CAMPGROUND FOR SALE – IS PRICE TOO HIGH?

As a specialty lender for Outdoor Hospitality properties, I financed numerous campground business acquisitions with SBA loans during 2021 and 2022.  During this timeframe, the industry experienced a surge in growth, and a few lucky sellers sold their businesses for record profits.  Most of the buyers were approved for SBA loans during that time with an average 20% down payment.  SBA financing appeared attractive to these buyers because conventional bank financing generally required at least 30% down payments.

In 2023, campground sales slowed significantly.  The Prime Lending Rate for small businesses more than doubled from 3.5% on 3/17/2022 to 8.0% on 3/23/2023.  While sellers were still expecting to see gains like their friends who sold campgrounds in the last couple years, new buyers were faced with loan payments that increased by 54% for the same amount of borrowed funds.  The campground that could previously afford payments on a loan for 80% of the purchase price can no longer afford the higher payment.  When the cost of business acquisition financing increases, the value of the business decreases.  I am starting to see sellers lose enough sale opportunities due to the affordability of financing, that they are now considering lower, more realistic sale prices.

In some instances, a buyer may feel the property is worth the higher sale price, even if the business can only afford the loan payments with a lower loan amount.  The buyer may recognize hidden income opportunities the seller is missing, or he may want to speculate on the market appreciation of the land for future development.  If the buyer has other sources of income to help make the loan payment, he may still qualify for the lower down payment.  Or, he may have extra cash for a higher down payment, so the business can afford the loan payments on its own.  Finally, he may be able to negotiate some second- lien financing from the seller to supplement his down payment.

I have been a small business lender for over 40 years, and interest rates today are not unusual.  The low interest rates in the last few years were unusual, and it may take a while longer for buyers and sellers of businesses to adjust to the new interest rate mentality.

For more information about SBA and USDA financing for Outdoor Hospitality properties, see www.BruceHurta.com.