Monday Mar 04, 2024

Campground Financing: SBA Loans with Johann Schnell

Our guest on this episode of Campground Confidential by Park Vendor Review is Johann Schnell who joins us to talk about SBA Campground Financing.

Johann worked in commercial banking from 2006-2019 and then moved into the area of SBA financing. His company works with everyone from start up businesses to enterprise corporations, and has personally done financing packages for all the programs we discuss on this episode for more than 12 years.

Johann is currently at a Community Development Company–otherwise known as a CDC–which is a finance company specifically designed to administer the 504 loan program for SBA in Florida, Georgia, and Alabama. He has financed numerous campgrounds in that region and today he joins us to share information about financing for those who may be looking to buy or develop a campground property.

Financing Options for Buying or Developing a Campground

The Conventional Loan

This type of commercial loan is done directly with the bank, and banks are typically asking for 30% down, and offering 70% financing on average. These types of loans are the least expensive in fees, there is typically faster decision making, and a short–if any–prepayment penalty. On the other hand, these loans require the highest down payment, a shorter loan maturity (20 years most often), and shorter terms (most are 10 year terms). They are also harder to get approved

SBA 7a Loan

An SBA 7A loan is directly through the bank, where they use the SBA to help provide protection for the project. The SBA acts as assistance to the bank and the business owner by providing a guarantee to the bank on 75% of the principal balance. The bank underwrites the loan according to SBA guidelines. If the loan ever goes bad, the bank can ask the SBA to make them whole on the protected part of the balance. The business owner pays the SBA a fee, in addition to normal bank fees and closing costs.

SBA 7a loans require 90% financing, and a three-year prepayment penalty. This is the most expensive loan option since the SBA charges a fee based on the total loan. Depending on the project, more collateral than just the campground could be required. The program is capped at five million.

SBA 504 Loan

The SBA 504 Loan program is a two-mortgage combination of a bank loan (first mortgage) and an SBA loan (second mortgage). This allows the SBA to offer the business owner a fully fixed rate for the 25 year lifespan of the loan. The SBA obtains lower pricing in the bond market than the banks do on their loans. The business owner pays the SBA fees only on the second mortgage.

The SBA 504 loan allows for less money down than a conventional loan, and ranges between 80% financing and 90% financing. It has lower interest rates than the 7a loan, and even the bank’s first mortgage is priced lower than what they offer with a 7a loan. The SBA second mortgage is the lowest rate in the market.

The loan also will have lower fees than the 7a loan since the SBA fee is based only on the second mortgage. There is less collateral required than a 7a loan. Plus, the five million SBA cap is only on the second mortgage. However, two loans mean two payments. Additionally, the SBA 504 loan has a declining 10-year prepayment penalty. It will also require more money down than a 7a loan.

Typical items that a buyer needs to finance

· Purchase of the Land

· Costs of Construction: ard costs and soft costs

· Costs for contingency, interim interest

· Costs for FF&E

· Bank Fees and Closing Costs

· Working Capital: payroll, marketing, insurances

What does a buyer need to present to successfully get financing?

· Business plans with 3 years of projections

· Tax returns and personal financials for all the owners

· For an existing campground, the seller will need to provide the business financials/taxes

Biggest Pain Points for Campground Financing

The Current Landscape

· Costs of Land and Construction are affecting financing in a few ways. The margins have tightened on many locations. SBA 7a loans are capped at five million dollars, and lenders are leaning more on a 7a loan plus a conventional loan for the difference.

· Higher Interest Rates are affecting campgrounds in a few ways. Existing campground owners with a 7a loan might be at a really high rate right now, so refinancing into a 504 loan is attractive for some situations. Banks are currently looking to increase 504 loans so they can advertise an overall lower rate. They also cover their risk by only having half of the financing project on their books.

Key Takeaways

There are three main financing options for campgrounds: conventional loans, SBA 7A loans, and SBA 504 loans.

Conventional loans are the easiest and most common option, but they require a higher down payment and often have variable interest rates.

SBA 7A loans provide 90% financing and are commonly used for purchasing existing campgrounds.

SBA 504 loans are specifically for financing the purchase of commercial real estate and offer fixed-rate financing.

Campground owners should consider their specific needs and financial situation when choosing a financing option.

It is important to have a good relationship with a banker who understands campground financing.

When financing an existing campground, the loan can include the purchase of the business and improvements to the property.

For ground-up construction, the SBA 504 loan is often the best option as it allows for financing of land purchase and construction costs.

The current landscape of campground financing is impacted by rising construction costs and interest rates.