Here in beautiful Savannah, Georgia, Bed and Breakfast opportunities are all around. A look down any street in the historic district would reveal a house that you could just imagine as a perfect bed and breakfast location. That fact has not been overlooked by local entrepreneurs, because we are blessed with at least 25 B&Bs between Gaston Street and the Savannah River. These properties do change hands occasionally and according to a recent appraisal that we ordered for a borrower, we found that most comparables were valued and sold at amounts ranging between $80,000 and $120,000 per guestroom. There variations were due mainly to differences in the physical condition of the property, the location, and the availability of adequate parking for guests. Unless you are one of those lucky purchasers that our appraiser turned up and can pay cash for your B&B acquisition, you may be very interested to hear about some of the benefits of Small Business Administration (SBA) guaranteed lending programs. Generally, with an SBA guaranteed loan you can finance greater amounts for a longer term with no balloons or calls than you can with a conventional loan.

A five guestroom B&B appraised and priced at $600,000 would usually attract a maximum of $480,000 in a conventional bank debt. Depending on the bank's lending experience in the hospitality industry, 80% of the appraised value is the limit that most banks are willing to go conventionally. As many borrowers may find, many conventional banks are not interested in providing any funds for B&B financing, unless an individual is of very strong financial strength and the loan is at a very low Loan-toValue. The term ntight run 15 to 20 years. In addition to the $120,000 necessary to payoff the seller, a buyer certainly would have closing costs and future working capital needs to consider. Also, few buyers walk right into a perfect turnkey situation in which they have no desire or need to repaint, repaper, redecorate, and remodel to some extent. The purchase price might not even include the furnishings; in that case there would be furniture and fixtures to buy. In a conventional financing arrangement, the buyer would have to fund the balance of the purchase price, the closing costs, any future working capital needs, and whatever costs are involved in redecoration of the facility out of his own pocket. Depending on the depth of his pocket, some additional seller financing might be called for as well. The seller financing could be quite expensive and short term.

With an SBA guarantee, the same bank may be able to lend a much higher percentage of the total project costs, because its risk is greatly diminished. By guaranteeing up to 75% of the loan amount, the SBA encourages banks to make loans that they ordinarily would not make within conventional lending parameters. Utilizing the SBA, a lender can look at and lend on the total project cost, not just the appraised value of the real estate. Under the SBA scenario this hypothetical B&B acquisition could be structured as follows:

$600,000 Acquisition Cost
25,000 Closing Cost (including the SBA guarantee fee)
50,000 Working Capital
25,000 Improvements
25.000 Additional Furniture & Fixtures
$700,000 TOTAL PROJECT COSTS

It would not be unusual to see an SBA lender commit to $600,000 to $625,000 for a term of 25 years on this deal. Such financing would reduce the up-front cash required by the borrower and would also improve the projected cash flow of the business by lengthening the term for repayment. Certainly, every situation is unique and will need to be structured somewhat differently. However, the use of the SBA loan programs allows for a great amount of flexibility in designing a financing structure that works for all involved parties.

The lender will need to have the following information and documentation before making a credit decision on an SBA loan for your B&B acquisition:

A personal financial statement
The last three years personal tax returns
The last three years financial statements on the existing B&B
Two years of projected cash flow and profit & loss statements
An inventory of the furniture and fixtures worth more than $500 a piece
Construction plans and estimates if necessary

Before loan closing there are other pieces of documentation required. The following are usually included as part of the SBA authorization letter to the lender:

An appraisal on the acquisition assets
An environmental assessment of the property
The assignment of some life insurance ,
Title insurance (A survey is frequently require before title insurance can be issued)
Evidence of hazard insurance with the lender named as loss payee
Certificate of good standing from the Secretary of State or its equivalent in your state.

If you have doubts about pursuing an SBA guaranteed loan because of stories you have heard about the paperwork involved, think again. It is true that these types of loans require mounds of paperwork; however, for the most part, it is the bank's responsibility and headache to see that all forms are completed and signed properly. The SBA application itself could be prepared by the bank or by a local economic development group such as a Small Business Development Center. SBDCs are usually associated with a college or university; however, many are found in other cities and towns as branches of the main university location. From the borrower's perspective the information required for an SBA loan is almost identical to a conventional loan.

For more information about your specific situation talk with your local banker or a specialized SBA small business lender. For additional general information about SBA guaranteed loans check out the website at www.sba.gov DeDe Cargill and John Bickley are executives with Sun belt Commercial Capital in Greenville, Sc. Sun belt is a small business lender specializing in SBA loans for companies throughout the Carolinas and Georgia. Among the organization, they have provided over $250,000,000 of SBA financing throughout the country. With 3 locations: Greenville, SC, Savannah, GA, and Raleigh, NC; they can quickly assist an applicant.