Starting a bed and breakfast requires money

If you’re contemplating starting a bed and breakfast, financing plays a big role.

And, if you haven’t found out already, the biggest issue facing those that are thinking about starting a b and b is that banks are not keen on approving loans and/or mortgages for potential B&Bs.

The most common reasons banks aren’t interested are:

  • First and foremost, most banks are not interested in loaning to any start-up business
  • Many start-up B&B owners have very little experience in the accommodations and hospitality sector, so fail to anticipate the challenges of the business
  • Location is a key factor in any business’ chances of success, and many potential B&B owners tend to want to locate in non-urban settings, which requires a strong marketing plan and investment in the same to ensure success
  • Most B&B income is cyclical – that is, seasonal – periods of high traffic and off-season months, so monthly payments can be difficult to manage
  • Additional funding may be required for remodelling projects and major repairs
  • A property’s market value is often higher than appraised value
  • The value of special architectural or historical characteristics of a property aren’t reflected in the bank’s assessment of a property, even though they may provide an opportunity to market the property to potential bed and breakfast guests
  • If not positioned properly, banks will see this as a home-based business and want to charge commercial rates, which are much higher than residential rates
  • If purchasing an existing B&B, you are not able to use the previous owners’ revenue without having to take a commercial loan

However, organizing the finances for starting up a bed and breakfast (compared to other businesses) has two crucial things going for it:

  • The largest cost incurred is in residential real estate, and getting a conventional residential mortgage can be the overall starting point (This only applies if you are purchasing a standard property – or own the property already.) 
  • Your inventory costs are minimal, once the capital expenses are made (furniture, linens, appliances, etc.)

While this isn’t the exciting part of planning for starting a bed and breakfast, it is one of the most crucial.

Begin the process by talking to real estate agents and bankers (and maybe even your financial advisor) to see how you might be able to access the funds you need to pursue your dream.  It will be essential to have a full-scale business plan in place, with cash flow documents and research about your target audiences.

Not so far along in your planning for starting a bed and breakfast?  Still have concerns about whether owning a bed and breakfast is the right fit for you? Contact me to discuss your questions and concerns!

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