Business loans for bed and breakfasts

There are loads of registered Bed and Breakfast businesses in Canada and, since the arrival of global hospitality giant Airbnb in 2009, traveler interest in Canada’s small and privately-run visitor accommodation has seen exponential growth.

This means it’s a good time to own a B&B. However, to buy, start, and run a successful B&B, owners and entrepreneurs will typically need additional funding. Read on to find out more and to discover what you need to secure the best business loan for your bed and breakfast.

What business loans are available for B&Bs

Business loans for bed and breakfasts come in a variety of shapes and sizes. They can be used to refinance a current B&B loan, renovate your building, acquire an existing B&B, build a new bed and breakfast, or cover seasonal quiet spots that create a cashflow squeeze. These loans are often tailored to fit the unique financial circumstances of the hospitality industry. In many cases, the property or acquired assets work as security and there is no need to provide additional collateral. This means B&B owners and companies that have weak credit or have been previously turned down for funding may still be able to obtain the financing their business needs to grow.

Common types of B&B funding:

  • Commercial mortgage: These are long-term loans that you use to buy an existing B&B or to build a new one. Borrow up to 90% of the purchase price, with the property providing security for the loan. Repay the loan over 1 – 25 years.
  • Development loan: May be used to pay for new construction or re-development of existing B&Bs. Pay for extensions, major repairs, car parking space, retrofitting, refurbishment, etc. The property acts as security for the loan. 
  • Asset finance: These are larger loans used to buy vehicles or big-ticket B&B items such as commercial kitchens, or HVAC upgrades. Make money from the asset as you pay for it – over a period of 1 to 5 years. The asset acts as security for the loan.
  • Merchant cash advance: Short-term borrowing to cover everyday expenses, such as wages, small repairs, and utility bills. Nearly all B&Bs take credit and debit card payments from customers. Lenders provide funding as a percentage of your daily, weekly or monthly card turnover. You repay the loan as card receipts are released from the bank. As your card sales rise, you can borrow more. Usually, no added security is required.
  • Invoice finance: Do you take corporate guests who pay on account? Don’t wait for them to settle their bill. Unlock the value of your unpaid B2B invoices immediately. Funds are lent against the value of the B&B’s accounts receivable, and you repay as your corporate clients pay you. Unlike factoring, you retain control of your sales ledger and clients do need not know you are borrowing against your invoices. Usually, no added security is required.
  • Revolving credit facility: Much like a bank overdraft. The borrower can dip into an open credit facility as and when funds are needed. The borrowing is repaid from incoming receipts. May require added security.

What type of mortgage do you need for a B&B?

Even though you may intend to live in the same property as your bed and breakfast business, because you are also running a commercial operation, you will need a commercial mortgage. Unlike standard residential mortgages, these types of business mortgage are provided on a case-by-case basis, and the lender will pay strong attention to your business plan, finances, and any relevant business experience you can provide. Commercial mortgages may require a larger deposit than residential loans, and interest rates and fees are unique to every deal.

Can I get a loan for B&B as a first-time buyer?

Yes. Most commercial mortgage lenders prefer borrowers who have relevant business experience, but it is still possible to secure a B&B loan as a first-time buyer. Note that you may be required to pay a higher deposit and/or interest rate to offset the lender’s risk. 

Criteria to get a business loan for a B&B:

Just as no two bed and breakfasts are identical, so no two B&B loans are the same. Different lenders will seek different information in a loan application, but commonly required info includes:

Hospitality experience

It is not critical that you have hospitality experience to obtain a B&B loan, but it helps. The same applies if you are seeking to buy a B&B as an investment and then employ someone to run the business. The lender will usually expect you to have an experienced and designated B&B manager to operate the venture. If you have no previous hospitality experience, lenders may ask for a larger deposit, or impose higher interest rates and fees. They may also limit the amount of funding they are willing to provide.

Business plan

Your business plan is your operating manual and B&B loan providers will take a hard look at your projections and exit strategy. The stronger your business plan is, the better your chances of success. If you lack the knowledge to create this document, it is worth hiring the services of a professional hotel and B&B advisor.

Suitable deposit

There are few 100% business loans available for B&Bs. Lenders will expect you to provide a deposit unless the loan is asset based, such as a merchant cash advance. Different loans will require different deposits. For a commercial mortgage, depending on your experience, financial strength, and business plan, deposits could range from 30% to 10%. Note that lenders will usually need to see a substantial reserve of cash in addition to the deposit sum. This will cover your startup and any slow periods once the business is up and running. 

Documentation

Most B&B loan applications will require:

  • The last 2 – 3 years business accounts if available, including balance sheet and cashflow analysis.
  • For new-builds and refurbishments – full development plans, permits, construction schedule, projected revenues supported by recent evidence.
  • Bank statements covering the past 3 – 6 months.
  • Proof of address and identity of borrower.
  • Business plan – as detailed as possible.
  • Leasehold agreement for your existing B&B or the B&B you are buying.

Personal finance check

All lenders will conduct standard credit and security checks. This usually includes a review of both personal and business credit reports. 

Top tip: Check your personal and business credit scores before you apply. Errors on your reports could impact limit your ability to secure the B&B loan you need.

Other ways to get funding

Crowdfunding

Also known as ‘peer to peer’ investment, crowdfunding relies on the power of the internet and the support of small investors and donors to deliver the funding a B&B needs. Bed and breakfast owners seeking funds will post a presentation on a crowdfunding website and encourage viewers to support their cause.

Supporters will usually provide investments or donations in small amounts in return for a reward, such as a free weekend break, with many investors needed to achieve the target sum. This kind of funding is essentially a gift, with the B&B owner not required to repay the investment if they use the funds according to their business plan and presentation. Crowdfunding can be used for many purposes, but it will usually score well if it is heavily promoted with existing contacts and on social media, and it proposes something original – such as the launch of an eco-friendly B&B that is 100% sustainable. Additionally, crowdfunding bids are time sensitive. If the project fails to reach its funding target by the end of the donation period, any funds that have been pledged are usually returned to the investors.

Government grants

Most government grants are now closed to new applicants, although it may still be possible to secure business rates relief. For entrepreneurs seeking to launch a new B&B, a startup loan may give them the seed cash they need to get a new bed and breakfast off the ground. Loans of up to $25,000 are available, with no added security required.

How to find the right mortgage for your bed and breakfast business

B&B lending is a niche area, with differing rules of application. B&B owners seeking this type of financing may find themselves forever searching and making applications to lender after lender. The delays this can create could cause you to lose business and leave your B&B vulnerable to the competition. Instead, working with a broker, who can access B&B loans and mortgages from a wide range of lenders is a better way to go. No more cold calls and endless demands for information. Simply tell us what you need and leave the rest to us. 

Get started with Swoop

Check in with Swoop to find the best rates, the best terms and the best B&B loans and mortgages all under one roof.  Grow your online business at lightspeed. 

Testimonials

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.

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