Care home finance: going concern versus bricks and mortar

Two valuations, one building

A care home can be looked at in two ways. The bricks-and-mortar value treats it as a property: what the building would be worth empty, or in an alternative use. The going-concern value treats it as a trading business: what the home is worth as an operating care business with residents, fees, staff and a track record. The same building can carry two very different figures depending on which basis is used.

For an established, well-run home, the going-concern value is usually higher, because the income and goodwill add to the bare property. For a new or distressed home, lenders may lean towards the bricks-and-mortar figure until the operation is proven. Care homes are assessed on this dual basis more than most commercial property, and understanding which basis applies to your home is the starting point for working out how much healthcare funding it can support.

What going concern means

In finance, going concern means a business that is expected to keep trading for the foreseeable future rather than being wound up or sold off in pieces. For care homes that matters because the value of the business depends on it continuing to operate with residents and income. A going-concern valuation captures the trading position, not just the property, which is why a profitable home with strong occupancy is worth more on this basis than its empty building.

When a care home runs into financial difficulty, the going-concern assumption can come under pressure. A home that is losing money, struggling to fill beds or facing regulatory problems may be valued nearer its bricks-and-mortar figure, because a buyer or lender is no longer confident the business will continue as it is. This is one reason occupancy, fees and the regulatory position are watched so closely.

How this shapes lending

Which basis a lender uses affects how much you can borrow. Going-concern lending recognises the trading business and can support a higher facility against a strong, stable home. Bricks-and-mortar lending is more conservative but can suit a purchase where the operation needs to be turned around or built up. We arrange both, and a blend of the two, across care homes throughout the United Kingdom.

The right route depends on the home's occupancy, fee levels, Care Quality Commission position and your experience as an operator. A first-time operator without a track record may find lenders start nearer the bricks-and-mortar value, while an experienced group running profitable care homes can usually access going-concern terms. Lenders that fund care homes regularly are more comfortable reading the trading position than a general commercial lender.

How care is funded and why it matters

The income behind a care home comes from a mix of self-funded residents, who pay their own fees, and residents whose care is funded by the local authority or the NHS. That fee mix is central to both the value and the lending, because self-funded fees are usually higher and local-authority placements are more stable but capped. A home weighted towards higher self-funded fees can show stronger profits, while one reliant on local-authority placements has steadier but thinner income.

Wider funding policy sits behind all of this. The long-discussed cap on the lifetime care costs a resident has to pay, and the rules around who is responsible for fees, shape the balance of self-funded and state-funded income over time and can change a home's outlook. When a resident's own funds run low, responsibility for fees can shift to the local authority, subject to a means test, which affects the fee a home receives. Lenders watch these dynamics because they bear directly on the durability of the trading income across the United Kingdom.

What lenders assess

Expect lenders to look at occupancy, the fee mix between self-funded and local-authority residents, staffing and agency reliance, the CQC rating and history, and your operating track record. They will also watch for red flags, such as falling occupancy, heavy reliance on agency staff, a poor or declining inspection rating, or weak management, because these threaten the income the loan is serviced from.

Wider policy also sits in the background. Changes to how care is funded, including the long-discussed cap on the lifetime care costs a resident pays, affect the balance of self-funded and state-funded income over time. A clear picture of the trading position, the fee base and the regulatory standing is what unlocks going-concern terms for care homes, so prepare your accounts, occupancy data and CQC reports before approaching lenders.

Commercial finance of this kind is not regulated by the Financial Conduct Authority. Any rates or terms are indicative and subject to status, valuation and full lender approval. This is general information, not financial advice; take independent professional advice before borrowing.