With the guest house market booming, many people dream of owning a bed and breakfast to run as a part of the tourist business and become their own boss. But, for just as many people who dream of owning these properties, there are those who cannot afford to make the purchase outright.
With the help of a knowledgeable mortgage or lending broker, it is possible to secure financing to purchase a guest house without having to tie up capital available in the property that is often better used for refurbishments, needed repairs, or operating costs to open and run the bed and breakfast long term.
How Guest House Mortgages Work
There are lenders who specialise in arranging business finance and some work exclusively in the field of commercial property mortgages. These agents work to help investors and business owners purchase commercial properties such as office space, warehouses, hotels, restaurants and even small bed and breakfasts.
It is also possible to find lending institutions willing to work with those seeking self-certification, non-status, and mortgages for those with poor credit. These lenders understand that not all business owners or companies can meet the sometimes strict criteria that many high street banks set forward. Many lenders will often offer a variety of different loan types in order to meet borrower’s needs.
Start Up Mortgages for Guest Houses
Many lenders will request to know the business plan and projected income for the bed and breakfast or guest house before moving forward with any financing. It may also be required for the borrower to provide information on the location of the new business, how much is available from the borrower as a deposit, record of previous trading experiences as well as if there have been credit problems in the past.
If the property that is being purchased is more than 40 percent residential, the financing will need to be adjusted to meet the FSA mortgage regulations should the borrower wish to live in the residential portion – if a manager is hired to run the guest house, this adjustment will not apply.
Financing Information for Bed and Breakfasts
In order to open and operate a guest house or bed and breakfast, the business will need permission from the local council or authority. The building that is being purchased with the intent of opening the business will also have to pass safety regulations, including a fire inspection and other inspections that are required – these additional licenses will vary from one region to the next.
If some funding for a deposit on the property already exists, a commercial mortgage will more than likely be the best option in order to raise funds to open and operate the guest house. This type of financing can often be secured to cover up to 85 percent of the property’s purchase price when the value of the property is determined by the lender or a third party working on behalf of the lending institution.
Additionally, the tourist market and the accommodations the borrower wishes to provide will also affect the lender’s decision on how much funding it will extend for the project. Any guest house or bed and breakfast that is a distance away from other established, popular tourist attractions will likely be outperformed by businesses in more popular areas.
Guest houses that are opened near a waterfront or popular tourist attraction will generally see more flexibility and willingness from the lender than those inland properties that may not have as much appeal to tourists seeking vacation lodgings. Added features like an in-house bar will require additional licenses but may be more attractive to lenders.
Refinancing an Established Guest House
If the borrower already owns a bed and breakfast or guest house, he or she may wish to refinance the property in order to unlock usable capital for updates or additions to the business. These funds can be used for a variety of purposes, including performing needed repairs, redecorating the interior of the guest house, making additions to the building, or other business ventures.
In some cases, borrowers will use the released capital from their business for personal expenses – although many high street banks frown upon this and may not offer funding. Some specialised lenders have the belief that the borrower has the right to use the capital in his or her property for whatever purpose he or she chooses.
Who to Contact for Assistance with Mortgages for Bed and Breakfasts
Generally, borrowers will first go to a high street bank looking for a mortgage or other financing to help fund their guest house investment. Since those business lenders are in the market to sell their own companies products, they are generally not willing to lead borrowers to the best possible options, even if those options are not part of their institution.
The best place to begin the discussion of a commercial mortgage is with a mortgage broker – brokers will work with borrowers to find the best possible type of financing for their project and also help them to compare lending institutions to find the best deals.
By comparing deals and institutions, it is likely you will be able to find funding that best meets your needs.