Small Business Loans for Bed and Breakfasts

According to a 2017 survey, the bed and breakfast industry was predicted to grow four percent through 2021. It’s no wonder: bed and breakfasts pride themselves on excellent guest service and unique experiences through homemade meals, personal attention, and incomparable comfort. Bed and breakfasts are not just hotels: they’re end-to-end experiences.

However, the COVID-19 pandemic has altered the landscape of the industry. With travel rates now increasing as the COVID-19 pandemic becomes part of everyday life, bed and breakfast owners may now want to explore their options for low-cost funding for business growth.

If you own an established bed and breakfast and want to bolster your marketing efforts, hire more staff, or expand your offerings, here are some ways to obtain small business funding.

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Financing Options for Established Bed and Breakfasts During the COVID-19 Coronavirus Pandemic

Shortly after the COVID-19 pandemic led to a national shutdown in March 2020, Congress and the White House signed the CARES Act into law. This bill introduced a new Small Business Administration (SBA) 7(a) loan program: the Paycheck Protection Program (PPP).

The SBA devised PPP loans to provide extra funding to small businesses such as bed and breakfasts so they can afford to employ their employees throughout the ongoing economic downturn. Although PPP loan applications closed on August 8, 2020, hope for future small business assistance remains.

For additional information on how small business owners, including bed and breakfast owners, can use PPP loans, visit the SmartBiz Loans COVID-19 information center: Small Business Loans & Resources in Times of Coronavirus (COVID-19).

Applying for a first or second PPP loan in 2021

The SmartBiz streamlined PPP Loan application can help you fill out your application, upload required documents, and submit them to the bank quickly.**

SmartBiz can help you apply for these funds. We have specialized in SBA loans since 2013 and our network of banks has funded nearly $4 billion in SBA, PPP, and bank term loans.

Whether this is your first or second PPP loan, SmartBiz can help! Businesses with less than 500 employees that are negatively impacted by the pandemic can apply for their first PPP loan.

Start an application today here: PPP Loan Application

The challenges of obtaining bed and breakfast financing

Accessing funding for bed and breakfasts can be difficult since the COVID-19 pandemic has upended the travel industry. Additionally, prior to the COVID-19 pandemic, accessing bed and breakfast financing was already difficult.

Many people who start bed and breakfasts (or buy existing ones) haven’t previously managed bed and breakfasts, and lenders typically hesitate to fund companies whose owners lack relevant management experience. Additional challenges include generating verifiable data for room demand (which lenders may ask to see) and affording the required cash injections of up to 30 percent of total startup costs.

COVID-19 travel restrictions have also impacted bed and breakfasts’ funding prospects. The Centers for Disease Control and Prevention (CDC) has advised limiting travel during the pandemic, and even though travel is picking back up again, it’s still down significantly from what it once was. Currently, approximately two-thirds of hotels are operating at under half their usual capacity – and for bed and breakfasts, which have far fewer rooms than do hotels, the effects of decreased travel may be far more profound. Simply put, with less travel comes fewer bed and breakfast customers. Even with this downturn caused by the novel coronavirus, funding options are still out there for bed and breakfasts.

Financial options for bed and breakfasts

Finding a bed and breakfast loan, especially one with an affordable rate, can prove challenging. However, you have options including SBA loans and merchant cash advances. Below, find the information you need to make the right choice for your bed and breakfast. Note that while some small business loans can be rapidly approved, you may need to wait longer for others, just as both expensive and affordable loans exist.

The SBA 7(a) loan program

If your bed and breakfast qualifies for a low-cost SBA 7(a) loan, this option may well be best. SBA 7(a) loans have low rates, long payment terms, and low monthly payments. As such, they are excellent for achieving stability, growing your business, and saving money.
You can use an SBA 7(a) loan to cover costs such as:
Working Capital – Working capital, which is the amount of cash on hand your bed and breakfast can access for day-to-day operations, is often the strongest indicator of a company’s health. You can calculate your working capital by subtracting your current liabilities from your current assets. If you calculate a negative difference, your bed and breakfast will require additional working capital to remain stable.

As a bed and breakfast owner, you should have enough working capital to cover all your financial obligations and standard day-to-day expenses. You can use the money from an SBA working capital loan to build your business through hiring employees, purchasing better equipment, and spending on other items that help you provide your services, such as marketing and advertising services.

  • Debt Consolidation Loans – Through debt consolidation loans, you can refinance short-term business loans, high-interest business loans, daily or weekly payment loans, or merchant cash advances that you’ve previously taken for your bed and breakfast.
  • Commercial Real Estate – You can use an SBA 7(a) loan to purchase an owner-occupied commercial space for your bed and breakfast or refinance any of your current commercial real estate mortgages.

Advantages of SBA 7(a) loans for a bed and breakfast

Many authorities in the small business lending world see SBA 7(a) loans as the “gold standard.” That’s because they have 10-year terms with low rates (though loans for commercial real estate have 25-year terms). You’ll also get the following advantages when you choose an SBA 7(a) loan for your bed and breakfast:

  • No prepayment penalties
  • Available in all 50 states
  • Timely payments can boost your credit score
  • Affordable monthly payments
  • Wide use of funds
  • Requirements to apply for an SBA 7(a) loan for a bed and breakfast

No two lenders have exactly the same requirements for approving an SBA loan. For example, while some lenders require borrowers to present a business plan, others (including SmartBiz Loans) have no such stipulation.

You can expect roughly the following criteria when applying for an SBA 7(a) loan for your bed and breakfast.

  • Your personal credit score must be above 650
  • You must have no bankruptcies or foreclosures over the past three years
  • You must not have any recent settlements or charge-offs
  • You must be a U.S. citizen or lawful permanent resident
  • You must be at least 21 years old
  • Your bed and breakfast must be located in the U.S.
  • Your bed and breakfast must be at least two years old
  • Your bed and breakfast must have no outstanding tax liens
  • You and your business must be on-schedule with your government-related loan repayments

How to apply for an SBA 7(a) loan for your bed and breakfast

Step 1: Check the above requirements for an SBA loan to make sure you qualify. You can also learn more via the SmartBiz Loans blog 5 Key SBA Loan Requirements for Existing Business.

To discover how your business financials stack up for funding, use our easy-to-use online tool. SmartBiz Advisor™ helps you track the financial health of your business and learn how banks typically evaluate your business.* SmartBiz Advisor also recommends ways to help you improve your credit and strengthen the financial health of your business as needed. Read feedback from real SmartBiz Advisor users and sign up here.*

Step 2: Get all your paperwork together – there might be a lot, so start compiling it now and keep it all organized. To see which documents you might need, read the SmartBiz Loans blog How to Get an SBA Loan: Documents You Need. Consider having your accountant, bookkeeper, or other financial professionals assist you with this step.

Step 3: Choose your lender based on the following factors:

  • Availability
    Can you contact your lender at any time? Does your online lender have phone capacities too? No matter your lender, make sure the company assigns you a representative who knows your company, application, and industry well. A lender lacking these traits might not be worth trusting.
  • Transparency
    Just as you want a lender that communicates readily, your lender shouldn’t hesitate to discuss your loan’s annual interest rate or APR.
  • Obvious loan terms
    Complex fine print can be a red flag. That’s because unclear fine print often masks unfavorable loan costs and payment schedules. Make sure you can clearly see the total loan amount, your required payment frequency and amounts, your prepayment penalties (if applicable), and your collateral requirements.
  • Fees
    Avoid hidden fees. Choose lenders that charge few fees besides interest and repayment. Make sure your lender indicates that all fees are due before loan funding and during your loan’s lifetime.
  • Strong reputation
    Check your lender’s reviews (and while you’re at it, check that the reviews are by real people). Browse Google, Consumer Affairs, or TrustPilot reviews to see what other borrowers have said, and weigh their experience against your needs.

The SBA 504 loan program

The SBA started its 504 loan program so that small businesses could obtain low-cost expansion and modernization funding. You might want an SBA 504 loan for your bed and breakfast if you need to purchase commercial real estate, and these loans may also be useful if your bed and breakfast fits the public policy goals of your local community development corporation (CDC). Your CDC might cover up to 40% of your project cost, with your 504 loan covering half and a cash down payment of your own covering the rest.

The SBA microloan program

The SBA Microloan Program provides loans of at most $50,000 for very small businesses (also known as microbusinesses) such as startups – and perhaps your bed and breakfast. While different lenders might have different loan requirements, no SBA microloans can go toward debt payments or real estate purchases. Instead, you can use your microloan for all other business needs.

Non-SBA loans and other funding options

While you’re not limited to SBA loans when it comes to bed and breakfast funding, your other options may have larger payments, shorter terms, and higher rates. These options include:

Bank term loans

If you need funds fast and your finances aren’t quite up to snuff for SBA loans, you can try bank term loans. Different lenders will have different requirements, but typically, you can use bank term loans toward refinancing your debts, obtaining working capital, and buying new equipment. Ask your lender about your rates, repayment terms, possible loan amounts, and prepayment penalties.

Business lines of credit

Through a business line of credit, you can borrow money up to a certain amount that varies with your credit. As such, you’ll typically get less funding from a business line of credit than with a term loan.

When using a business line of credit for funding, you’ll only pay interest on funds you actually use, and you can borrow money however often you’d like until you reach your maximum. You’ll also likely see solely unsecured business lines of credit, meaning that putting up collateral isn’t a requirement. To learn more about business lines of credit, read the SmartBiz Loans blog Small Business Lines of Credit Pros and Cons.

Like business lines of credit, business credit cards are also revolving lines of credit. However, unlike business lines of credit, business credit cards still function after you hit their credit limit. You may also receive spending rewards with some credit cards. Read more about business credit cards via the SmartBiz loans blog 5 Business Credit Card Myths.

Merchant cash advances

If your bed and breakfast accepts credit and debit card payments, you may also qualify for funding through a merchant cash advance (MCA). When you use an MCA, you’ll get a predetermined amount of advance funding that you’ll repay by setting aside a percentage of all your transactions or making regularly scheduled payments.

This streamlined repayment model comes at a cost: MCAs typically have extremely high APRs. Learn more via the SmartBiz Loans blog What You Need to Know About an MCA.

Bed and Breakfast Funding Success Story

SmartBiz Loans recently worked with the founder of a Bed and Breakfast in Virginia in early 2020. Facing staff hourly reductions and layoffs, the owner came to SmartBiz Loans for help facilitating a forgivable Paycheck Protection Program loan from a bank in the SmartBiz network. The streamlined application was approved and the business was able to cover payroll costs impacted by the Coronavirus pandemic.

Why Choose SmartBiz

Need funding to rebuild your business? Don’t waste time going from bank-to-bank filling out multiple applications. SmartBiz helps you find the best financing for your unique needs whether that’s an SBA loan, Bank Term loan, or other financing. About 90% of qualified applications we refer to banks are funded and our financial professionals are on hand to answer your questions. Discover if you’re pre-qualified here without impacting your credit scores** and read the SmartBiz 5-star customer service reviews on TrustPilot.

*The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

**We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.