Articles for Aspiring Innkeepers

Prequalified Buyer™ Overview

CCN’s Prequalified Buyer™ designation, was created to provide Aspiring Innkeepers a way to document how much purchasing power they really posses to assist them to identify hospitality properties that best fit their financial qualifications and investment objectives. The designation, certifies that a review has been conducted according to generally accepted commercial underwriting guidelines, by verifying the identities, professional qualifications, personal assets, liabilities, income and credit of all partners who will have an interest greater than 20%, and has determined a range for which financing could be obtained assuming the historical performance of the business would support a reasonable level of financing relative to its anticipated/appraised value. CCN’s certification process satisfies the concerns of both realtors and sellers because it identifies a conscientious person or persons as having submitted the proofs and documentation necessary for verification prior to seriously entering the market. The buyer’s qualifications can be well established and certified by

Verified Financials™ Overview

CCN’s Verified Financials™ program is designed to provide Innkeepers and realtors a designation that can be used to instantly differentiate their hospitality property listing from other B&B listings on Industry Websites, Multiple Listing Services, and conventional advertising. CCN’s Verified FinancialsTM certification signifies that an independent evaluation of the inn’s business financials has been conducted and that the historical income & expense documentation reconciles to its Federal Tax Returns. Aspiring Innkeepers and their advisors understandably require copies of an inn’s financials to determine that the income from the inn will be sufficient to pay all expenses, service the desired loan and produce an acceptable bottom line relative to the ongoing financial needs of the buyer; the former must logically be determined before a well informed buying decision can be made. CCN’s underwriting process examines the following to determine an acceptable range of debt relative to the average of the historical business

Prequalified Buyers

The Prequalified Buyer designation was designed to provide Aspiring Innkeepers a credible way to quantify how much purchasing power they have as it relates to identifying hospitality properties that best fit their financial qualifications and professional/personal objectives. The prequalification process reviews a complete an application, personal identification such as driver’s license/s, passports& visas, financial statement/s, account statements, credit, personal debt pay stubs and resumes for all partners. The Prequalified Buyer’s purchasing power and limitations are determined prior to financial data and business tax returns being requested by the seller. Realtors and sellers alike are more receptive to investing time with a pre-qualified buyer, because their qualifications and assets have been independently verified, giving all parties the confidence to negotiate the sale/purchase of a business/property. CCN’s confidentiality policy requires CCN to keep confidential, all identities, personal data and documents, and shall only use same for evaluation purposes. Once a qualified property has

Financing a Bed & Breakfast/Inn

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 special to 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 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

Credit Report/s & Reporting Agencies

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 are being provided as a courtesy. No representations or warranties 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

Country Inn / Bed & Breakfast Loan Prequalification

The Prequalified Buyer™ evaluation and designation provides Aspiring Innkeepers a credible way to quantify how much purchasing power they really have as it relates to identifying hospitality properties that best fit their financial qualifications and professional/personal objectives. A Prequalified Buyer™ designation identifies a person or persons as having submitted, the required proofs and documentation for verification and analysis; prior to identifying or contracting to purchase a specific hospitality property. Prequalified Buyer™ designation, confirms that all parties to an acquisition who will have an interest greater than 20% complete an application including, identification i.e. Driver License/s, Financial Statement/s, Account Statements, Credit Authorization, Personal Debt Schedule, three (3) most recent years Federal Tax Returns, Pay Stubs for Current Year, and Resumes for all partners. The Prequalified Buyer’s purchasing power and limitations are determined prior to requesting the financial data from the seller. Realtors and sellers alike are more receptive to investing time

Country Inn / Bed & Breakfast Loan Prequalification Check List

List of items required to begin the Buyer Prequalification Certification Process: Commercial Loan Application Borrower’s Financial Statement/s Verifiable Proof of Assets to be applied to down payment and reserves e. Checking Account/s Savings and Investment Statements 401k/IRA Statement/s Three (3) Years Borrower’s Personal Tax Returns Resumes for all Principals Borrower’s credit report/s with credit scores for all three (3) bureaus Proof of Identity Valid passport OR Driver License (Both Sides)

Country Inn / Bed & Breakfast Loan Prequalification Vs. Preapproval

A Preapproval differs from Prequalification in commercial lending, in that the “Preapproval” is issued after a preliminary underwriting determination has been made. The buyer’s qualifications, and the data from the commercial property are combined to assess the risks versus the merits of the loan application. Financial records on the business/property being acquired will be needed to determine that the Debt Service Coverage Ratio (DSCR) will comply with general underwriting guidelines after items such as depreciation, officer’s salaries, mortgage interest and certain non-re-occurring expenses are added back to the net profit/loss. A Preapproval will have issued conditioned upon certain events and due diligence has been completed. After all data from the borrower’s and the subject property is compiled and analyzed by one of our Commercial Loan Underwriters. The following items will be required on the subject property before a Preliminary Preapproval can be issued: Three years of business Federal Tax Return

Financing a B&B / Country Inn

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 special to 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, goodwill, and furniture, fixtures, and equipment (FF&E). Together, this value will 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 &

Viable Vs. Lifestyle 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

Reporting Agencies and Credit Reports

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 are being provided as a courtesy. No representations or warranties 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

Six Myths About Inn Financing

By Rick Newman, Founder of Commercial Capital Network 1. Any bank will finance the purchase of an Inn or Bed & Breakfast. THIS IS A MYTH – Many banks view the hospitality industry as a high-risk property type of business, second only to restaurants. As such, if a borrower is under-capitalized or if the property is under-performing, many bankers may not dedicate the time necessary to understand the whole picture. Banks who portfolio their commercial loans may have limits on property types or industries, as such the bucket for hospitality may be already filled, in which case loan volume would need to drop off before new loans of that property type can be added. 2. The bank will pre-approve you for a commercial loan. THIS IS A MYTH – Pre-approving often gets confused with Pre-Qualification. Pre-qualification is a very important step in understanding your purchasing power. See Pre-Qualification 3. Banks

Tips for Innkeepers Preparing for a Sale of a Bed & Breakfast or Inn

Conventional wisdom among B&B/Inn consultants is that an innkeeper should have an exit strategy the day they purchase the inn, in fact, some contend it should be part of the initial business plan. Since it is my job to work with a buyer from an aspiring innkeeper to innkeeper, I thought it might be useful to discuss this issue from a lender’s perspective. If you are planning to market your inn for sale in the near future and had written a business plan prior to buying your b&b/inn, get it out and compare your projections to your actual performance. Just like a Broadway show rehearses to take out the ad-lib from a production script, you may find it useful to get back to basics so that your last three years of ownership are your best. I see it quite often, that instead of working smarter and harder in the final

Determine Market Value Before Marketing Your B&B or Country Inn

All Bed & Breakfasts/Inns are unique by design; in fact, it is that special and unique quality that distinguishes one Bed & Breakfast/Inn from the next. Innkeepers invest their creative energy and capital over time to create a welcoming and hospitable environment that is unique to their community and valued guests. While the charm and ambiance of an inn add to a patron’s experience, such intangibles have only an indirect effect on the actual value. So, how can an innkeeper determine a realistic, fact-based asking price before marketing their inn for sale? A knowledgeable “B&B Industry Specialist Realtor” should be engaged very early on to consult on matters of value and how best to prepare the property itself and organize financial data prior to offering the inn for sale. A good number of these Realtors and consultants have been innkeepers themselves and are intimately familiar with their market area. They

Using Retirement Assets to Purchase a Bed & Breakfast or Country Inn

Few investors or 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 downsides are… Borrowing from the account/s would require repayment of the principal with interest