How to Buy a Bed and Breakfast with Little or No Money

After 15 years advising entrepreneurs on business funding, I‘ve seen many finance a bed and breakfast with limited personal capital. While challenging, with thorough preparation and persistence, your dream of B&B ownership can become reality.

Know Your Finances Inside and Out

As an entrepreneurship consultant, I always advise clients to start by assessing their financial standing. Compile tax returns, bank statements, credit reports, and everything needed to understand:

  • Personal assets available to invest
  • Income streams and cash flow
  • Outstanding debts and liabilities

This gives a realistic picture of what you can leverage to fund or finance a business. Expect this to take 2-3 weeks gathering all documentation.

"We saved for years before buying our B&B, squirreling away $200 a month. It added up over time, giving us $14,400 to put towards the sale," says John S., Illinois B&B owner.

I also recommend attending a Small Business Association (SBA) business planning workshop. Local SBA district offices hold regular seminars covering each element of a business plan to impress lenders.

Get Creative with Financing Sources

While the average small business startup costs $30,000 [1], B&Bs often demand $250,000 to $2M given real estate and renovations. With little personal capital, financing is essential, including:

Seller Financing

  • Down payment: 0-10%
  • Interest Rates: 6-8%

Freddie Mac data shows over a third of small commercial sales had seller financing terms last year [2].

Crowdfunding

  • Average Raised: $7,000 [3]
  • Success Rate: 30-40%

Rewards-based platforms like Kickstarter help raise chunks of capital through many small donations.

Microloans

  • Avg Loan: $13,000
  • Interest Rate: 8-13% [4]

Non-profit lenders like Accion provide small business loans with more flexible eligibility standards than banks.

Home Equity Line of Credit (HELOC)

Riga Associates offers this perspective on using home equity to help finance a B&B:

"We opened a $50,000 HELOC to supplement our $30,000 savings when purchasing our property. It provided the working capital needed for renovations before opening."

Now let‘s examine finding the perfect B&B location…

Locate Motivated Sellers Willing to Negotiate

Connecting with sellers who align with your vision and constraints is key to purchasing a B&B without large capital reserves.

Based on your financial standing, create a set of ideal negotiating terms – precise years and interest rates desired for seller financing terms, multi-payment installment plan options, everything on your wish list.

Scour sale listings for "motivated" verbiage, like:

  • Owner financing available
  • Make offer
  • Flexible terms
  • Price reduced

Also directly contact agents listing B&Bs online or in your target location. Share the story of your hospitality vision and constraints to locate receptive sellers. Expand your search beyond online listings to maximize chances of connecting with the right seller.

Put Your Business Planning Hat On

Just because you‘re short on capital doesn‘t mean you can shortchange the business planning process. A rock-solid business plan is essential for attracting financing, reassuring skeptical sellers, and setting yourself up for success. Key elements include:

Competitive Research

Thoroughly analyze comparable B&Bs in your target location. What amenities and services set them apart? Where might there be untapped guest demand? Use data from platforms like Airbnb to estimate occupancy rates and revenue potential.

Financial Projections

Create 5-year profit/loss projections, factoring in one-time startup costs and ongoing operational expenses. Determine desired owner‘s salary and timeline to profitability. To build projections, utilize industry reports with expense ratio and revenue data.

Marketing Plan

Outline target guest personas and how you‘ll attract them through search, social, discounts for mid-week stays, and local tourism partnerships. Use Google Analytics and social listening tools to estimate demand.

Funding Requirements

Clearly detail exactly how much capital you need and how/when you expect to receive it. Provide backup documentation for all financing sources – pre-approvals for loans, terms from prospective sellers, etc.

Now let‘s look at negotiating win-win deals…

Craft Your Offer Strategy

Hone your negotiation skills because creative dealmaking is mandatory to buy a B&B without personal funds stockpiled.

Determine the maximum payment you can afford each month, including some buffer room. Make reasonable offers aligned with property values, not attempting lowball gambits doomed to fail.

Upfront, share your financial constraints and vision for the property. Consider including an Inspiration Binder showing renovation plans, menus, marketing materials to get the sellers excited about your vision.

Aim to negotiate terms like:

  • 10-20% down payment
  • 5-8% interest rate on seller financing
  • 3-10 year loans
  • Contingencies allowing you to opt-out after inspections

Hire legal counsel to ensure offer terms protect you. Reassess dealbreaker issues not worth compromising over.

While the lack of capital creates challenges, with financial savvy, planning, persuasion skills, and some luck connecting with the right seller, you can purchase a B&B without large savings stockpiled. The tips above boil down the process into clear steps more feasible than often assumed. Feel free to reach out if you need any personalized guidance or encouragement in your B&B entrepreneurship journey!

Sources

[1] Small Business Association
[2] Freddie Mac
[3] Forbes
[4] Kiva
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