spread out over several projects.

In order to qualify, business owners must demonstrate that they have reduced the energy use of their building by 10 percent, buy a new building that will use 10 percent less energy, or replace 10 percent of the energy their facility currently uses with renewable energy, such as solar, wind or geothermal power.

What are the eligibility requirements?

Most types of businesses qualify for the 504 program. However, it is particularly attractive for special-use properties, such as wineries, hotels or gas stations, since conventional lenders are more reluctant to finance these unique properties and often require a down payment of 40 percent or more. The SBA 504 structure is attractive to conventional lenders since their loan represents only 50 percent of the total project.

To be eligible, an assisted living facility needs to:


Barbara Morrison, a Bay Area business and civic leader, is the founder and president of TMC Financing, a certified Development Company that provides SBA commercial real estate financing. A former mayor and city council member for the city of Belvedere, Morrison has been widely recognized for her advocacy for women and small business owners, as well as the leadership she provided for many community organizations.

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