When applying for SBA financing to purchase a campground, RV park, glamping resort, or other outdoor or experiential hospitality business, it helps to understand what the banker must present to the Chief Credit Officer or Loan Committee to obtain approval for the recommended loan request.
SBA lenders typically evaluate campground acquisition from two main angles.
#1 – THE BUSINESS
Historical Actual Income
The business is the primary source of cash flow for the proposed loan payments. The lender begins with the seller’s business tax returns for the past three years and enters the income and expenses into a spreadsheet, with one column for each year. The lender then adjusts net income to calculate the cash flow available each year for debt service. This helps the bank determine the SBA loan payment the business can reliably afford.
Future Income
The lender adds one or two columns to the spreadsheet for the buyer’s projected income and expenses. These projections help the lender assess the loan payment the business is expected to afford. A large gap between historical cash flow and projected cash flow available for debt service increases lender risk. In that situation, the buyer’s credentials become even more important to loan approval.
#2 – THE BUYER
Buyer Campground Management Credentials
The strongest buyer is one with successful campground management experience. If the buyer lacks direct industry experience, the lender will look for related business management credentials.
Buyer Financial Credentials
The buyer needs enough cash for the down payment, plus sufficient reserves for emergencies and operating needs. Other investment assets or income sources can strengthen the loan application by helping support loan payments if the business is slower than expected to meet its financial projections.
Buyer Personal Credit History
Buyers should generally have a minimum personal credit score of 700. A strong credit profile helps avoid concerns or blemishes that would need to be explained or justified.
Buyer Character
Does the buyer honor commitments? The lender will look first at the buyer’s personal credit report for evidence. The lender will also review the results of a background check for issues such as judgments, tax liens, bankruptcies, lawsuits, or felonies that could create unacceptable risk.