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Get Financing Before You Start Looking for Your Dream Bed and Breakfast Inn |
There's no shortage of inns for sale, nor aspiring innkeepers in search of the property of their dreams.
There's no shortage of internet sites which bring both inn seekers and innkeepers together in one
place where inns for sale are advertised.
There's no shortage of classes and workshops designed to educate the aspiring innkeeper.
There's no shortage of consultants out there just waiting to be hired to help you determine if
the bed and breakfast in your dreams isn't really your worst nightmare, and in a pretty disguise
as an expansive oceanfront Second Empire Victorian.
There IS a shortage. And, it's FINANCING. So, unless you are one of the very few cash buyers out there,
the biggest problem you face is financing. And, in today's market, financing is a constantly moving
target where the rules can change in a nano second.
Now on the horizon:
Residential loans are coming under scrutiny in cases where the buyer has not disclosed to
their lender the intended use of the property. Failure to disclose this information can be
viewed by some loan underwriters as intent to defraud. Lawsuits pending in some states.
This action could trigger the "Due on Sale" clause and cause the loan to be called.
SBA loans (the 504 and 7a programs) are tightening down on their underwriting. In cases
where the property is under performing, business plan projections that call for large increases
in revenue MUST be supported and/or alternative sources of income are necessary from the
buyer.
Commercial loan underwriting has become more stringent.
Some suggestions for inn seekers navigating the current financing waters:
If you either do not have, or are not planning to maintain a second source of income, keep
your search focused on economically productive inns, particularly if you do not have
hospitality experience.
Be insistent in your request for good financial information. A Profit/Loss ( P&L) is not going
to be sufficient financial disclosure to obtain financing. Banks will insist upon viewing tax
returns, and the tax returns MUST support the P&L. If they don't match up, financing will be
jeopardized, and inn owners and their representatives need to understand that this is
CRITICAL information for the buyer to have in order to determine financial feasibility of an inn
purchase. If you can't get it, don't bother to see the property. You'll save yourself a lot of
future headaches.
Look locally for financing first. We have found that sometimes, in smaller communities, the
local bank may feel more comfortable with financing a bed and breakfast for sale than an
outside resource. Also, look for a local SBA lender as oftentimes banks are more
comfortable having the SBA as a partner. It defrays some of their risk exposure and that's
what they are all about these days.
Produce a quality business plan. No bank is going to give you money without it. Focus your
plan on providing an exceptional picture of the property, an exceptional picture of you, and
provide a well researched and supportable income projection. If this is something that is not
your strength, then hire someone do to it for you. Here are links to some industry resources:
http://www.inngenium.com/
And, now for some suggestions for innkeepers with properties for sale:
REPORT ALL YOUR INCOME. Now that it's time to implement your EXIT STRATEGY, it's time to
tell your accountant that your #1 goal until your property is sold is to MAXIMIZE YOUR
INCOME. No longer is your main goal reducing taxes, and you accountant needs to know how
important this is to you. It can make the difference between selling or NOT selling your inn.
Make sure that your Profit/Loss (P&L) matches your tax returns. Banks are going to use your
tax returns for their analysis, NOT your P&L's. Inn buyers know that your information should be
treated confidentially, but if you refuse to provide this information to them, they are flying
blind. We have seen a number of deals crash because tax returns were not released until the
bank asked for them, they didn't match the P&L's, and the buyers weren't able to obtain
financing. So, the two smart choices are: be absolutely SURE that your P&L matches your tax
return, or RELEASE your tax returns to the buyer early on so that they are working with the
same financial information that their bank will be using.
Don't expense items that should be capitalized. When you purchase new linens, furniture,
build a deck, add some landscaping, etc., capitalize and depreciate those items to improve
your P&L.
Do everything you can to improve your bottom line. Think of it like the back stretch in a horse
race. If you slow down at the end, you are not going to win any prize money, and in today's
market, that could cost you BIG dollars. So, stay on top of your industry. Go to the
conferences. Keep learning. Stay engaged in your business, and don't expect to pass your
problems off onto someone else.
Stop waiting around for the all cash California buyer to come over to your place and over pay
for for your property. Just like the unicorn, they don't exist. They are smart enough to get an
appraisal.
Speaking of appraisals, pay to have one done! It goes a long way in establishing value for
buyers. Over pricing your property is the SINGLE biggest mistake that you can make
in marketing your property. If you can't come up with an intelligent supportable price, then
get a professional opinion of value. You will save yourself the agony of low ball offers
because all buyers think that inns are overpriced, and that is WHY you get them in the first
place. You are not going to hoodwink an unsuspecting buyer into overpaying for your property
because the financing entities will not let that happen.
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© 2007 InnMatchmakers.com
Phone: 303-916-8660 • Phone: 720-979-3184 • Fax: 720-746-2858
8968 N. Awl Road •
Parker, CO 80138
contact@InnMatchmakers.com
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