Transcription
Hi, today I'm with Bo Xin and we're going to talk about financing RV parks with SBA Loans. Welcome, Bo.
All right, I'm excited to talk all things SBA financing today. Let's get started. So let's just jump right into it. Hey Bo, um, RV parks have become a popular investment. Can you explain why they're so appealing for SBA financing?
I think a lot of people that caught the short-term rental bug, they they've seen some regulation in that industry and they're seeing that they can purchase RV parks potentially with SBA financing. And and a lot of people actually are like, wait, these these RV parks aren't running that well. What if we put some cabins on it, change it more into like a resort? And so I'm seeing that a lot right now.
Great. What are the main SBA loan options available for financing RV parks? I know there's a number of SBA types of loans, uh, tell us a little bit about those.
Sure. So there's really the SBA 7A or the SBA 504. Both loans are great loan products and it's just going to be depending on the the loan amount, the, you know, what's are we doing a big value add project that's going to determine if the 7A or the 504 makes more sense. If we need working capital, etc. We also have the USDA BNI loan. Um, we're not going to talk about it today, but we've talked about it in the past, but that might be an option as well. As we're exploring, we have definitely have loan products that are are perfect for RV parks.
What are the key eligibility requirements for getting approved for RV park financing in terms of SBA?
Great question. So generally, when you're buying an existing business, we're going to look at the cash flow of the business. So we underwrite off of the tax returns. So right now, we need 20, 21, 22, 23 end of the year PNL, uh, profit and loss for the business and a balance sheet from the from the seller's business. Right? Um, 2024, they're going to file the taxes soon, hopefully, unless they file an extension. We always want three years of tax returns, then a year to date and a balance sheet. So if the cash flow is good, that's we we need a debt coverage ratio of 1.15 or better, which is actually pretty low. And then from you, the borrower, good credit, outside income that covers outside expenses, generally generally it's better if you live in the vicinity, not always required, and then a good story about how you're going to take over, what are you going to implement into the business. But basically, if you're a good borrower and the deal makes sense, there's good compensating factors, it's it's an eligible deal. It's they're not that difficult, really, just, you know, do you have good credit? Do you have the down payment, the equity injection? Do you have a little bit of post-close liquidity? Those are the main factors.
Are there any special considerations when financing RV parks, such as seasonal revenue or zoning regulations?
Yeah, I mean, seasonal revenue, if if it's if it's located in a a place that gets a lot of snow and during snow season, nobody body stays. The other thing I'd like to say is, uh, and I should have said it in the last question, we we can only use parks that are using, uh, short-term stays. It can't be long-term. Sometimes you see RV parks with 30-day leases. We can't use that in the cash flow. We can use it in the global cash flow, but not in the DSCR. So, um, that being said, when there's seasonality, that's fine. We just want to show the history that the things still cash flows. And and then when we do the SBA loan, we want to build in enough working capital, depending on when we close the transaction, to make sure they're they can cover the slow months until they have a full cycle of running the business. So that's generally the seasonality component. Um, obviously, the property needs to be zoned for whatever use it's going to be. So if it's an RV park, it has to have the proper zoning and and it's got to, you know, be able to be be running as a business.
So this might be a little outside the box here, but how does SBA financing work for converting RV parks into tiny home communities? Is that even possible?
So we're seeing trends like that all the time. Like I said earlier, we're getting these short-term rental people that have owned single family. There's a lot of regulation and now they're saying, okay, well, I like the idea of I'm buying in the Smoky Mountains, for example, right? Like tourist areas, I like these resort type of properties, these RV parks. It might be a 12 or 13, um, pad location. Pads are just, you know, pads for the RV park. And maybe there's three or four that are there forever and they're paying just, um, um, lot rent and they're just basically not producing revenue or minimal revenue. So you can do value add plays. So a lot of people like the idea of putting these prefabbed or site built tiny homes to give people a feeling of a resort. So yes, that's completely possible as long as zoning allows for it and you have your plans approved, everything shovel ready prior to the SBA loan going in place. We do a lot of these kind of glamping and resort types of repositioning. So yes, it's very possible to do that.
Okay, this is probably going to be the last question unless something comes up from your answer. Um, what advice would you give to someone looking to buy or expand an RV park with SBA funding?
So I think the problem you're seeing, I think we kind of addressed it the last question was that some of these mom and pop RV parks are not performing. And so we see the potential as in the investor. We need to convey that potential through a business plan, projections, and and we got to, you know, tell a story of why we're going to be able to take this non-performing, let's just say it's not cash flowing, how are we going to take this non-performing asset and turn it into this resort? And so we have to have a good business plan. Usually in the business plan, we also want a third-party feasibility. So what I tell my borrowers, go out and start doing research. You know, what's the ADR, which is average daily rate, what's the occupancy level in the area? Those are the things we have to build and make that business plan bulletproof because some underwriter in Nebraska is going to be looking at at this deal. They're going to look at your resume, they're going to look at your financial statement. They don't know you, they don't know the story. So we've got to sell the sell the deal. Why is it advantageous that you have short-term rental experience or you have hospitality experience? We've got to put a package together. So that's essentially what we do at our firm is we help help you figure out how to structure the deal, whether 7A, 504, USDA BNI, or maybe some sort of state guarantee program. Once we figure that out, we take it out to the market. We find two or three lenders that would be and we basically have them compete, who's going to give us the best deal, who's going to give us the least amount of red tape. And then we get you term sheets and you you pick the term sheet you like the best. We generally go and then we get into the conditions and get all the conditions we need and work towards closing. So that's really the process. I would say, you know, if you're interested, just go to bookwithbow.com, schedule a call with myself or somebody on my team and we'll walk through the process with you and we'll be there to help you get it from A to Z and get it closed. And then on your way to, you know, a lot of people are like the idea of the RV parks, they like the idea of owning a resort, they like the idea of getting out of corporate. And that's why I'm seeing a big shift in the RV space. And of course, some people just want to run them as RV parks and they don't want to do conversions. We can help you there. We can help you if you can get the zoning. We've done construction projects getting zoning for RV parks. Now it's a little bit harder. So it seems to be easier to buy an existing RV park. I'm even talking to a gentleman right now, he's going to do an RV park, potentially cabins, uh, on the property like we talked about, and then it also has the potential of putting a couple boat slips on as a marina. So you can get really creative. We just got to paint the picture, show them why we're good borrowers, and then get it to the right bank. So if you if you're interested, go to bookwithbow.com, happy to meet with you and discuss. Thanks for all the [Music] questions.
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