The amount of money you can borrow for your business will differ from lender to lender, from a few dollars to hundreds of thousands of dollars.
Typical Loan to Value Ratios (LVRs) provide a guide only. The strength and presentation of your individual business case to the lender will impact upon your final loan terms. In instances where other security is available, it may be possible to borrow over 100%. Your Motel and Accommodation Finance Broker will be in the best position to provide you with an indicative assessment of your borrowing capabilities with a range of banks and secure lenders.
Typical Loan to Value Ratios (LVRs) offered in today’s marketplace:
- Freehold Going Concern – up to 70% of an independent valuation of the motel
- Freehold Investment – up to 70% of an independent valuation of the motel
- Leasehold – up to 50% of an independent valuation of the motel
To secure finance approval you will need:
- A formal valuation usually completed by your lender’s preferred valuer and generally at your cost (depending on the size of motel)
- A full history of your industry or related business experience
- Business Plan and Budgeted Cash Flows
- Three years financial statements for the Motel
- Details of assets and liabilities for purchaser/s and guarantors/s
- Income tax returns for the past two years for purchaser/s and guarantor/s
Tip: If you are new to the industry it’s a good idea to determine your borrowing capacity before you begin looking for a business. Determining your price bracket upfront will narrow your business search criteria and help avoid time wastage.
Simple Motel Finance Example
The first step in looking for your motel is to determine how much you can comfortably afford to borrow. Let’s consider a Freehold Going Concern motel for a purchase price of $1,000,000.
Based on typical lending LVRs the maximum borrowing capacity would be $700,000 (or 70% of the purchase price). You will require $300,000 cash to inject into the purchase. An allowance will also need to be made for the costs of the purchase and working capital until the business is up and running. We’ll use an approximate allowance of an additional $70,000 – $80,000.
Based on the above, cash of approximately $380,000 will be required for the purchase.
The next step is to determine the required cashflow of the motel to enable comfortable repayments.
It’s important to note if you don’t have sufficient cash funds there may be other options available to raise the equity.
Your Finance Broker is in the best position to provide you with a thorough overview of your borrowing capacity for motel purchase based on the lending policy of a range of banks and secure lenders. You may be surprised by the sheer range of dollar values from bank to bank. Knowing which lender will look most favourably at your business case is critical when it comes to getting your business off the ground.