Finance Your Adult Day Care Center Acquisition with an SBA Loan

Before approaching any lender, conduct preliminary due diligence on the target center. Confirm the center holds a valid state adult day care license with no pending deficiencies, has a daily census of 20+ participants, generates $200K–$800K in SDE, and has at least 2 years of clean financials. Request 3 years of CPA-prepared tax returns, a Medicaid billing history, and the current payer mix breakdown showing the ratio of Medicaid waiver, private pay, and long-term care insurance revenue. Centers with diversified payer mix and stable census will receive the most favorable SBA financing terms.

Not all SBA lenders understand the nuances of adult day care acquisitions — specifically the importance of Medicaid provider agreement transferability, state licensure timing, and reimbursement rate risk. Seek out lenders with documented experience financing senior care or healthcare service businesses. Preferred lenders (PLP status) can approve loans in-house without SBA review, significantly accelerating timelines. Prepare a borrower package including your personal financial statement, resume highlighting relevant healthcare or business experience, and a one-page business overview of the acquisition target.

Work with the seller to compile the full lender package: 3 years of business tax returns, year-to-date P&L and balance sheet, a list of all Medicaid and private-pay contracts, the facility lease, current state licensing documentation, and a participant census report showing 12–24 months of daily attendance trends. The lender will use these documents to underwrite the business's ability to service the proposed SBA debt. Be prepared to normalize owner compensation, remove personal expenses, and clearly document all addbacks in a seller's discretionary earnings (SDE) analysis.

Once the lender completes underwriting, they will issue a conditional approval or term sheet outlining the loan amount, interest rate, repayment term, required equity injection, collateral requirements, and any conditions precedent to closing. For adult day care acquisitions, common conditions include confirmation of Medicaid provider agreement assignability, evidence of state licensing transfer eligibility, and a satisfactory business valuation or appraisal. Review all conditions carefully with your M&A attorney before signing the term sheet.

After receiving the term sheet, conduct comprehensive due diligence in parallel with SBA closing preparations. Engage a healthcare attorney to review Medicaid billing records for any overpayment demands, audit flags, or compliance gaps. Verify with the state licensing agency that the adult day care license can be transferred or that a new license can be issued to the buyer entity prior to or concurrent with closing. Conduct an ADA compliance review of the facility and confirm zoning permits adult day care use under the new ownership structure. Identify and lock in key staff — especially the lead care coordinator — with employment agreements or retention bonuses.

Work with your M&A attorney to finalize the asset purchase agreement, including representations and warranties covering Medicaid billing accuracy, licensing compliance, participant census representations, and staff certifications. Structure any earnout provisions around Medicaid census retention over 12–24 months post-close to protect against participant attrition. Coordinate with the SBA lender on closing document requirements, confirm the seller note is on full standby if applicable, and ensure the facility lease assignment is executed with landlord consent. Closing timelines for SBA 7(a) loans typically run 60–90 days from application submission.