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.
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.
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.
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.
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:
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 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.
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.
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:
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 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.
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:
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.
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.
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.
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.
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.