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How to finance a bed and breakfast business

How to finance a bed and breakfast

Owning a bed and breakfast is a dream for many. It can be a rewarding way of gaining financial freedom, you get to meet travellers from all over the world, and after putting in some initial work, a B&B can eventually run smoothly with little effort on your part. In addition, it gives you the chance to become a business owner within the hospitality industry and express yourself creatively through B&B design and decor. Many B&B owners live at their B&B, allowing them to work from ‘home’ and get away from the rat race and having to commute to work.

Have you always wanted to own a B&B but are not sure how you could fund this dream?

The good news is that many lenders are keen to work with potential B&B owners as the bed and breakfast itself would offer fantastic security against the loan. In this article, we’ll look at how you can finance a bed and breakfast.

Can first-time B&B owners get finance?

Even if you have never owned a B&B or any other business for that matter, you should still find it relatively easy to find suitable financing options. While evidence of experience will work in your favour, it is not the only thing that lenders are looking for.

Both banks and private lenders would be interested in providing you with a loan, depending on your situation and the viability of your business plan.

What you’ll need when approaching lenders

Before you start approaching lenders, you must have all of your ducks in a row. Ensure that you have the following.

  • A detailed business plan
  • An approximate loan amount that you’re looking for
  • Evidence of any experience that you feel may be relevant
  • Your personal credit rating
  • Details on the property you’re interested in purchasing if you don’t own the property already

What do I do if I don’t own a property?

If you don’t already own a property that you could use to convert into a B&B, the amount of finance that you’ll need is going to be significantly higher than if you already own a property and just need a loan for conversion and start-up costs.

Take out a mortgage

A popular option for many aspiring B&B owners who do not have properties of their own is to use a mortgage. Calculate what you can put forward yourself, and see how much more you’ll need before going to lenders.

Get accurate figures

Unless you are buying a property that was previously a B&B, you will need to calculate the costs of modifications. For example, B&Bs usually require each room to be an ensuite. So keep these costs in mind. Try and get an accurate figure of the amount you’ll need by speaking to different builders and construction companies, and be wary of over-borrowing as you may have trouble paying back your loan when the off-season rolls around.

Keep in mind you will need to apply for a commercial mortgage and not a residential mortgage as the property will be used for business purposes.

Inform your current home mortgage lender of changes

If you are already paying off a mortgage and are planning on converting your home into a bed and breakfast, you will have to inform your current mortgage lender of your plans to do so. Keep in mind that many residential business lenders may have an issue with you using your residential property for ‘business purposes.’

What about a business loan?

A business loan is definitely a viable option when it comes to the costs of getting your B&B up and running, but it is unlikely that such a loan would cover the purchase of a property. A business loan from a bank or other lender may also be suitable to cover conversion and renovation costs.

Coming up with a solid business plan

Having a solid business plan for your B&B should be your top priority. It will give your lenders something to go off and give you a better chance of getting the finance you need to start your business. In addition, it will also provide you with a guide map and help you stay on track.

By doing research, you should be able to accurately predict your occupancy rates throughout the year, as well as your expected expenditure. This will give you an indication of what you can expect to profit each month, and therefore what you’ll be able to pay towards paying off your loan every month.

The area in which you run a B&B will also play a massive factor in your expected success.

Ways to save on costs of opening a B&B

  • Shop around for furniture

One of the biggest costs involved with opening a B&B is furniture and decor. A bed and breakfast should be warm, inviting, and have a cohesive theme. So look out for furniture sales and look at a couple of secondhand shops for affordable, preloved pieces. Shopping around and taking your time building up the furniture you need may save you a lot of money.

  • Start small

Another tip is to start small. If you can begin functioning with only a room or two, do so. Wait to gain some income and get the name of your B&B out there before expanding.

  • Don’t overdo it on your marketing budget

There are tons of ways to advertise cheaply (or even for free in some cases) on social media, so don’t put all of your budget into marketing.

  • Do as much as you can yourself before hiring anyone

In the beginning, you should try and do as much of the work involved with running a B&B yourself. This includes replying to emails, managing, responding to guests and even cleaning the rooms. This will save you from having to fork out salaries while you’re still getting started, as well as give a clear idea of the duties associated with each job when you do eventually hire employees.

If it’s your dream to own and run a B&B, there are many ways you can make this happen. Do the research, put in the time and effort, and you should reap the results.


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