Struggling care operators should consider finance options
Care home owners struggling in the current climate should consider leasing back assets to strengthen their working capital.
Stuart Evans, Partner and Head of Commercial Litigation at BLM, said COVID-19 has tested care home business models, structure and solvency.
Writing in the Jan/Feb issue of Care Home Management, Evans said this has led to some owners looking to divest themselves from their care business.
“You could sell, lease or license back key assets such as your property, if you own the freehold,” he said. “There are also other physical assets and intellectual property.”
Funds can be raised through debt options, by giving security over assets, from debentures and mortgages to cross guarantees and charges over share or credit balances.
“Debt finance is raised from other investors in the form of convertible loan notes or the allocation of shares. These could have preferential distribution rates and set redemption characteristics attached to them.”
Care home finance is also improved by ensuring supply chain contracts are weighted in the home’s favour.
“COVID-19 has meant that force majeure clauses – that essentially free both parties from liability, either temporarily or for the duration of the contract, have come under scrutiny,” he said. “Businesses that do not have such clauses in their commercial agreements have suffered significantly as a consequence.”
Read the full piece in Care Home Management here.