For those entrepreneurs wishing to purchase a guest house or bed and breakfast as a business, they may be wondering how to go about financing their business venture. There are a number of financing options available, but for this purpose, a commercial property mortgage is most likely the best choice.
This type of financing will allow the borrower to gain the funds he or she needs to purchase, refurbish, open and run the business without having to tie up the capital in the property through the process.
Many lenders specialise in business finance that is applied to guest houses, bed and breakfasts, and hotels. These lenders are able to provide different mortgage and loan packages, including remortgage options, to help borrowers raise the financing needed to either make a purchase or do refurbishments on their existing property.
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Some lenders are also able to arrange non-status, self-certification, and adverse credit mortgages for those borrowers who have non-traditional financial situations.
What to Look for When Purchasing a Guest House
The tourist industry in the United Kingdom is booming with approximately £76 billion being made every year. With the demand for hotels and guest houses growing, it is no surprise that more and more individuals are getting into the market.
When thinking about purchasing a bed and breakfast or guest house business, it is important to think about the location of the property. Properties that have a waterfront view or are close to other tourist attractions tend to do better business than other properties.
Information on Financing a Guest House
In order to run a bed and breakfast or guest house business, it is required to get permission from the local council in the area where the property is located. The building being considered for the business must also pass all safety and fire regulations and the owner must obtain all the proper licenses in order to run the business properly. In most cases, financing will be needed to complete all of these steps.
Commercial mortgages products are the traditional way that individuals raise the financing needed to begin this type of business, especially if funding is already available to make a deposit on the property.
This type of financing could potentially raise up to 85 per cent of the property’s value and the level of borrowing available will be determined by other factors, including the location and popularity of the area in which the property is located – inland businesses will likely be outperformed by waterfront businesses.
When beginning the financing process, the lender will want to know the borrower’s projected incomes for the business and whether or not the borrower has any previous experience in the tourism industry. They will also inquire about the location of the business, the tourism accommodations being provided, the amount of funding available for deposit and if the borrower has any credit issues or problems.
When looking at the property in question, the lender will also want to know if there is any residential space associated with the building. If the building is 40 per cent or more residential, the mortgage will need to be adjusted to conform to the FSA mortgage regulations if the borrower wishes to live in that space. If the borrower hires a manager to live in and run the business, this will not apply.
By having all this information available upfront it can help to make the process much quicker and smoother. In most cases, a detailed business plan will provide the lender with all of the information needed as well as being a blueprint for the business owners over the next few years.
Refinancing an Existing Guest House
For those already owning a guest house or bed and breakfast business, there are financing options available to help them unlock useable capital in their property. Lenders will offer a commercial remortgage at a much lower rate for existing business owners to help them secure the financing needed to make refurbishments, repairs, upgrades, or purchases for the business.
These funds can also be used to expand the business or even for purposes that are not related to the business in any way.
Commercial Mortgage Professionals
Individuals who are new to the financing world will generally begin the process by speaking to their high street bank. Although this may seem like the logical place to start, it is important to remember that banks are in the business of selling their own financing packages and not necessarily what best fits with the borrower’s needs.
In many cases, the best first step is to solicit the help of a reputable mortgage broker – brokers will work with different lenders to help match a borrower with the right mortgage deal.
In many cases, a good mortgage broker will have access to a number of different specialised lenders that are willing and able to work with borrowers to meet their needs. Having the help of a broker can be especially beneficial for those individuals who have adverse credit or who have non-traditional incomes, such as the self-employed.
Brokers will be able to facilitate not only finding a perfect lender but also working with them to secure the borrower a deal that is perfect for their guest house needs.