December 15th, 2014. Ben Lloyd
Commercial Mortgages: Funding a Hotel or B&B
The UK tourism industry is compiled of nearly 200,000 businesses, which employs more than 1.4 million people and generates around £20 billion per year of foreign revenue. B&Bs contribute £2 billion of this (10%), so it’s understandable that running such an establishment is a highly desirable career, especially for those who long for semi-retirement.
If you’re considering leaving your job to live the dream of running a B&B then you’ll need some start-up capital and a mortgage. Let’s look at the funding you should consider before you make this big decision:
Residential vs. Commercial Mortgages
It’s unlikely that you live in a large property with ample spare rooms, so we’ll assume you’ll need to buy a new property in order to house guests. One that is large enough to live in and use as a business, with every bedroom having the opportunity to be en-suite.
To do this you are likely to need a mortgage. But do you need a residential or commercial mortgage? Well, this will depend on the lender’s requirements and the nature of the property.
Commercial mortgages usually require a 25% deposit, so make sure you’ve done your sums and you can afford to buy your dream B&B property.
If you are only using one or two rooms for visitors then you may be able to get away with a standard residential mortgage. Generally though, if less than 40% of the property is used for the sole owner then a non-regulated commercial mortgage is necessary. Or a semi-commercial mortgage may even be suitable. It is always advisable that you speak to an experienced financial advisor to gain more details on this.
If you do decide to apply for any form of commercial mortgage it is likely that your experience in the sector will be examined. If you do not have any experience in the leisure sector, or of running your own business, they will want to see a well-thought through business plan.
This business plan should include details of any start-up capital you will require to refurbish the property, as well as working capital. And remember, decorating a B&B will cost much more than a basic commercial residence – you need to make it comfortable for your prospective guests, like a home-from-home.
Your business plan should also look at competitors, your marketing plan, financial projections and an accountant’s recommendations.
Loan Against the Land
Alternatively, you could purchase a piece of land and build the ideal B&B from scratch. Land finance can help fund the build. There’s a common misconception that you cannot get a mortgage on a piece of land; however, just because a plot doesn’t have a property on it or planning permission granted, it doesn’t mean you can’t acquire a loan against it.
Land mortgages, bridging loans and development finance can all be secured to help finance a commercial build from scratch.
Insuring Your B&B
The standard business insurance won’t cut it when it comes to a guest house, B&B or small hotel. After all, customers will be staying overnight and you will be feeding them. This increases the risks, compared to say a shop, and therefore a higher level of cover is required.
Get an Investment of Experience
As seen on popular television series Dragons Den, business (angel) investment finance is where a professional invests their money and sometimes also their time and experience into a new or expanding business. This finance is targeted at business owners who have the talent but not the finances to make their ideas come to life.
If you think you may struggle to acquire finance due to a poor credit history or lack of experience, thismay be a solution. It’s all about connections and we can introduce your project to a number of investors who may consider taking your opportunity to help fund a new B&B venture.
Develop With a Little Help
You may want to consider development finance if you intend on doing an extensive refurbishment job. This will fund the work you want to do, in order to bring the property up to a suitable standard for its purpose i.e. nice enough to sleep in.
However, finding this refurbishment finance is more difficult than securing a mortgage. Most high street lenders do not offer a product specifically designed for commercial development and therefore, locating the best deal possible can be limiting without the help of an experienced financial broker.
Don’t settle for the first refurbishment finance deal you are offered, let us help find you the best deal possible, so you can get your project off the ground with the best start possible. We recognise each project is unique, so we’ll tailor your loan application to your specific needs and ensure a stress-free finance acquiring process.
Do you want to talk to an expert about financing your hospitality project? Then give us a call today!
Article By Ben Lloyd
December 15th, 2014
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben