If you dream of buying an Inn or Bed and Breakfast but are struggling with knowing how to finance a bed and breakfast with no money, we’re here to help set the record straight so you have the knowledge required to execute a purchase. Financing the purchase of any new business can be demanding and stressful, so before you embark on this new journey toward buying the Inn of your dreams, it’s essential to understand the ins and outs of the financial analysis and financing process. We’re here to help!
One of the most commonly asked questions we get from aspiring Innkeepers is how to start a bed and breakfast with no money. There are many questions and considerations surrounding the financing process when buying a B&B, and while the process appears abstract to incoming owners and operators, there is a fairly clear framework for determining the “bankability” of a small hospitality business and the best structure for financing based upon a buyer’s unique qualifications. The process involves several key steps and considerations: From understanding the lifestyle and demands of owning and operating a Bed and Breakfast to securing your dream property, the B&B Team’s dedication to and knowledge of the industry is unmatched.
If you’re wondering how you’ll ever afford to finance the purchase of a B&B, a great place to start is one of our upcoming Aspiring Innkeeper Seminars. Our team brings decades of combined knowledge and experience in acquisition, valuation, financing, and operations related to staffing, managing a small business entity, and core hospitality values that will ensure your success in the near and distant future. The best place to start is one of our immersive seminars. Register for one of our upcoming seminars today or call us to discuss if this program is a strong fit based on your plans for the future.
How to Start a Bed and Breakfast With No Money
When buying an Inn or Bed and Breakfast, you must have a solid understanding of the financing process so you can achieve your dreams and have the best possible outcome.
Understand Your Financial Picture
One of the first keys to success when starting a Bed and Breakfast, no matter how much capital is ready for investment or has yet to be assessed, is to understand your complete financial picture. This includes basic tasks like reviewing your credit score, understanding your debt-to-income ratio, and ensuring you have a solid down payment, typically around 20-30% of the property’s purchase price. (The required down payment will be determined by the structure of the loan – direct versus an “enhanced” SBA guaranteed bank loan – the ability of the cash flow to support projected debt service, and other key factors.)
Additionally, it’s essential to have a clear understanding of the required funds beyond the down payment for reserves and working capital, including funds to cover potential renovation costs and initial operating expenses. Lenders will scrutinize your financial health, so having a comprehensive financial portfolio can enhance your chances of securing a loan. More importantly, understanding your finances related to the purchase of an Inn is essential for finding the right Inn for you.
Find the Right Property
Whether you have a property in mind or not, working closely with the experts at The B&B Team will ensure you find the right property for your goals. An important aspect of buying a Bed and Breakfast is ensuring you purchase something that is financially viable – meaning they generate enough income to cover things like operating expenses, any attached debts, and an appropriate stream of revenue. This, of course, depends on the goals of your Innkeeping business.
A critical question in this process: Are you looking for a healthy return on investment, or are you looking for more of a lifestyle property that’s perhaps smaller in size and does just well enough to cover expenses and provide a desired “lifestyle” to owner/operators? Whatever type of Bed and Breakfast you’re looking to buy, these are important considerations to make when it comes to purchase price, overall budget, and financing.
Create Your Business Plan
Preparing a solid business plan is an essential step as you work through financing a Bed and Breakfast. A solid and well-thought-out business plan is necessary not only for securing financing but also for ensuring the long-term success of your B&B and preparing to exit the industry when the time is right. Your business plan should include detailed market research, a clear marketing strategy, and financial projections that demonstrate the potential profitability of the B&B. Most critically, the business plan should establish defensible projections that call for realistic long-term growth with strategic improvements to the physical plant, marketing program, and general operation strategies.
This plan will help you articulate your vision to potential lenders or investors and serve as a roadmap for managing the business effectively.
Different Ways to Finance a Bed and Breakfast
Once you have a solid understanding of your finances and a target property in mind, it’s time to explore various financing options. Traditional commercial real estate loans from banks are a common route, but they often come with stringent requirements. Most lenders require a 20% – 30% downpayment in addition to closing costs, working capital, and reserves. A common misconception when going this route is to turn to big lenders, but we find that often, smaller banks and lenders offer better terms, not to mention more personalized service and attention to detail. You can expect this more conventional process to take 45 – 60 days on average.
Alternatively, Small Business Administration (SBA) loans can be advantageous due to their favorable terms and lower down payment requirements. The application process for an SBA Loan can be daunting and time-consuming, but it can be a required route, particularly when a large downpayment or an historically underperforming business is a hurdle to securing your dream property. This can be an excellent option for those who are looking to start a bed and breakfast with no (or little) money. On average, most SBA loans take 60 – 90 days to finalize authorization and funding.
Another option you may not have considered when funding the start of a Bed and Breakfast is Private investors or partnerships, most often found in the form of “angel investors” amongst close and supportive family and friends. This can be a beneficial route to take, especially if you lack sufficient capital or need additional expertise. This approach, however, requires that expectations regarding a return on investment be set in no uncertain terms, to ensure that investors understand that the average hospitality property does not resemble a cash cow! Whatever financial vehicle you choose to purchase your Inn, it’s crucial to compare interest rates, repayment terms, and fees across different lenders to find the most suitable financing option for your needs.
Consult with the Experts
Once you have these various puzzle pieces in place, you’re that much closer to financing a Bed and Breakfast! A key component of this process is seeking professional advice, including the wisdom you’ll gain from The B&B Team and our partners. We’re here to support you in this process, from start to finish, and can significantly increase your chances of a successful investment. We offer a range of consulting services and look forward to helping you navigate through a successful purchase of a Bed and Breakfast. Get started by registering for one of our upcoming seminars, or contact us today!
