Starting a new bed and breakfast business 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 – so long as you have the right employees in place. 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 bed and breakfast 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. You could even join a bed and breakfast association and access additional resources to support your business plan and dreams.
Have you always wanted to own a B&B but are not sure how you could fund this dream business?
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 with business loans and a strong business plan to ensure you get your business off to a strong start.
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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 for commercial mortgages and business loans. While evidence of experience will work in your favour, it is not the only thing that lenders are looking for when determining the likelihood of you launching a successful bed and breakfast business.
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. If you can show there’s an appetite for paying guests in the area that you’re thinking of opening up a bed and breakfast, and that you’re aware of all relevant regulations and rules (such as a suitable property, fire risk assessment compliance, and food hygiene training courses), then you might be able to convince them of the viability of your bed and breakfast business.
What You’ll Need When Approaching Lenders
Before you start approaching lenders, you must have all of your ducks in order. This will show any lenders that your serious about becoming your own boss and investing in a bed and breakfast business that you’re committed to making a success. Ensure that you have the following.
- A detailed business plan
- An approximate loan amount that you’re looking for based on upfront costs
- 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 (and how it lends itself to being a bed and breakfast – or at least how you plan to change the property to make it so – such as installing a dining room area, ensuring there are enough bathroom and bedroom facilities for your business)
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.
Hospitality businesses need to consider what they’ll need from mortgage lenders or business loan lenders to ensure they actually have all of their finances in order before opening. There’s no use applying for a business loan to convert a property just to forget about simple things your guests will expect such as nice decor in the room or some basic tea and coffee making facilities. Running costs, start up costs, and the cost of property changes/purchases all need to be carefully considered to ensure you have the money you need to make a success of your new business.
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. Knowing your deposit and the likely cost of the properties you’re considering is a good idea so you know the mortgage amount you’ll need, the repayment costs, and whether you can make the business work.
Prepare your bank statements to show your affordability in terms of repayment and ensure you have a strong business plan that will convince lenders of your success.
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. Look into the area and get an idea about when the off-season typically is, and consider if any business trips or conferences could support you during the off-season.
You need accurate figures and estimates to ensure you can actually thrive in the bed and breakfast industry.
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.’
This would change the terms of your mortgage and might not be permitted by your mortgage provider.
Even if you’re looking to get a new mortgage for a new property, you’ll have to inform your mortgage lender as it could impact your affordability for your residential mortgage.
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, depending on how much work is necessary to get your bed and breakfast into a fit state for serving breakfast and housing guests.
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. Everything from how you will prepare breakfast to the breakfast menu, what will welcome your guests when your guests arrive and the number of rooms etc will all need to be detailed. As detailed a picture as possible ought to be painted here.
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.
Financing A Bed And Breakfast Business Conclusion
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. It’s important that you research your various financing options and to create a detailed business plan that reassures you and your lenders that you can afford repayments of any loans or mortgages you take out in order to get your bed and breakfast business off the ground.
Hopefully our guide today has helped you understand your options – it’s now your job to research specific deals and get to grip with the details of what a B&B might look like in your area. Do this, and you’re bound to make your business a success.
