Yes! You Can Get a Business Loan to Buy a Bed and Breakfast!

In a recent session on The Inner Circle, our exclusive hospitality buyer’s and seller’s platform, we spoke with experienced SBA Loan Officer, Ben Maffett, on how to buy a bed and breakfast, inn or boutique hotel in the current economic climate of Summer 2022.

Corporate retreat and meeting room - SBA Small Business Loan

Great Opportunities Still Exist To Acquire Funding

Ben pointed out that rates are going up significantly and Chairman Powell has indicated they will continue to rise to combat inflation. However, Ben was enthusiastic about the prospects of acquiring an SBA loan for a smaller lodging property and was optimistic that great opportunities still exist to secure funding to buy a bed and breakfast. Ben encouraged prospective buyers to look for assets that haven’t been run well and could be turned around. The key now is to have adequate working capital because the days of interest rates in the 4’s are long gone – 6 and 7% are now the norm.

Small Business Loans can purchase inns - Picture of an inn

How Working Capital Factors Into The Equation

Some lenders are indeed pausing on loan distribution but smaller hospitality businesses had a banner year in 2021 because of pent-up demand brought on by the pandemic. The pause simply means lenders will often apply ‘stress testing’ to ensure the buyer is able to afford their loan payments when unforeseen events take place as the buyer must be able to make payments even if interest rates continue to climb. Again, borrowers asking the question, “How much money do I need to buy a bed and breakfast” need to keep in mind that in today’s economic climate, they should have enough working capital to minimize risk to the lender as we enter into a ‘technical recession”.

B&B's can be purchased with an SBA Loan - small cottage porch

Best Types of SBA Loans for a B&B Purchase

According to Ben, The #1 reason a business fails is a lack of liquidity or a lack of working capital. You need to be able to survive whatever is coming.

Thus, to finance your dream, you are looking at acquiring an SBA 7a Loan which has a lot more freedom in terms of the proceeds. Or you can apply for an SBA 504 Loan which is for a specialty property like hospitality. They limit it to 85% loan to value and the loan is based on real estate and heavy equipment allowing for a fixed rate for life.

Bed and Breakfast - Finance with an SBA Loan - breakfast in a room

SBA Loan Limits and Requirements to Consider

The SBA limits your loan to 5 million. If more is needed, you will need to seek out a conventional commercial loan which is much harder to do. With an SBA loan, you have to go back 3 years. A seller needs to file their 2021 tax return right away because whatever is on that tax return is what a lender bases the value of the asset on. Assume 2020 will be skewed because hospitality was shut down for 60 days. 2021 is more in line with what we expect going forward and it’s where lenders are placing the vast majority of the weight.

Inn Room - Financed with an SBA Loan

The Importance of P&Ls vs. Tax Returns in Lending

Additionally, lenders use 2019 as a perfect example. The economy was good with low inflation, sales were strong and it is the benchmark for what everyone hopes we return to. Thus 2019 is the second most important year other than 2021 in determining loan values. Keep in mind that lenders DO NOT take a P&L statement very seriously – you get a loan based on the tax returns! Perhaps the strongest point Ben made in addressing sellers is to be as accurate in your tax returns as your financial transparency will determine your eventual selling price.

Join The Inner Circle to See The Full Interview

Watch our full interview with Ben Maffett, Senior SBA and Commercial Loan Officer at iTHINK Financial, on The Inner Circle for more insightful tips and guidance on securing a loan to buy a bed and breakfast or other unique hospitality property. This exclusive platform from White Stone Brokers provides prospective buyers with timely and important information to be successful. Plus, membership is free! Register online now and keep learning!

Ready to start down a new path? View our current bed and breakfast and boutique hotels for sale.

Disclaimer: The particular properties shown in the photos may not be for sale at this time. Photos are for example purposes only.

Photo of Chris Kelly

Chris Kelly

Chris Kelly is a business broker and seasoned marketing strategist, leveraging over 15 years of experience with White Stone Marketing. With roots in direct sales and account management at Google, Chris pivoted to digital marketing, successfully growing revenues for hundreds of lodging properties. His expertise spans from consulting on operations to running in-depth marketing campaigns for bed and breakfasts, inns, resorts, boutique hotels, and event venues. Chris is passionate about helping properties reach their peak potential and ultimate sale price.