Pursuing Your Dream: How to Finance a Bed and Breakfast

Embarking on the journey of owning your own inn is an exciting venture, but it often begins with a crucial question; How do I finance a bed and breakfast and become my own boss? Understanding your financial options is key to turning this dream into a reality. Let’s explore the avenues to secure the funding you need for your bed and breakfast. For more in-depth insights, join The Inner Circle, our free educational platform, where we share valuable tips and insight from property owners and industry experts.

a man calculating money

Understanding Your Financing Options

Financing a bed and breakfast varies significantly based on the size and income of the property. For smaller B&B’s, under 5 rooms, financing is often viewed through the lens of real estate, with loan approvals hinging on real estate value, personal income, and assets. In contrast, medium and larger sized inns generating substantial revenue are financed as businesses, where the focus shifts to business value and revenue streams to cover the debt service. Local banks and the Small Business Administration (SBA) are the most common sources of financing, but it’s important to understand the nuances of each option.

a man signing papers with money on the table

The Role of Down Payments 

A critical aspect of financing is the down payment, which for commercial lenders usually ranges between 20%-30% of the purchase price. While the SBA can finance certain qualified buyers in the right circumstances with lower down payments at 10-15%, these loans will have higher interest rates and other potential requirements. The difference in this initial investment can significantly influence your loan term and repayment schedule. It’s essential to plan for this expense early in your financing journey, ensuring you’re prepared for the upfront costs involved in purchasing your bed and breakfast. Our Free Buyers Guide offers a wealth of information to help you prepare for these financial steps.

two men shaking hands

Alternative Financing Sources

Beyond traditional bank loans, there are several alternative financing routes. These include credit unions, economic development corporations, and individual investors or silent partners. In some cases, programs like the United States Department of Agriculture (USDA) may offer financial assistance or favorable loan terms, broadening your financing options.

The rising interest rates and uncertainty in the post-Covid world of traditional banks financing hospitality ventures, has forced a number of property owners to consider seller financing. This means either holding a second note of a much smaller overall percentage of the loan in order to get the deal across the finish line, or financing the bulk or entirety of the loan in order to offer a more favorable interest rate for quality buyer candidates. The latter would depend greatly on the seller’s own debt service, although, they will still more often than not be looking to see a sizable down payment.

a group of people on an online meeting

Navigating the Financing Process

Approaching the financing process requires a blend of preparation and understanding of what lenders seek. Having a solid business plan, clear financial records, and a realistic understanding of the property’s potential income is crucial. Lenders will scrutinize these elements, so presenting them in the best light is key to a successful application. Our online seminars can provide you with the tools and knowledge to effectively navigate this process.

a group meeting with laptops, ipads, and cellphones

Build a Team to Help You

Securing financing for your bed and breakfast is a complex but achievable goal. You can lay a strong foundation for your boutique hospitality venture with the right approach and understanding of the various financing options. At White Stone Brokers, we don’t just offer advice; we have established connections with a network of lenders and can actively guide you through the financing process. Whether you’re exploring initial options or you are already prepared to take the next step, our team is here to support you. Don’t hesitate to contact us for a consultation and take a significant step towards realizing your bed and breakfast aspirations.

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.