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B and B loans

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

B&B Loans – Bed and Breakfast Finance Loans

Running a business has its challenges, and one of the major ones when starting a company is the funds available. Some are fortunate enough to have savings that they can utilise towards the business, whereas others rely on investors and borrowing from the bank.

There are lots of finance loan options and finance providers available when starting a business. In this case, for bed and breakfast finance loans, there are plenty to consider to help boost your funds and help kickstart the business in the best way.

In this guide, you’ll understand all there is to know about finance loans in relation to bed and breakfast businesses. Whether you’re branching into a new career path as a business owner or you already have investments in other areas, property and business can be a great way to make your money go further.

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Options For Financing A Bed And Breakfast Property

There are various financial options when it comes to funding a bed and breakfast business. It’s worth knowing these so that you can make an informed decision on which finance type is best for you and your needs.

From unsecured business loans to development finance, this section can help you compare all of the financial options available. Take care in reading through each one and making sure that you’ve picked the right one for you and your business needs. Read also: Mortgages for Care Homes.

Commercial mortgage

Commercial mortgages tend to be the most appropriate solution when looking for financing. There are some lenders who will offer finance for B&Bs, but the type of mortgage you require often depends on a number of factors.

A commercial mortgage is best for anyone looking to buy property for business or commercial intent. However, there are some B&B owners who will live in the property also which can often blur the lines between a residential mortgage or commercial.

The answer to this lies within how much is residential and how much is commercial. If the area of the B&B is used for more than 40% as residential, then a residential mortgage can be acquired. Anything less and it’s a commercial mortgage.

For this type of loan, this mortgage type is really beneficial because there are so many options available. You’ll struggle to find something out there that doesn’t fit your needs.

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Business loan

Aside from the main appeal of a commercial mortgage, you may want to consider business loans, especially if the amount you need to finance is less than £25,000. There are some shorter-term options available like a business loan that wouldn’t require any security for the lender from you.

These unsecured loans are great for those looking for quick funds and for those who have already got capital to invest but need that little extra boost.

There are lots of business loan options available from a variety of different providers both on the high-street and also privately. It’s worth assessing the market through the services of a broker or doing the research yourself if you have the time.

Bridging loan

A bridging loan can be great for those that need fast finance in a matter of days. To complete a B&B business transaction, bridging finance helps to provide a bridge between the purchase and an exit strategy.

It means that should you need to refinance your lending through another loan provider or you want to sell up, this bridging finance can allow you to do that.

Many business owners or investors will use a bridging loan to help them secure the property when they’re struggling to get the funds needed for their next investment. It ensures that you’re not missing out on opportunities to secure your bed and breakfast business.

Development finance

Development finance is another one to consider if you’re looking to build a bed and breakfast business from the ground up. That, or you need to do major renovations on the property and, therefore, a big chunk of capital is required.

It’s a similar type of finance to bridging. However, the total amount you borrow in this case is provided in staged drawdowns. This means that you’re only paying the interest on amounts given to you already, which helps manage the finances a little bit more.

This type of finance is readily available and great for those projects that require a steady income of funds without having too much to pay back all at once.

Equity release from other holdings

Finally, an equity release is a good way to help finance a property when you’ve already got assets. If you’re someone who has a large portfolio of business properties or assets, then you could release the equity from these to fund your next purchase.

There are lots of investors that dabble in a variety of different investment types. So whether you choose to invest in property, the stock market or any other valuable investment, it’s worthwhile to diversify your portfolio.

It’s important to build up your assets over time, and with a B&B, this is a great property and business opportunity. It combines the best of both worlds because beyond the daily operation; it’s still a property that can gain value and that you could sell further down the line.

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Do You Need A Residential Or A Commercial Mortgage For A Guest House?

As mentioned above, the need for a residential or commercial mortgage will depend on how much the property is used as residential. This can be difficult to know or put down as a percentage until you actually go through the process of the mortgage itself.

The amount you’ll need to be residential in order to get a residential mortgage is 40%. Anything less than that, and it’s classed as a commercial mortgage. That’s a pretty fair amount waivered when it comes to getting a mortgage on your guest house. You could end up with a better deal if you’ve got a residential mortgage on a business property.

Why is it important to choose the right mortgage finance option?

There are a number of reasons why you need to tread carefully when it comes to the right finance for your business. If you rush attaining business funding, then you could end up hindering your potential success further down the line.

Here are a few reasons why it’s important to choose the right mortgage finance, whether it be a guest house commercial mortgage to a semi-commercial mortgage.

  • You don’t want to end up with high-interest payments.

The last thing you want for your guest house business is to see a lot of your profit wasted on paying back high-interest rate payments. You want to keep that interest as low as possible. Otherwise, you may find that you’re losing a lot of profit through mortgage payments that will eventually become too difficult to manage.

  • Some finance options can be too short or too long.

Depending on what finance option you pick, you’ll often need funding solutions that meet your needs over a certain period of time. A long-term loan might not be the ideal solution if you need a small amount of capital to top up the investment. On the other hand, if it’s a short-term period, you might be stretching yourself too thin financially.

  • You may not always find the best deal the first time around.

When you start looking for a financial option, the one with the best value for you won’t always be the first one you come across. Instead, it’s likely going to take a bit of digging in order to find the right option. Rushing the process won’t help you get the best deal, so make sure you’ve done enough to find the mortgage that fits your requirements.

It’s all about finding the balance, and research is important when it comes to borrowing money. It’s why it’s always good to get mortgage advice and loan advice in general.

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How To Secure A B&B Mortgage For Your Property

When looking for a B&B mortgage for your property, it’s good to have all of the relevant documents in place so that you are ready and prepared in advance. Typically, a mortgage such as this one differs from that of residential mortgages. You’ll likely need the following in order to secure a mortgage loan:

  • Business information and contact details.
  • Trading accounts for the last few years – depending on how long you’ve been operating.
  • General business accounts for those who’ve just started out.
  • Credit score check.
  • Future projections and exit strategy.

The more you can have and be prepared with, the better.

How does a lender assess your application?

Lenders will review applications, and typically, the more experience you have in this sector, the better. Your lender will want to know what experience you have and any of the licenses you carry to help run an establishment such as a guest house.

The lender will also want to know about your intentions as a business owner and whether you’ll need to hire anyone with the necessary experience required to run the day-to-day tasks.

As mentioned above, the lender may ask to see any future projections or business plans you have regarding the establishment. They may also want an exit strategy in place if you have any intention to sell.

How much trading history do you need?

Trading history is important because it helps you influence the lender in providing the funds. For a hotel business like a B&B, competition can be tough so often, there’s a requirement from lenders to have some evidence of trading in this sector.

Typically, most will expect between 2-3 years of accounts; however, some will accept less than this. It’s good to try and have as much as possible in trading history as this will give you the best chance at securing a loan.

How can a trustworthy mortgage broker help?

Securing a B&B mortgage for your property is going to take a bit of research on your part, or you could request the services of a broker. A broker can take a look at all of the relevant mortgage providers and lenders available on the market to help find the best one for you.

They can provide mortgage advice and help ensure that any you pick are going to be part of the Financial Conduct Authority (FCA).

With a broker, you cancel out all of the faff that comes with looking for the lender and applying directly with each lender. A mortgage broker will not only provide mortgage advice, but they will often guide you through the process of applying or do it for you.

It depends on the type of mortgage broker service you choose. Some will merely provide advice whilst others do everything on your behalf. It’s worth knowing which you want so that you can match yourself up with the right broker.

With a mortgage broker, the biggest benefit is that they’ve got access to the entire market and they know exactly who is best for you and your needs. So whilst you may get a considerable amount of lenders with your own research, it might not be to the full extent of what the broker can offer.

Experienced brokers are a great option for anyone that’s looking for a helping hand when trying to raise finance of any kind. They can be useful whether you’re navigating the market for the first time or you’re looking to invest in your next property but need a bit more guidance and help this time around.

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Factors That Affect A Lender’s Willingness To Grant B&B Loans

There are, of course, with any borrowing, some factors that will affect the lender’s willingness to grant B&B loans. Of course, there are plenty of lenders in the sea to choose from, but the best catches will also be the big ones.

Here are a few factors that will likely affect your application when it comes to attaining a loan or mortgage.

Business plan

A business plan is important when it comes to securing finance. If you’re new to the industry and this is your first time applying for finance, a business plan is critical.

It can help to have one so that the lender can see the professionalism and commitment you have for the business itself. If you approach a lender with a half-put-together proposal, then it’s likely to fall flat on its face.

In order to help give yourself the best chance of getting a loan approved, make sure you have a plan. This is just as important for experienced business owners in this industry as it is for the new players.

Creating a plan can take some time, so make sure you’re putting in the hours prior to applying. Be sure to critique everything you include so that you can iron out any queries of concern that the lender may pick up.

The more you can incorporate into this plan to give a solid first impression to the lender, the better. Every lender you approach will listen to your business proposal if it’s been well thought out, whether or not you have the experience to match.

Industry experience

Industry experience is one area that can let individuals and businesses down. However, everyone has to start somewhere, right? In the hospitality industry, it’s important that you gain the experience needed to help secure a loan.

Lenders will look at your previous experience within the industry, and it’s good to have as much as possible to secure finance. It might be that you’ve not yet started your business, and so industry experience in that regard is minimal.

However, there’s likely plenty of personal experience you have that relates to the hospitality sector and personally as a budding entrepreneur. Be reliant on any and all experience regardless of how limited it may be. This, along with your plan, is going to give you the best opportunity at a green tick from the lender when assessing your application.

Credit rating

Credit rating is a key part of getting the best loans out there on the market currently. With your credit rating, it’s very easy to improve over time, but it’s also just as easy to cause your credit score to drop. With that being said, it’s certainly worthwhile to be clued up on what your credit score is and how healthy it may or may not be.

Experian is a great site to check the state of your credit score, and as a rule, it’s good to improve your score in advance of seeking out mortgage loans. There are a number of ways that you can improve your credit rating as a business. A few suggestions include:

  • Pay bills on time and set reminders when payments need to be made.
  • Dispute any existing problems you have with finances.
  • Establish credit accounts with suppliers to avoid missed payments.

These are small changes, but they can make a big difference to your credit rating. The better it is, the more access you’ll have in terms of lenders and the more likely you’ll be able to secure a loan. Bad credit ratings are never going to do you any favours and will make it difficult for you financially.

Your licensing

The licensing you currently carry will certainly matter when it comes to applying for a loan. For example, if you’re serving drinks in a bar area then you’re going to need a license for this. Likewise, you may need necessary licensing in place to serve food, which is all very important when running a B&B.

If you lack these licenses to begin with, then you might be putting yourself at a disadvantage as a result. It’s worth looking at what licensing you will need for a B&B and then looking at the various organisations that will provide you with licensing. You can use this handy license finder on the GOV site.

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Trading history

Trading history is, again, another important factor when applying for loans. Some lenders may not wish to lend to those with a non-existent trading history whilst others might not be so fussed. It’s certainly important to have this history where possible so that you can use it as evidence.

For those with very little trading history, never fear. There will always be lenders out there that will lend you money, even if there’s very little evidence of trading prior to applying. It’s just a good thing to have when it comes to having access to the entire market of lenders available.

What Is The Typical Deposit Size For A B&B Mortgage?

The typical deposit size for a B&B mortgage is 40%. This will vary depending on the lenders, as some will ask for less. Some specialist lenders may have their own requirements depending on who they work with typically.

It’s always good to shop around for deposit sizes because it may work better in your favour to go with one lender over the other.

The deposit size will also influence the property size you go for. For example, there’s no point in getting a £750,000 property if you’ve not got the existing capital to meet the deposit needed. There are ways to secure a deposit through finance, but it’s good to have this in savings if possible. It’ll make borrowing money for the rest of the property a lot easier if you’ve got a clean slate.

Can You Get A B&B Loan With A Poor Credit Score?

Regardless of what credit score you have, there will always be someone willing to lend to you. When it comes to getting a B&B loan, it’s best to get your credit score in the best position possible before you apply for a loan of any type.

The downside of getting a B&B loan with a poor credit score is that you’ll be limited to what lenders are available to you. There will also likely be higher fees and interest rates due to the instability of you as a borrower.

Try to improve your credit score using the tips above and by taking advice from sites like Experian. Improving your score will help you get a better deal.

Get In Touch Today To Find Out Which B&B Loans Work For You

If you’re considering a B&B loan for your next business project, then it’s worth getting in touch with Loan Corp. We’re brokers that specialise in a variety of bridging finance loans for both personal and commercial clients.

With access to over 200 lenders, we can help bring your B&B dreams closer to reality. We pride ourselves on being one of the best in the business when it comes to attaining business funding in this sector.

For more information on what we can do, reach out to us today and let us help you secure finance for your business opportunities in 2022. See our other commercial finance guidance here.

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Looking to finance a B&B property this year? There’s plenty to consider in order to take the plunge and borrow a loan. Here are some helpful FAQs that might help answer any additional questions that you have.

What’s the best way to finance a B&B property?

The best way to finance a B&B property is through your own funding, first and foremost. That will give you the majority ownership, but if that’s not possible, approaching investors can be an option before you go looking for lenders through mortgages or borrowing a loan from private lenders.

There are lots of options available, but it’s really up to you and your needs as to what’s best.

How much deposit do I need to buy a bed and breakfast?

For anyone looking to put down a deposit on a bed and breakfast business, most lenders will need a deposit of 40%. Some may request lower, but these are limited. You’d need to fit the right criteria in relation to your business trading accounts, the property’s location, and future projections.

Can you get multiple commercial mortgages for different properties?

There’s no limit to how many buy-to-let mortgages any one person can have. However, some lenders will limit how much they’ll lend to an individual to minimise the potential risk.

As a business owner, there’s really nothing stopping you from having multiple BTLs across a range of different lenders. Of course, there’s always the added risk that comes with lending more money in general.

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