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Financing My New Inn - Where Do I Start?

You have dreamed of your inn for years and now you have found the perfect property. All you need is some additional cash to get the ball rolling, but from where? There are a number of options for financing a bed and breakfast or country inn. Some of the options will depend on whether you are buying an existing business, building your inn from the ground up or converting another property, usually a residential property.

For smaller inns, four rooms or less, you may be able to get a residential loan, for anything larger you are probably going to have to have a commercial loan or seller financing. For many years lenders did not understand what a bed and breakfast inn was. Is it a house or is it a small motel or something in between? Fortunately for you, those that have gone on before you have blazed a trail of knowledge. Now not all lenders will be familiar with our industry, but many more are.

There are a number of institutions that will loan money on a commercial project including, State and National Banks, Credit Unions, Insurance Companies, Venture Capital Firms, Mortgage Brokers and Small Business Administration (SBA) Loan Providers (bank and non-bank) and of course sellers. The most common forms of financing for inns are through local banks, SBA lenders and sellers. You can also raise funds through family and friends who become private lenders, partners or stockholders in your business (depending on its legal status, i.e. sole proprietorship, partnership, Limited Liability Company, S-Corporation or C-Corporation).

You (and your fellow) investors will need to step up to the plate with your own money as the initial investment. On commercial loans it is common for a lender to require 20-30% of the total funds needed from you. Your lender will also want to know how you are going to pay them back. They will want to know what the primary source of repayment will be, such as the income from the business and what the secondary or fall-back repayment will be if you are not making enough from the business. In gathering and preparing your data consider the "Five Cs of Credit."

"Five C's of Credit!"

  1. Character - by far the most important. If you are not someone to be trusted, then the lender doesn't want anything to do with you, no matter how good the deal is.
  2. Capacity - what is your track record in this business or previous businesses and what is your financial strength.
  3. Capital - how much of your own (and/or investors) money is in the project? If you are not willing to put your own money in, no lender will either.
  4. Collateral - what is available to support the primary source of repayment on the total amount of the loan?
  5. Conditions - what is the economy doing and how will it effect your company and the loan it is seeking?

In almost every case, you will need to have a Loan Package put together and in some cases a more formal business plan and/or feasibility study. A separate loan application may also be required. The requirements will vary depending on your business experience and your experience or education as an innkeeper. If you are purchasing an existing inn you will also need good financial records from the seller. Some lenders will require you to use a consultant or experienced innkeeper to help in analyzing the property you want to buy and to make sure your projections and plans are reasonable. Please review the following basics of a Loan Package.

(typed, dated, signed):

Loan Request -
  • Use of the proceeds of the loan and/or purpose(s)
  • Amount Required
  • Source(s) of repayment
  • Collateral offered
  • Terms desired
History and Nature of the Business -
  • A description of your business and its history
  • A short and long-term marketing plan
  • Description of your facilities, including brochures, websites, etc.
  • Listing of your suppliers and credit accounts
Historic and Projected Occupancy and Gross Revenues -
  • With substantiation and/or explanation as needed
Business Financial Statements -
  • Profit and Loss (or Income) Statements for the last three years (if available)
  • Some lenders will ask for a current Balance Sheet
  • Performa (or Projected) Profit and Loss Statements for the next two years (after the loan), with explanations and substantiation as needed
  • Some lenders will also want three years of business tax returns
  • Some lenders will also want a cash budget included
Management -
  • Current resumes of all principal owners/managers
  • Current personal financial statements on all owners within 90 days
  • Some lenders will also want three years of business tax returns
  • A listing of key advisors, such as, CPA, Attorney, Consultant(s), Insurance Agent, Real Estate Agent, Bookkeeper, etc.
Commercial Appraisal -
  • Most lenders on a business will require a commercial appraisal of the business property being used as collateral. This must be ordered by the lender. If you have an appraisal done on your own, it may not be accepted by a lender. They are expensive! Figure them in your costs of getting a loan they can run from $2,000-$5,000.
Other -
  • Anything else that may be pertinent, such as, partnership agreements, incorporation papers, photographs, title insurance, etc.


Many inns have been financed through the SBA process and they are a good option to consider. Because of the SBA guarantees, the lender has less risk and more money to lend, However with all things government (and it is better than it used to be) there is a lot of paperwork and time involved. In fact in most all loan application processes it will take longer than you thought. Plan ahead and give yourself plenty of time to complete the process.
There are a number of PAII vendor members who can help you with real estate, lending and consulting. Go to, click on Resources at the top, then Vendor Marketplace on the left. The next page will list the categories for vendor members and just click on the category of interest.

Hugh Daniels is a former innkeeper of 22 years and a national innkeeping consultant with an expertise in all facets of the industry. He has several successful loans under his belt and can be contacted at

Published in Innkeeping Newsletter, November 2004

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