Wedding Venue Financing

[James Green]

So my Wife and I have been throwing the idea around of selling our house and buying this 30 acres of farmland that has no improvements on it and build a Wedding/Event Venue on it with a 250-300 person capacity barn style and a 3-5 acre pond with a 10,000 sq ft island to do outdoor weddings on. 7 Acres of road frontage is currently zoned B1 for Business the rest is residential agriculture if i recall correctly none of it hinders us from doing what we are looking to do from what the county has said. 1 option was to build a home as well on it the and and do the barn to do weddings and the 2nd option was to just build the event venue and no home. Not sure which finance strategy would be best or what the best ways to buy the property would be like creating a holding company, doing residential mortgage commercial loan, SBA loans etc etc. There are so many options and its important for us to move in the best direction so we can be profitable and get the money to build. We could put around 200k down but have assumed cost to buy the land at $625k (haven't negotiate that part yet seemed quite high found other property in the area for $385k but like the location better) to build the facility and develop the land we assumed a cost of about 1-1.3 mil so a total maybe in the range of 1.5mil-2mil loan. Any help would be much appreciated especially if you are in this business and willing to speak about your success and pitfalls we can try and plan for. Thank you all for your responses and help I just joined this today and first time I posted on here. Hoping to get some good insight. Also land owner is open to land contract as well.

[Tim Milazzo]

Hi @James Green,

First off, welcome to BiggerPockets! I noticed it was your first post, but I'm sure you'll be shedding your own advice here later.

 Assuming the total project cost at $2 Million, and your ability to put down $200k, you're absolutely going to run into a problem with this plan. The relevant metric to compare those two is Loan to Cost (LTC), and with a $1.8 Million loan on a $2 Million project, you'd be asking someone for a 90% LTC loan. Commercial loans that high are absolutely considered risky. Technically, a bank can do it with the SBA 504 loan program, but then they'll be underwriting to make sure there are no other significant risk factors, or else even the government guarantee of the SBA portion won't be enough to satisfy them. Unless I'm missing something, there are several other risk factors present:

1. First Time Buyer
2. First Time Builder
3. Collateral currently holds little value (raw land)
4. Net Worth of sponsor (borrower) much less than loan amount
5. Liquidity of sponsor (borrower) after equity contribution is negligible
6. Inexperienced business operator
7. No history of profits in the same business

I don't want to crush your dreams, but this deal will be a No from every bank I've ever heard of. I think you should come to terms with that quickly, rather than travelling around pitching all of these banks and having your hopes dashed again and again.

What you really need on this project is more equity (perhaps from a rich uncle or a friendly local investor), an airtight business plan, and then probably a private lender that gives you the benefit of the doubt in getting started with the business.Bank-rate financing will almost certainly be unattainable until you've shown that the business can drive a profit. Or, bring in an equity partner that eliminates some of those risk factors that would sign on a loan with you.