Re-Financing a Bed & Breakfast/Inn
All
Bed & Breakfast/Inns are unique by design; in fact it is that
unique quality that separates one B & B from the next. Innkeepers
invest their energy and capital over time to create a welcoming and
hospitable environment that is unique to their community and valued
guests. Each financing is unique as well, so your individual
circumstances i.e. credit financials and investment objectives
need to be analyzed and considered relative to what financing
programs best fit your investment objectives and your particular
property.
Value: While
the charm and ambiance of an inn add to a patron’s experience, such
intangibles have only an indirect effect on the actual value. An inn’s
commercial market value is ultimately determined by evaluating the
values of the real estate, cash flow and sometimes furniture, fixtures
& equipment (FF&E). The appraised value will be used to
determine the actual loan-to-value of the property. Appraisal
fees range from $2,400 to $5,000 depending on the nature of the
property and customary charges in a given geographical area.
Credit Scores are
extremely important to a lender in evaluating the merits of a loan.
Your credit (or FICO) scores have a direct impact on the rate, term and
loan program you for which you qualify.
Note: Individual lender guidelines may vary. For a copy of our Credit Guide, please visit our web site at:www.bedandbreakfastfinancing.com.
Residential Mortgages:
- Mainly used for financing start-up inns
- CANNOT refinance operating B&B/Inn
- Income to cover debt service MUST come from sources/income outside the business
- Typically smaller inns (3-5 rooms) with a Residential “Alternative Use” ONLY
- Operating B&B’s DO NOT qualify for conforming residential loans i.e. Fannie Mae and Freddie Mac
- Value of the real estate is determined by residential comparables, NOT income from the Inn!
Conventional Commercial Loans:
- For Viable
inns only (Inns that cash flow principally on the business income
however, underwriting may use global Debt to Income Underwriting DTI)
- 60% to 70% Loan to Value (LTV)
- 20 Year Term
- 2% to 3% in Closing Costs
- Cash Flow 130%
Debt Service Coverage Ratio (DSCR)
- Yearly Business Financials Required
SBA Loans:
- For Viable inns
only (Inns that cash flow principally on the business income however,
underwriting may use Personal Income to offset personal debt/expenses)
- Refinance may use 7A Only
- Purchase both 7A and 504
- 3 to 5 Year Fixed Rate 7A 25 Year Term
- 25 Year Fixed 504
- Maximum Loan to Value (LTV) 75% of Appraised Value
- Lower Total Closing Costs
- Cash Flow 120% Debt Service Coverage Ratio (DSCR)
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