Category: Guest House

The answer is yes! Whilst the recent rise in Bank of England base rates can be described as unprecedented, in reality, borrowing money is still cheap in comparison to what it cost 7 or 8 years ago when base rates were at a similar level.

The determining factor is not whether you can afford higher base rate, but whether or not the business can afford to pay the higher base rates, when the lenders’ interest margin is added, this is commonly known as the lenders’ pay rate which is invariably based on the lenders Standard Variable Rate (SVR) which tracks the prevailing Bank of England base rate.

With Bank of England base rates expected to peak by the end of May to 4.5%, they are then expected to decline to circa 2.5% / 3% by the Autumn making for more affordable lending position.

When buying a B&B, Guest House or Hotel you need to consider the businesses Trading Profit, not the Net Profit, as the Trading Profit is before Loan Interest, Depreciation and other Exceptional or Extra Ordinary Expenditure.

Lenders will consider the Trading Profit as the means to service their commercial mortgage, on a full repayment basis over the term of the loan, when considered against the Bank of England prevailing base rate and their margin and when stress tested to allow for future rises in base rates.

So, the question is, do you buy a B&B, Guest House or Hotel when base rates are at a recent all time high, or do you wait until they reduce and possibly lose out on your dream of a life stye business.

The answer is, that when lending is considered expensive, due to base rate increases, this leads to a stagnation in market sales activity due to perceived affordability issues.

Sales Agents and Vendors then become concerned if their pricing is reflective of the market and transactional lead times.

This provides a unique and time limited opportunity to acquire a B&B, Guest House or Hotel with a realistic price reduction ,given the uncertainty in the market and the desire of the vendors’ to move on, given that increases in base rates also have an impact on the cost of living, which also increases  residential mortgage payments which is a good example, as individuals and household money available for discretionary expenditure, such weekends away, or holiday stays, becomes constrained or is perceived to be so, which is a mind set and doesn’t always reflect reality.

For your peace of mind, no reputable broker would recommend a mortgage that wasn’t affordable when considered on prevailing base rates, moreover lenders only consider after stress testing, to ensure that their loan is serviceable even if base rates went to 10% which is as much about protecting their best interests as it is much as yours.

If you’d like to discuss whether or not a commercial loan is affordable to purchase a B&B, Guest House or Hotel, get in touch with one of our expert brokers for a impartial and no obligation chat.

In these uncertain economic times, compounded by the increase of Bank of England base rates, which have resulted in an increase of the  cost of borrowing and loan repayments, there is a unprecedented pressure on all businesses to make ends meet, especially so when it comes to managing their loan repayments. The question is, how can I manage my businesses loan repayments when there simply isn’t any spare capacity in my cash flow to do so?

Many business owners have experienced sleepless nights worrying about repaying their loan, this problem which if not managed, can result in business failure.  So how can you avoid this potentially disastrous situation? Surprisingly the solution is relatively straight forward. There are a number of options available to business owners like you.

Communication with the lender is key

The first and most important thing is to communicate with your lender. Advise them as soon as possible that you have a problem, ideally well before the debt debit for your loan is returned as unpaid as this is often followed by a call from your lender, which puts you on the back foot as it indicates that you are not in control of your business finances and making for spur of the moment implausible excuses. This could lead to the transfer of your loan account to your lenders business support team, this isn’t a place where you need to be and worst case this transfer can lead to recoveries action.

How you do maintain lender confidence in your business?

It is important to understand that the lender is there to help you wherever possible, they have a mandate under their terms of business to do so. Explain succinctly how the problem has arisen, which could be the after effects of the pandemic or some equally significant situation such as an unexpected loss of revenue, or perhaps a personal family matter.  The lender will want to understand how long the problem is likely to last for and what you are going to do about it, all of which can represent challenges for you and the lender.

Short term cash flow resolutions for a commercial loan

One instance may be a short-term cash flow situation which can be resolved by micro managing your cash flow to meet loan repayments. If there isn’t the scope within your business to do so, then there are various other ways that can improve the situation. For example you could request a loan repayment holiday for 3 months to provide you with some breathing space to remedy matters, alternately, request that for a period of time, say 12 months, that your loan reverts to interest only payments or just capital repayments and finally ask for an extension of the loan term to make your loan repayments more affordable and in line with your businesses cash flow.

These steps will help your business survive but will also improve you relationship with your lender as they always appreciate transparency.

If you feel somewhat daunted and possibly embarrassed dealing with your lender, a specialist finance intermediary, such as Stewart Hindley & Partners can act for you to secure the best possible outcome. Get in touch with us today.