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Open a Bed and Breakfast with the SBA 504

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Are you someone who has always dreamed of running your own cozy retreat, where guests can enjoy a home away from home experience? If so, starting a bed and breakfast (B&B) might be the perfect venture for you. Running a B&B does have special considerations, however, including financing. Read our article to learn more about starting a bed and breakfast and how a SBA 504 loan can be used to help secure funds for things like real estate, furniture, repairs, and more. 

Bed and Breakfast vs Hotels

While both B&B’s and hotels/motels fall under the broad umbrella of hospitality, they are quite different. Unlike hotels and motels, which are often larger establishments with multiple rooms and standardized amenities, bed and breakfasts offer a more intimate and personalized experience for guests. Here are some key differences:

Personalized Service

One of the defining features of a B&B is the personalized service guests receive. Most B&B’s are also occupied by their owners. As an owner-operator, you have the opportunity to interact closely with guests, providing insider tips on local attractions, preparing homemade breakfasts, and creating a warm and welcoming environment.

Unique Atmosphere

B&Bs often boast unique and charming accommodations, such as historic homes, countryside cottages, or themed rooms. These distinctive features contribute to the overall experience and set B&Bs apart from cookie-cutter hotel chains.

Homelike Environment

Unlike hotels, which can feel sterile and impersonal, B&Bs aim to replicate the comforts of home. From cozy sitting areas with board games to organized events, guests can relax and unwind in a more intimate setting.

Financing Your B&B with an SBA 504 Loan

Starting a B&B requires careful planning and sufficient funds to cover startup costs, renovations, and ongoing expenses. One financing option to consider is an SBA 504 loan, a government-backed loan program designed to help small businesses, including hospitality ventures, acquire real estate and major fixed assets. 

What Will the SBA 504 Cover for Your B&B?

You can use an SBA 504 to acquire fixed assets for your bed & breakfast. This includes:

Purchasing a Building

You can use the SBA 504 to purchase the actual property you wish to use for your bed and breakfast. Typical bed and breakfasts have between four and eleven rooms, including a space for the owner to occupy. 

Renovations

You can also use the SBA 504 loan to renovate and upgrade your bed and breakfast. This could include adding rooms, making repairs, updated amenities, and expanding parking and accessibility.

Going Green

The SBA offers incentives for borrowers using the loan to make their business more energy-efficient. You can even take out more than one loan if you intend to use your SBA 504 toward eco-friendly updates, like energy rated appliances and light fixtures. 

Equipment

Equipment needed to run your business is also considered a fixed asset and, therefore, eligible under the SBA 504 loan. In the case of a B&B, essential equipment might include:

  • Computer equipment to manage online bookings
  • Furniture for rooms and common areas
  • Appliances for customer convenience, such as an additional washer and dryer

Special Considerations for B&B Financing

Hospitality buildings are often considered “special purpose” by the SBA. This category generally applies to properties that have a very specific design that entails a single purpose. They include places like hotels/lodging, daycares, movie theaters, nursing homes, and amusement parks. 

Special purpose buildings can be difficult to resell to anyone other than someone in the same industry. For this reason, they are often riskier for lenders and may require a slightly higher down payment (usually an additional 5 percent). You will want to keep this in mind as you apply for financing for your bed and breakfast. 

Benefits of a 504 Loan for Your Bed & Breakfast

The SBA 504 has several advantages over traditional loans:

Low down payment: conventional loans may require up to 20 percent, while the SBA 504 requires 10 percent

No collateral: unlike conventional loans which may require additional collateral to back the loan, the SBA 504 uses the property or other asset you are acquiring as the collateral. You will never risk personal assets, like your home, in order to secure a SBA 504 loan.

Flexible terms: in the case of real estate, you can have up to 25 years to pay back the loan. By contrast, many commercial real estate mortgages have terms of as few as five years for repayment. 

Equipment terms are equally flexible, with up to 10 years to make payments on machinery, furniture, and other fixtures funded by the SBA 504. 

Competitive rates: SBA interest rates are usually lower than conventional lenders. They are also fixed with the 504, which allows you to budget appropriately and avoid unexpected spikes in your rates. This can make all the difference for your bed and breakfast, which may experience other fluctuations related to the seasons and your location.

Start a Bed and Breakfast in Colorado

Colorado is a top tourist destination. Among other things, it is famous for its natural beauty, craft breweries, foodie scene, vibrant nightlife and the most beautiful amphitheater in the world. With no shortage of visitors, starting a bed and breakfast in Colorado can be a fantastic business venture. 

If you are in search of financing for your Colorado B&B, start by consulting the professionals at CEDCO.org. We are a licensed Certified Development Company with a passion for supporting small business owners in our state. We will guide you through the SBA 504 loan process from start to finish so you can secure the funding you need to make your dreams come true. Call or go online today to get started. 

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