Healthcare development finance

Who healthcare development finance is for

We work with operators and developers building new healthcare premises, from a ground-up medical centre or care home to the conversion of an existing building into a clinic, surgery or dental practice. The borrowers we act for range from an experienced operator developing their own next site to a property developer building healthcare space for a known occupier. The common feature is a project with a purchase or land cost, a build cost, a development timeline and a healthcare property worth more on completion than it cost to create. Healthcare finance for a project like this is rarely a single loan, and our job as a broker is to assemble the right healthcare finance package around the build and the business that will trade from it.

Healthcare property development lending is a specialist discipline distinct from a standard commercial mortgage, because the lender is funding works that have not happened yet against a value that does not exist yet. The strength of the case rests on the numbers, the deliverability and the people, and we will tell you honestly how a specialist development lender is likely to view your scheme. We read this market every day and know which lenders have appetite for healthcare development, from a single surgery to a multi-bed care home, and how each prices the risk.

The purchase, the build and the right finance

A healthcare development usually has two funding stages: the purchase of the land or building, and the build itself. The purchase is often funded by senior debt, the main, lower-cost layer of the borrowing secured against the property, while the build is funded by the development facility released in stages. Where your own funds do not cover the gap between the senior debt and the total cost, a lender may look at additional layers, but the cleaner the structure the better the terms, so part of our job is matching you with the right finance for each stage rather than forcing everything into one loan.

Choosing the right finance for a healthcare scheme means weighing the loans against the project. Senior development debt is the core, but a healthcare business will usually need equipment loans and asset finance for the clinical kit once the property is built, and business loans for working capital as it opens. We set the property finance, the equipment finance and the business funding out together so you can see the whole healthcare finance picture, and so the loans you take are sized to the build and the trading business that follows, not just the bricks and mortar.

Ground-up, conversion and the GDV

Development finance is sized against the gross development value, or GDV, the expected value of the finished healthcare property, alongside the total cost to build it. A lender will look at the land or existing-building purchase cost, the build cost, the professional fees and the contingency, and weigh the loan against both the cost and the GDV. The gap between total cost and GDV is the profit or value uplift that gives the lender and the borrower their margin of comfort, and it is the foundation of the whole property development case.

Ground-up schemes start from a cleared or undeveloped site and carry the full build risk, while conversions reuse an existing building and can be quicker and lower risk where the structure is sound. Planning is central to both: a scheme with full planning permission in place is a far stronger lending proposition than one still seeking consent. We package the GDV, the cost plan and the planning position so a lender can see the scheme clearly.

Staged drawdown and how the facility works

Development finance is not advanced as a single lump sum. The facility is released in stages, or drawdowns, as the project progresses, typically against a monitoring surveyor's certification of the work completed at each stage. That protects the lender, because money is released only as value is added on the ground, and it keeps the borrower's interest cost down, because interest accrues only on funds actually drawn.

A typical structure funds a share of the land or building purchase up front, then releases the build cost in stages as works are signed off, with a contingency held for overruns. This staged financing keeps the interest cost down and ties the money to real progress on site. We will set out the drawdown schedule clearly so you understand when funds become available and what each stage depends on, and we manage the lender and the monitoring surveyor through the build.

Funding the finished healthcare business

A development scheme does not stop at the building, so we think about the whole healthcare finance picture from the start. A finished medical centre, dental practice or care home needs to be fitted out, equipped and capitalised before the healthcare business can trade, and we can arrange the funding for each of those alongside the development facility. Equipment is often the largest of these: asset finance and equipment loans fund the clinical equipment, imaging, dental chairs, furniture and IT that turn a completed property into a working healthcare business, spreading the cost of the equipment over its working life rather than draining the capital the business needs elsewhere. This is healthcare finance built around the trading business, not just the property, which is why we look at the equipment, the working capital and the property together.

Beyond equipment, business loans can provide the working capital a new healthcare business needs in its first months, and where the operation runs vehicles, vehicle finance can fund them too. Asset finance and equipment loans spread the cost of the equipment, vehicle finance funds the cars or vans, and business loans cover the early running costs, so each part of the launch is financed by the facility that suits it best. Property development and the trading business that follows it are two sides of the same plan, so we line up the development funding, the asset finance and the working-capital business loans as one coherent package. This is specialist healthcare finance, and getting the capital structure right across the build and the launch, with the right loans in the right places, is part of what we do as a broker in this market.

Exit, refinance and repaying the facility

Development finance is short-term lending, usually running over the build period plus a margin, and it needs a clear exit, the way the facility is repaid at the end. The two common exits are a sale of the completed scheme, or a refinance onto a longer-term commercial mortgage once the building is complete and, for an owner-occupier, trading. For a healthcare operator building their own premises, the exit is most often a refinance onto an owner-occupier commercial mortgage once the building is open and generating income.

Lenders want to see a credible exit before they commit, because it is how they get repaid. We plan the exit from the outset, line up the longer-term financing or the sale strategy alongside the development facility, and make sure the numbers work through to the refinance or sale. For an owner-occupier, that exit is usually a commercial mortgage on the finished healthcare property, often arranged with the equipment asset finance the business needs at the same time, so the development funding, the property mortgage and the asset finance form one continuous plan. That joined-up healthcare finance approach is part of what we do as a broker.

Eligibility and what lenders look for

Lenders assess the scheme, the numbers and the people. On the scheme they look at the GDV, the cost plan, the planning position and the build programme for the healthcare property. On the numbers they look at the loan against both cost and value, the contingency and the strength of the exit. On the people they look at the track record of the property developer or operator and the contractor, and the strength of the healthcare business that will occupy the finished building, because development is as much about deliverability and a viable trading business as it is about the property asset.

A scheme with full planning permission, a realistic cost plan, an experienced team and a credible exit is a strong proposition. A meaningful contribution from your own funds, and clarity on the contingency, both help. We will tell you honestly where the case is strong and where a lender will want more comfort, and approach the lenders most comfortable with healthcare development.

Indicative terms

Terms vary by lender, by the scheme and by the strength of the exit, so these are indicative ranges rather than an offer. Development finance is short term, usually running over the build period plus a margin, with the loan sized against a share of cost and value and released in staged drawdowns. Interest is often rolled up or serviced through the build, and pricing reflects the risk in the scheme. The facility is repaid on completion through the planned refinance or sale. The equipment loans, asset finance and business loans that fund the launch of the healthcare business are priced and termed separately, because each is matched to what it funds rather than to the property build.

Healthcare finance for a development is a package, not a single product, and the financing of the property, the equipment finance and the working-capital business loans each carry their own terms. We will give you a realistic, indicative view across the whole package once we understand the GDV, the cost plan, the planning position, the equipment the business needs and the exit. All terms are indicative and subject to status, valuation and full lender approval. Commercial finance of this kind is not regulated by the Financial Conduct Authority, and nothing here is financial advice.

How we arrange it

We start with the scheme, the GDV, the cost plan, the planning position and the exit. We then approach the lenders most comfortable with healthcare development and come back with indicative terms, including the drawdown structure and the planned exit. Once you choose a route, we package the case, manage the valuation and the monitoring surveyor, work with your solicitor, and keep the project moving through each drawdown to completion and exit. You deal with us throughout.