“Picture this, Karen and I are at a national innkeeping seminar and trade show within days of closing on the Inn of our dreams when we get the word the bank has dropped our financing. The worst part was having to tell my wife the news. Enter Rick Newman and Commercial Capital Network. Within 24 hours he had connected us with an amazing group of people that literally picked up the ball and scored. We closed within 45 days start to finish. Personal and attentive to every detail, this was an amazing experience and we would not have been able to complete this journey without Rick and his team. Thank you form the bottom of our hearts!! ”
David & Karen Browning
Eden Vale Inn
“Sam and I were one of the lucky ones. We found Rick right at the start and before hiring any of our other professionals of the great team that helped us buy Lookout Point Lakeside Inn. While away for Thanksgiving weekend 2016, we huddled in our lower Manhattan hotel room and had our first phone conference with Rick. Within minutes we knew he would be a critical resource for us as we began our journey to find the perfect property. For us (and probably others thinking about buying an Inn/Boutique Hotel property) we really did not know how much we could afford to spend. Originally we thought we could only pursue a property we had enough cash for (or 50% or more for a down payment) and Rick cleared that up very quickly for us. Turns out we, with financing, we could pursue as he puts it ‘a very sexy property’. We were pretty taken aback at the amount we qualified for, but adjusted quickly. We threw out everything we originally thought and were soon on the right track with a new budget thanks to Rick. Fast forward six months and Lookout Point Lakeside Inn is ours. Rick also referred us to the other professionals who were integral to the process – he is connected to everyone we needed to achieve our dream. Without Rick, I am not sure where we would be in the process right now; still floundering with a low budget possibly. Thanks a million Rick.”
Sam Shener & Nancy Sullivan
Lookout Point Lakeside Inn
Hot Springs, AR
“We initially found Rick’s website back in 2010 when we first entertained the thought of buying a bed and breakfast. I saved his site as a favorite and went about business as usual since the timing wasn’t right for us to buy. Keith and I would periodically peruse bed and breakfast for sale sites and dream about “someday.” Perusing different inns for sale became our Sunday morning over coffee time. It started to get more serious at the end of 2016. Keith found a B&B we really liked and we suddenly found ourselves planning a visit to a place we weren’t even sure we could afford. A hasty call was made to Rick who asked a lot of questions and then assured us we could afford the inn we were looking at and even look at higher-priced options. The first place we looked at wasn’t the right one for us, but when we found The Aerie Bed and Breakfast in New Bern, NC, we knew it was just perfect and were confident Rick would help us close on the inn of our dreams. We were so right! Rick helped us navigate all the requirements for our financing and put us in touch with the right people so that we could use some of our 401k funds for the downpayment. We are still in awe that we own such a beautiful B&B. Thanks Rick!”
Keith & Dina Tholen
The Aerie Inn
New Bern, NC
“After a year of diligently searching for the ideal Bed and Breakfast Inn and financing options available to us, we found Rick Newman from Commercial Capital Network who helped us in prequalifying us for and ultimately securing a loan to finalize the purchase of our lovely inn.”
“After looking at over 20 + B&B’s and Inns, Rick guided us in every way in navigating these difficult steps to obtain a commercial mortgage. Rick was a calming and reassuring partner that took the sting out of the loan approval process and advised us along our journey.”
“Rick is a consummate professional who became more than an advisor and business consultant, he became our friend.”
Scott and Jodie, Innkeepers
Stonecroft Country Inn
By: Richard K. Newman, Managing Partner of Commercial Capital Network
Note: This material is being provided for general information purposes. This overview is intended to alert the reader to the importance of managing his/her credit. General guidelines, material, and other information is being provided as a courtesy. No representations or warrantees are made as to the accuracy or processes covered herein. The Credit Tier Examples listed below are for informational purposes only, as lender guidelines vary.
Credit Scores are extremely important to a lender in evaluating the merits of a loan. Your credit or FICO scores have a direct impact on the rate, term and loan program for which you qualify.
|Credit Score Guide:||A+ Borrower 750+
A Borrower 680+
A- Borrower 640+
B Borrower 600+
Time should be devoted to researching your own credit file/s before you apply for a loan. Consumers are entitled to one free credit report each year by going to www.annualcreditreport.com. Once a reference number is obtained from the repository, a dispute can be opened online. Be sure to print out your report/s while you are online!
Note: FICO scores provided to consumer credit requests are very often higher than the scores given a lender, so any scoring should only be viewed for general informational purposes only.
Disputing Your Credit Report
If inaccurate information still appears on your credit report, you have the right under the Fair Credit Reporting Act (FCRA) to dispute the information by:
1. Correctly identify the inaccurate information on your credit report. Look closely at your personal data, account information, and payment history. Review the report/s to see when your negative records are scheduled to be removed. Be sure to note any item/s you feel are inaccurate.
2. When you find an inaccuracy on your credit report, you should first investigate the details and find out what exactly is wrong. To begin the dispute process, you should contact the creditor or lender responsible for reporting the mistake directly. Your financial institutions will be able to correct most minor inaccuracies over the phone. Not sure of the contact information? You can find it at the bottom of your credit report/s under “Contact Information.”
Experian reports may only be disputed online, however, Customer Service Representatives from Equifax and TransUnion should be notified of credit issues by phone, they will note your comments and open inquiries with creditors directly. Be sure to note your printed copy of discrepancies and check them against the revised statement you receive in the mail.
You should also send letters of dispute to the credit reporting agencies and creditors by certified mail (see Attached Sample Credit Dispute Letter). It is always best to dispute inaccurate information with the credit reporting agencies by explaining the inaccuracies in writing (a sample letter is attached below). Be sure to include copies of documents that support your position. You should also include a copy of your credit report, and mark the items in question.
In your letter, be sure to include:
1. Your full name
2. Your complete mailing address
3. Your date of birth
4. Your Social Security number
5. The name and account number of the creditor and item in question (Partial account numbers as listed on your credit report are accepted)
6. The reason for your disagreement with the disputed item—be specific
7. Your signature
Send your information online or by certified mail and save the receipts. Keep copies of your dispute letter and all enclosures. This information should be filed away to document your communication with your creditors and the credit reporting agencies
To dispute online, use the corresponding links for each agency. It is best to file a dispute with each agency to ensure that all errors are disputed by each credit agency. Upon entering each agency’s website, follow the prompts to file a dispute. Many of the times, you will see a “dispute” button next to each of the credit items on your online report. Follow the prompts to provide the correct information for the dispute. Be prepared to provide copies of document as requested by the online agency. The disputes are free of charge and add a layer of security with your personal information making this an attractive option. As with any hyperlink, they do change without notice. If any of the hyperlinks below do not work, type “Credit agency name dispute”, for example “Transunion dispute”
If you prefer to do a dispute through mail, here are the addresses. Be advised that the addresses may change from time to time. Check the website of the corresponding agency to ensure that address is correct.
Credit Reporting Agency Contact information
Consumer Dispute Center
P.O. Box 2000
Chester, PA 19016
Equifax Information Services, LLC.
P.O. Box 740256
Atlanta, GA 30348
P.O. Box 4500
Allen, TX 75013
If you find that a hyperlink or mailing address is incorrect, we kindly ask that you let us know. This will ensure that future clients are provided with the correct information for filing a dispute.
Sample Credit Dispute Letter
[Your City, State, Zip Code]
[Name of Credit Reporting Agency]
[City, State, Zip Code]
Dear Sir or Madam:
I am writing to dispute information on my credit report. The items I wish to dispute are listed below and so highlighted on the attached copy of my credit report
[List the items that you feel are inaccurate including the type of accounts, names of the financial institutions, and full or partial account numbers. Include what changes you feel should be made.]
Enclosed are copies of [payment records, credit report, letters from the creditor, court documents, etc.] supporting my dispute. Thank you for investigating this matter.
[Your full name]
[Date of birth]
[Social Security number]
Enclosures: (List what documents are enclosed with your letter)
Please note: This letter doesn’t guarantee that the changes will be made on your credit report—it just ensures that they will investigate your credit report. If changes are made, you will be contacted by the credit consumer reporting agencies, usually within 30 days.
Derogatory information reported to the credit bureaus significantly impacts on your overall FICO Scores. However, the rating agencies also factor high credit limit to loan balance in their formulas. It is therefore important to maintain a ratio of 50% or less if at all possible. A low loan to credit limit to balance is believed to improve scores more than actually paying off credit accounts.
It is also worth noting that excessive lender inquiries may have a negative impact on the FICO scoring process so it is important to keep annual inquiries to a bare minimum.
For further information, call – 570-213-1903
Viable Inns: Commercial real estate financings are generally presumed to be serviced by the income from commercial property ONLY. As such a Debt Service Coverage Ratio (DSCR) is used to underwrite the loan. The DSCR or debt service coverage ratio is the relationship of a property’s annual net operating income (NOI) to its annual mortgage debt service (principal and interest payments).
Example: $125,000 in NOI and $100,000 in annual mortgage debt service – DSCR = 1.25
Commercial lenders use the DSCR to analyze how large of a commercial loan can be supported by the cash flow generated from the property, or to determine how much income coverage there is at a certain loan amount.
Two of the most important considerations used to determine the viability of a commercial loan request are the DSCR and loan-to-value (LTV). The loan amount may be constrained and the maximum LTV not obtainable due to the DSCR or lack thereof. If the maximum LTV is 80% and the DSCR is less than the lender’s required minimum coverage requirements at 80% LTV, the loan amount will be reduced until the minimum DSCR is obtained. In commercial underwriting this is referred to as loan dollars being debt service constrained, not leverage (LTV) constrained. Income earned outside of the business by the individual/s can only be used to offset a cost of living and personal debt and is not considered in this calculation.
Lifestyle Inns: Some percentage of all inns are operated by one partner who runs the inn and another or others who will maintain his or her own career. Innkeepers with smaller inns often rely on this additional income to enhance their financial picture. The innkeeper/s may truly need income from other sources outside the inn to make ends meet. The additional income may be necessary to offset actual losses or losses shown on the inns tax returns. In these cases, a Global DSCR approach to underwriting is necessary as the simple DSCR is insufficient and will not satisfy the underwriting guidelines.
This approach adds all liabilities/debt and divides it into the income from all sources (personal and business).
Copyright Commercial Capital Network © 2017
Can the Inn I love be…
“The Inn of My Dreams?”
By: Richard K. Newman, Founder – Commercial Capital Network
This is the million-dollar question…
Most aspiring innkeepers who contact me do so prior to beginning a serious search for a hospitality property. This makes sense to me, as they have been successful in some other career and have learned that “An ounce of prevention is worth a pound of cure.” They want to do their homework to narrow their search to properties they feel they can afford. Whether they are pursuing a lifelong dream as partners, or they are a single person moving on to a new challenge in a new place; they want the experience to be a positive, productive and profitable one.
The pre-qualification process identifies what assets are available, where they are invested and what the buyer/s are willing to commit to an acquisition. Credit history and professional qualifications are also important to understand so that any limitations or challenges can be addressed early on. Our most important job is to help an aspiring innkeeper identify an inn that is well suited for them based on their qualifications, and that the energy they dedicate to the search is well directed, their expectations are realistic and achievable.
Most sellers are more receptive to a buyer who has been pre-qualified, in fact, this is generally required before the seller will share or authorize their realtor to provide financial information at all. A strong buyer may be able to purchase an under-performing inn if they have adequate capital and an abundance of direct industry experience; but a strong performing inn can offset a buyer’s shortcomings or challenges in experience and or capital.
Identifying qualified properties:
The underwriting of a commercial loan combines the qualifications of the buyer with the financials of the inn. Why get excited about an inn, love the sellers, have them love you, and see yourself as the next innkeeper if the deal can’t work because the net income cannot support the desired level of debt or the asking price is unsubstantiated by is historical performance. It is in the interest of all concerned to know that the asking prices is well supported by comparable sales and three (3) years of financial data. Your offer should be substantially based on the inns historical data not what the inn is capable of producing under new management.
A knowledgeable “B&B Industry Specialist Realtor” can insightfully guide your search for available inns that match your qualifications and vision. Many of these professionals have been innkeepers themselves and are intimately familiar with inn operations and valuation methods. They can expertly compare the asking price with comparable sales, and use their own data and experience to analyze the inn’s historical performance, expenses, ADR, and occupancy rates relative to the industry considering its location and the seasonal nature (if any) of the business.
It is the mission of all who serve the next generation of innkeepers to enhance the quality of their experience and increase the likelihood they will be successful finding the “The Inn of Their Dreams.”
Copyright Commercial Capital Network © 2017
All Bed & Breakfasts/Inns are unique by design; in fact, it is that unique quality that separates one Bed & Breakfast/Inn from the next. Innkeepers invest their energy and capital over time to create a welcoming and hospitable environment that is unique them, their community and valued guests who appreciate the inn and the experience the owners provide. While the charm and ambiance of an inn add to a patron’s experience, such intangibles have only an indirect effect on its actual commercial value.
An Inn’s commercial value will ultimately be determined by a combination of the real estate value, cash flow, good will and furniture, fixtures and equipment (FF&E). Together, this value will be determined to be its value as a “Going Concern”. It is important that you are comfortable with this value before making an Offer to Purchase or a Contract of Sale. Realtors who specialize in marketing and selling Bed & Breakfasts/Inns have access to comparable sales data and property specific financial information that should support the asking price and may be made available to “Qualified Buyers”. Lastly, we can analyze the financial data to be sure that income from the property can support the debt service relative to the down payment and your investment objectives.
The Contract of Sale is the controlling document in a purchase and should reflect terms that are practical relative to the down payment and the financing terms for which you are best qualified. The value of the business’s “Good Will” and FF&E may be assigned separate values from the real estate in the Contract of Sale. Try to avoid this if possible as loan programs that accommodate financing anything other than real estate are less flexible and sometimes difficult to obtain. It is always a good idea to consult with us before entering into a Contract of Sale, since a lender who is familiar with bed & breakfast properties can pre-qualify you specifically to the property you have identified.
Most Contracts of Sale contain a mortgage contingency clause of 30 to 45 days, the exception being cash transactions, 1031 exchanges of equal value or sales where the seller has agreed to be the primary lender. The contract will also contain inspection clauses for items such as insect infestation, plumbing, HVAC, electrical and the structural integrity of the building(s). During this ‘due-diligence period,’ it is also common to incur attorney fees, survey fees and title fees. It is therefore important to note, that should the appraised value be determined to be less than the contract sale price, the appraised value will be used to determine the actual loan-to-value, rather than the contract price.
If this should occur and the parties cannot agree on a revised value or contract terms, the buyer risks losing all or a portion of his/her due-diligence expenses.
Value Determination: The lender will require and order an appraisal of the property. Appraisal fees generally range from $2,400 to $5,000 depending on the nature of the property and customary charges in a particular geographical area.
Down Payment may be as little as 15% for qualified buyers, although interest rates typically increase proportionate to the Loan to Value (LTV). Funds from 401ks or IRAs can be used as a down payment on a B & B/Inn. The programs are quite complicated but can be managed professionally by a qualified plan facilitator.
Resumes will be necessary on purchases for all partners with an interest greater than 20%. A resume containing experience in the hospitality and/or restaurant industry will be extremely beneficial, as the lender must determine that the borrower’s work history is sufficient to maintain and/or improve the cash flow of the business. Transferable skill sets may be used to offset this requirement
Credit Scores are extremely important to a lender in evaluating the merits of a loan. Your credit (or FICO) scores have a direct impact on the rate, term and loan program you for which you qualify. Note: Individual lender guidelines may vary. For a copy of our Credit Guide, please visit our web site at: www.InnFinancing.com
Conventional Commercial Loans:
Because each property is unique in some way, so then each financing option must be analyzed carefully to determine which financing programs are available in your state and what financing options will suit the property you desire to purchase. A Conventional loan application package will contain such information as the Contract of Sale, 3 years business tax returns, an interim financial statement, bank statements and a business plan. In addition, for all partners with an interest greater than 20%, a credit profile, 2 years personal tax returns and resumes will be required.
- For “Viable Inns” (inns that cash flow principally on the business income however, underwriting may use global Debt to Income Underwriting DTI)
- 75% to 80% Loan to Value (LTV)
- 20 to 25 Year Term
- 2% to 3% in Closing Costs
- Cash Flow 1.2 to 1.3% Debt Service Coverage Ratio (DSCR)
SBA FINANCING OVERVIEW
The 7a Program allows for financing of all types of business needs from purchasing real estate, fixed assets to working capital & business acquisitions. SBA’s 7(a) Loan Guaranty Program offers the actual lender, Bank or Non-bank, a loan guarantee currently up to 85% of the loan amount for hospitality properties as they are considered a higher risk property type. The SBA guarantees or insures the lender against loss resulting from a default and collateral shortfall. This guarantee allows the lender to provide for financing not ordinarily offered using conventional policies.
The SBA 7(a) loan program highlights are:
- Up to 85% financing
- 3 and 5 Year Fixed May Be Available
- Fully amortized loans with no balloons
- Terms to 25 years
- Loans up to $5 million
- Loans may be assumed
- Variable and fixed rate financing at 1.25% to 2.75% Over Prime
- Closing Costs 6 to 7%
The SBA 504 loan program highlights are:
The SBA 504 Program provides a method to finance real estate expansion projects through long-term, fixed-rate financing and is differentiated from the 7(a) program in that it is offered in partnership with a participating lender (Bank or Non-bank).”
The 504 loan program consists of two loans. The first loan and lien position is offered by an authorized lending institution (Bank) and the second loan or second lien position is offered by the SBA via the efforts of a certified development company (CDC). Most CDC’s are private organizations used by the SBA to process the 504 loan application and assist borrowers in obtaining proper funding which meets their needs.
504 eligible project costs include;
- Land and building acquisition
- Site improvements
- Building improvements
- Professional fees, including architect, appraisal, environmental
- Other costs, including title insurance, survey, points and interest on interim loan
The main advantages of the SBA 504 program are as follows;
- Loans to 15 Million
- Small equity injection, as little as 15% toward the total eligible project
- Long-term financing is available, up to 25 years on loan 1 and up to 20 years on loan 2
- Very favorable, fully amortizing fixed-rate pricing
- Most closing costs are eligible for project financing
- SBA 504 loans may be assumed
About the author: Rick Newman is the founder of Commercial Capital Network, (CCN) His website www.InnFinancing.com and articles provides useful information to Aspiring Innkeepers purchase “The Inn of their dreams” and Innkeepers who seek to re-finance or re-structure their existing debt. CCN offers commercial loan programs that are perfectly suited to the unique needs of the hospitality industry.
Rick’s connection to the hospitality industry has its roots in his family’s 30-year ownership of a twenty-eight-room inn in New Hope, Pennsylvania. He understands the business firsthand and the need for an industry specialist in financing for inns, B&B’s and hotels.
Rick maintains relationships with leading hospitality affiliate organizations and industry specialists, and is well known for his numerous articles on subjects of special interest to aspiring innkeepers. His testimonials pay tribute to the relationships he has developed with his valued clients. He is a member of Professional Association of Innkeepers International (Paii) and Association if Independent Hospitality Professionals (AIHP).
Few investors/entrepreneurs realize that they have the ability to self-direct their own retirement assets. Most believe the only two options are to borrow or withdraw from their account/s if they wish to invest in real estate or purchase/start up a new business. The down sides are…
- Borrowing from the account/s would requires repayment of the principal with interest
- Early withdraws would be subject to taxes and penalties
There is another way… The Employee Retirement Income Security Act (ERISA), which created the IRA in 1974, places surprisingly few restrictions on how retirement money can be invested. Except for life insurance or collectibles—such as artwork or coins—IRA funds can be placed in just about anything. Tens of thousands of investors have switched their retirement savings to self-directed accounts since the stock market correction of 2000 and 2001. By some estimates, 3% of the $3.5 trillion held in IRAs is now in alternative investments—and the number is growing.
Here is how it works… A Retirement Account Facilitator can create the legal entity and structure that allows for checkbook control of your funds. A new C corporation will be formed which in turn sponsors a Qualified Retirement Plan. The new plan will receive a roll-over of all or part of your existing /previous 401(k) and or IRA Qualified assets. The new corporation will own the real estate, good will, FF&E and other assets of the business. The plan invests in the business by purchasing stock in the corporation, providing the necessary capital to fund the down payment, closing costs, reserves and working capital. The new qualified retirement plan purchases the stock of the C Corporation you control, similar to what your IRA/401(k) does currently, that allows you to purchase shares in a publicly traded company.
Here are the benefits…
- You do not re-pay a loan, which adds to overhead and you will not incur tax liabilities and penalties
- Profits, can be sheltered by either:
- Making contributions to the plan which grow tax deferreda.
- Paying dividend to shareholders at the end of the year
- Ultimately, any gain from the sale of the business/property will flow into your retirement account proportionate to the stock it owns in the corporation.
Very Important! When the cash requirement of an acquisition/start-up exceeds the available account balance, multiple investors may invest in a single project through the same self-directed 401(k) plan; this feature may be very useful/attractive to family members or outside investors who wish to provide financial assistance or take advantage of an investment opportunity.
No outsider can guarantee the soundness of your investment strategy. Seeking advice talking from a trusted financial advisor would be prudent. Unless you have both time and capital to spare, you should be cautious before putting your entire nest egg into a new business; however, investors with a strong do-it-yourself streak and a compelling alternative investment strategy may want to consider joining the growing ranks of people who have decided to invest their retirement funds in themselves. Note: The material contained in this overview is provided for your general information and should not be acted upon without prior professional consultation with the appropriate experts.
For a review of your options, please call Rick Newman at 570-213-1903
Copyright Commercial Capital Network © 2017