Bed and Breakfast Financing

Bed and Breakfast FinancingThinking about selling your Bed and Breakfast? Thinking about buying a B&B or Inn? has compiled some details about bed and breakfast financing below…

Selling a B&B or Inn:

You may be wondering if there is any specific formula for setting an asking price for your Bed and Breakfast that can be supported by the value of the real estate, furniture, fixtures and equipment (FF&E) and or its value as a going concern. Not all properties are created equal, nor can they be valued exactly the same. There are many opinions on how an inn should be valued. We suggest that you consult a commercial lender specific to the bed and breakfast industry to help you arrive at a reasonable asking price. A great short article, “Six Myths About Inn Financing,” covers some common misconceptions about inn financing.

Aspiring Innkeepers – How to determine what would be a reasonable offer:

Every buyer of a hospitality property struggles with this question. Making a reasonable offer that is reasonable to both parties must be based on reality and be supported with solid data based upon a viable commercial purchase vs. a lifestyle purchase. The potential buyer does not want to offend the seller with a low offer, but needs to establish what is a fair price and one that will be supported by the appraisal once it comes in.

The Bed and Breakfast Appraisal Process:

A commercial lending broker can arrange for a Full Narrative Commercial Appraisal. The commercial appraisal presents facts and conclusions in a logical and concise manner through an examination of comparable inn/B&B sales local to the subject property, and a value as a going concern based on historical data. The highest and best use of the property will be determined by the appraiser relative to the inn’s commercial value, verses it’s Residential Value. An appraiser familiar with the bed and breakfast industry is critical to the process.

As stated by Rick Newman, Managing Partner of Commercial Capital Network, LLC, “A lender familiar with the industry, an accountant or qualified industry consultant’s services should be used to analyze the financial data to be sure that income from the property can support the debt service relative to the down payment and your investment objectives.” Rick further states “Innkeepers invest their energy and capital over time to create a welcoming and hospitable environment that is unique to their community and valued guests. While the charm and ambiance of an inn add to a patron’s experience, such intangibles have only an indirect effect on the actual value.” You can read Ricks full article here: Obtaining Valuations Prior to Marketing a B&B or Country Inn.

Qualifying Buyers:

Finding a qualified buyer may present a challenge as the buyer may need additional income to offset the difference in the property’s revenue, should there be any. An aspiring innkeeper may consider pre-qualification, prior to or during the buying process. The pre-qualification process can help define the best match for properties that fit their qualifications and overall investment objectives.

Pre-Qualified Buyer ProgramOne such program used extensively throughout the industry is the Pre-Qualified Buyer™ Program presented by Commercial Capital Network (CCN), a nationwide mortgage lender / broker specializing in mortgage loans and financing for Bed and Breakfasts, Country Inns and Resort Properties. Realtors and sellers appreciate working with buyers whom has taken the time to understand the property characteristics that best fit their qualifications and objectives. Pre-qualification results in a better “match” for both buyers and sellers.

The list of items required to begin the CCN Buyer Pre-Qualification Certification Process are as follows:

  • Commercial Loan Application
  • Verifiable Proof of Assets to be applied to down payment and reserves i.e Checking, Savings and Investment Statements, 401k/IRA Statements, three (3) years borrower’s personal tax returns
  • Resumes for all principals
  • Borrower’s Financial Statement(s)
  • Borrower’s Credit Report(s)
  • Proof of Identity – Passport or Driver License (Both Sides)

Income and expense trends are examined closely in underwriting. You can get pre-qualified for a bed and breakfast loan here.

Loan Programs:

There are several lending options when purchasing a bed and breakfast for sale. It is important that your find the best loan program that meets your borrowing needs, business plan for the bed and breakfast inn, and that you meet the qualifications of each program before you apply. You may also be interested in using your retirement assets to purchase a bed and breakfast. In general, here is a list of several bed and breakfast financing options and their related details:

US Small Business Administration Loans (SBA Loans)

The SBA 7(a) Loan Program, SBA’s most common loan program, includes financial help for businesses with special requirements. Loan proceeds may be used to establish a new business or to assist in the acquisition, operation, or expansion of an existing business. Loan Processing time may vary. In addition to standard procedures, SBA Express processing offers an expedited turnaround.

The SBA CDC/504 Loan Program (Certified Development Company) provides financing for major fixed assets such as equipment or real estate. A 504 loan can be used for: The purchase of land, including existing buildings The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping The construction of new facilities or modernizing, renovating or converting existing facilities

Learn more about the benefits of the SBA Loan programs here.

Conventional Loans:

Conventional mortgage loan programs can be used to purchase a bed and breakfast or refinance an existing inn. This type of loan may be amortized up to 25 years and usually closes 60-90 days after approval in most cases. Conventional mortgages are based upon a percentage of the value. The lender may loan up to 85% of the value, but this varies and the buyer should be prepared to place a down payment to formulate the difference.

A general overview of using conventional loans to purchase a bed and breakfast property can be found here.

Our Bed and Breakfast Financing Partner:

Bed & Breakfast Inn Financing, Mortgages, and Loans – provides useful information to Innkeepers who wish to re-finance or re-structure the existing bed and breakfast mortgage obligations and Aspiring Innkeepers seeking to purchase and finance “The Inn of their dreams.” Additional details about financing and frequently asked questions about buying a bed and breakfast property can be found here.

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