For businesses just starting out, getting a caravan park loan finance is really tricky. Fortunately, with the right kind of information, you will avoid much trouble.
Why you need the right kind of financing for a caravan park
For many Australian out there, caravanning holidays are considered a rite of passage. If you have traveled around, you might have seen caravan parks in holiday spots and prime locations around various states in the country. If you are thinking of having as an investment and need finance to run the project, then read on.
How a caravan loan works
A bank will normally look at property security (Holiday Park) strength and weakness, your financial situation and experience on the belt you are operating. So, an investor will borrow under the following conditions:
- Freehold (entails land and property): As a borrower, you will only obtain up to 50% of the property value but if you engage a guarantor you will be able to borrow up to 100%.
- Leasehold (the business): For this, you will be able to borrow up to 35% of the value of the business which is a going concern.
- For an Interest only, you will pay for 3 years.
- You will need to present a business plan that has a cash flow forecasting which an accountant can help you prepare.
- You will also have to possess a good financial position as low doc loans are not available.
- Depending on your current situation, you can actually obtain interest rate discounts.
How will banks assess the borrower’s situation?
Banks see holiday and Caravan parks as high risk since selling these kinds of specialized properties is usually difficult in case of default on the loan. As these are purpose-built to attract only a specific type of buyer.
If you are buying that kind of business, lenders even become more conservative due to the reduction of LVRs. This makes it necessary to acquire some cash or even adequate equity from a residential property to complete the purchase.
How banks assess the borrower’s situation
For an existing business, you need to provide evidence that you have successfully managed a similar sized Holiday Park business at least 3 years under any Managerial position.
If it is a new business, then the bank will need a well-drafted Business plan. In this exercise, you will need an accountant who is able to show you how you will meet the necessary capital, cash flow, and revenue requirements. Any repairs that are anticipated to be carried out in the next five years should also be stated.
A competitor report and market analysis of that Holiday Park location will accompany the business plan. There should also be a cash flow budget that shows expected revenue for the next 12 months and the anticipated occupancy rates during the peak and off-peak periods.
Even though banks will usually analyze an individual borrower personally, the financial institution will look at in the business;
- Recurring before interest, tax, depreciation and amortization (EBITDA) or net operating revenue.
- Whether the returns are decreasing, increasing or remains constant over several years.
- Depending on the holiday park location, an occupancy rate that is above 60%.
- Presence of a long-term tenant to show whether the business is financially strong will be checked where there is a freehold arrangement.
Tips that can help when buying a holiday park
The Holiday pack sector is not as before, it has really changed to encompass more than a power socket and a concrete slab in the land piece. Caravan Park currently entails improved accommodation facilities and entertainment options that are tailored to cater to the needs of families.
Most Caravan Parks also encompass modestly to luxury villas and cabins that are able to compete for other budget accommodation providers like Backpacker accommodation and motels.
What determines the cost of the caravan park?
Factors to consider when operating a caravan Park
Experience: To be able to run a caravan profitably you need previous experience managing a Holiday Park or any other Hospitality business.
Qualifications: To further strengthen your loan application, you need to demonstrate that you possess knowledge of effectively running a holiday park. Some of the required qualifications are as follows;
License: There are several licenses an investor needs to acquire based on the park that is bought. Some of the licenses include food and beverage licenses, accommodation licenses, liquor license, and caravan site license.
Occupancy levels: Determine the occupancy of the park regularly as the benchmark levels vary from location to location and change frequently. Usually, an occupancy rate that is below 50% means that the business is underperforming.
Annual site holder’s ratio: To ensure the stability of any holiday park, annual site holders are the crucial customers you ought to consider. Therefore search for a park that the ratio of annual site holders is decent and also one that has repeat customers.