SBA 504 Behavioral Health Feasibility Study

A small, western 504 behavioral health book

SBA's 504 files hold 183 behavioral health loans approved between FY2017 and FY2026, $174.0 million in gross dollars. At $620,000, the 504 behavioral health median sits well above the class median for both programs together. The page turns on geography and lender. Mountain West Small Business Finance holds 22 of these treatment facility loans worth $13.2 million, Florida Business Development Corporation 13 worth $24.5 million, The Mortgage Capital Development Corporation 11, Arizona Capital Source 10 and Intermountain Business Lending, Inc. 8. California has 34 loans, but Utah follows with 28, then Florida with 19, Arizona with 13 and New Hampshire with 7.

Treatment facilities that close, and those that do not

Half of 504 behavioral health loans fall between $319,000 and $1.2 million, with a franchise share of 0.00%. The cancellation figures carry a wide gap. At least 12.0% of FY2017 to FY2024 behavioral health approvals were cancelled, and the ceiling, which treats every approval still undisbursed as lost, is 19.0%. On the charge-off side, the 70 behavioral health loans funded in FY2017 to FY2021 show a floor of 0.00% and a five-year rate of 0.00%. That is a clean record on a thin cohort, and a floor that can still rise. Approvals peaked at 33 loans and $30.9 million in FY2021, and FY2026 recorded 21 loans worth $28.1 million.

Testing a 504 treatment facility

A feasibility study for a 504 behavioral health project has to show where the patients and the payments come from. Demand means referral sources, the payer mix across Medicaid, commercial insurance and private pay, the licensed capacity of competing programs, and, in states that require one, the certificate of need. Cost has to cover converting or building to the licensing and life-safety codes that apply to the level of care, plus the time it takes to secure the license. Coverage of both 504 liens should survive the census ramp and a cut in reimbursement rates, with clinical staffing priced at what the local market pays. The appraisal should not rest on the license, so the study should state the value of the real estate for another use. On the class itself: behavioral health and addiction treatment share both of their industry codes, so this record cannot split mental health care from substance use treatment.