Can you really finance an RV Park (or any other “business property”) with no money down?

The answer re: 100% financing for an RV Park has 3 responses: “yes,” “yes” and “kinda/sorta.”  The answer for many other types of small business property is “absolutely.”

A few things to understand:

1. 1. This post is primarily about SBA RV Park Financing and how some borrowers with either direct RV park ownership experience or a seller willing to hold a note on standby, might be able to legitimately purchase an RV park with no down payment, but it is also about how others with the “right translatable experience,”can somewhat creatively structure “100% financing.”
   2. SBA loan guidelines allow for a lot of flexibility when it comes either 100% financing and/or putting little to no money down on a property and each lender has the same basic SBA rule book, but how each lender translates and interprets the rule book can make all the difference. (This is a good thing).
   3. RV Parks are only SBA-eligible IF – and only if – more than half of the revenue (or projected revenue for new construction, turnarounds, or expansions of a park) comes from “short term stays” of 30 days or less OR (depending on the lender’s interpretation of the rules) from seasonal guests. In some cases, lenders might also accept parks where every “guest” is month to month.

The SBA guidelines allow 100% SBA financing for the following “business expansion” scenarios:

• purchase of an existing business without real estate
• purchase of an existing busines that includes commercial real estate where the business occupies 51% or more of the square footage of the commercial property
• purchase of land and construction of a new location from the ground up
• purchase and expansion of an existing business where there is room to grow
• purchase and expansion of a business in need of a turnaound

The key to getting 100% financing for ALL of the above scenarios is the new loan must be to expand your existing (successful) business and you must have owned the existing business for long enough that a lender can see that it is obvious that your involvement in the business is a significant reason for the success of the business.

I have written extensively about this on this blog and on our website.  You can visit the 100% financing page on our website for the full run-down on the types of businesses and properties that are eligible here: how to buy commercial real estate with no money down.

Financing Your First Park

The other way to purchase a park, campground or other outdoor hospitality property without a down payment is outlined under number 2 below.

100% Financing for RV Parks

Due to a recent SBA rule change on August 1, 2023, you can now buy someone else’s business with no money down in 2 different ways:

1. As discussed above, if you are purchasing another business of the same type (exact same NAICS code) as one you already own, it is possible to buy an RV park with no money down.
   
   So, if you already own at least one successful, cash flowing RV Park for at least a year or more, then it is possible to finance an RV park (or campground) with no money down using the SBA 7a loan.  It used to be that there were only a few SBA lenders who would consider this and most required that you had a lot of equity in your existing business, but more lenders are getting comfortable with the structure allowed by the new rule.
2. If the seller is willing to hold the required 10% down payment in the form of a seller note on “full standby” for 24 months then technically, you do not need to put any cash down.  “Full Standby” means you are not supposed to make payments to the seller on the seller note for a specified period of time* 

* For this to be possible, a lender will have to get really comfortable with you as a buyer as well as the seller’s financials and tax returns, but it is possible.

FYI: this new rule re: seller held debt on full standby applies to any kind of SBA-eligible business and it is a major change as it broadly expands the universe of potential lenders – so, not just for lenders financing campgrounds and RV parks – but for many types of transactions.

Also, FYI: the NAICS or North American Industry Classification System categorizes RV Parks, campgrounds, campsites and travel trailer sites all under the same code.

SBA Down Payment Requirements

If you do not currently own an RV park or the seller of one is not willing to hold any debt on full standby, then there are ways to come up with the 10% down payment the SBA requires for RV park financing using the 7a loan.

In fact, the SBA rules are very flexible concerning the source of down payment typically needed to fund a start-up business or to purchase someone else’s business.

Some SBA 7a lenders routinely provide financing of up to 90% for RV Parks – including ground up construction.  I mention the 7a specifically because it can be used to finance goodwill and rarely requires more than 10% for the purchase of most businesses, whereas the SBA 504 loan frequently requires 15% to 20% down and can only be used for real estate and FF&E/equipment, although if the transaction is an expansion of an existing rv park business, the requied down is 15% down.

As an aside, there is a lot of nuance in how SBA lenders underwrite and you can get very different answers from different lenders re: what is a rule and what isn’t or what is approveable and what isn’t.  It does not seem like it would be this way, but it is.  Again, this is a good thing.

Yes, You Might Be Able to Borrow the Down Payment

Anyway, below are the typical sources for an SBA loan down payment and you will notice that #1 is “money that is borrowed.”  This is where the “kinda/sorta” answer from above comes into play, because if an SBA RV park lender will allow a 90% loan (typically up to $5 million with the 7a, but occassionally more) AND you are allowed to borrow the other 10%, well then you may have the ability to create 100% financing for yourself.

FYI: Some 7a lenders will finance up to $9 million with 10% down IF you have a particulary strong deal and equity in other property that you can put up as additional collateral.

Re: 504 loans:  the largest loan/highest amount of financing you can get with an SBA 504 loan with just 10% down is approximately $11 million.  With more down, transactions of approx $20 million are possible, so if you have access to a larger down payment then you can get fairly high leverage on much larger parks.

Also, re: the “expansion” theme from above, some 504 lenders will finance an expansion of an existing RV Park business with just 10% down as opposed to 15% or 20%.  “Expansion” is primarily defined as buying or building another property/business with one of your existing businesses.

In other words, if you are already in the business and want to buy or build another park and you are going to do it under the same corporation, then you can put down just 10% with some 504 lenders.

SBA Down Payment Sources

The 6 primary allowable sources of down payment for an SBA loan are:

1. Cash or cash-equivalent in a bank or asset account
2. Money that is borrowed
3. Seller held funds on “full standby”
4. Investors
5. (Tax and Penalty Free) Retirement Account Rollovers
6. Gifts

Drilling down on the above SBA down payment sources…

Money that is borrowed from someone or somewhere else can work really well.  You have to be able to prove that you or your spouse have enough stable income to be able to afford the payments on the money you are borrowing.  This is an especially useful guideline as many borrowers with steady jobs/income (or two income families) have utilized this for all types of SBA real estate financing – including RV parks – and many will simply tap equity in a property they own to do this.

In fact, given the recent run-up in all types of real estate prices, this could be a good time to tap equity in a property assuming you can qualify and it makes good financial sense to do so.

(Keep in mind that SBA lenders that finance campgrounds and rv parks most likely won’t offer loans of less than $500,000, so it could be difficult to finance smaller transactions).

Seller Held Second Mortgage

If you are looking to purchase someone else’s business, then there are many seller’s who are willing to hold some paper and in this case, if that paper (second mortgage) is on “full standby” then the SBA lender can consider that money just like it is additional cash you are putting down.

“Full Standby” means that you are not supposed to make payments to the seller for 24 months, and while these are 25 year loans, most borrowers will refinance 3 to 7 years, so sellers are frequently paid off pretty quickly.

FYI: The prepayment penalty on the 7a loan is only 1% after 2 years and nothing after 3, which is the primary reason many borrowers will refinance so quickly once they have enough equity to do so.

Keep in mind that many sellers are agreeable to holding a 2nd mortgage on standby because they are typically getting 90 to 95% of the sales price on the day of closing.

And just because you get the seller to agree to hold a second does not mean you cannot put additional cash down that you creatively come up with to further reduce the risk in the transaction, but (there’s always a but…), the transaction still needs to be solid enough for a lender to approve the loan.  In other words, the SBA guidelines allow for a lot of creativity, but lenders are not foolish and they will not allow a loan to close where they see too much risk.  In fact, most lenders will not be on-board with such a structure, but there are very definitley those who will if they see enough borrower strengths to get comfortable.   

Investors

“Investors” usually means friends or family that give you cash towards the down payment in exchange for some small percentage of ownership in the RV park.

Investors can actually provide the majority of the cash as long as the guarantors (those who will own more than 20% of the business) put enough of their own cash down.  How much is enough is up to the individual lender and it can really vary, but suffice it to say that your cash injection needs to be enough that the lender feels you will not walk away if things go badly once you take over the business.

Also, keep in mind, the “personal guarantee” that SBA requires for all guarantors has some teeth to it, so you would never want to default anyway.

Retirement Account Rollovers

Certain types of  retirement accounts can be rolled over (tax and penalty free) to buy a business or to make all or part of a down payment, and given that RV parks can be more of a “lifestyle business,” this option is gaining in popularity for many who are leaving a job after many years, have a sizeable amount of money in retirement and envision themselves “rv-ing” and or living in and operating a park.

The rollover rules are somewhat complex but there are consultants who specialize in rollovers and most people who qualify seem to take advantage of it.  Get in touch if you have any questions about this or want the name of a quality consultant.

Gifts

Gifts are allowed, and again, borrowers must have enough of their own cash at risk, but I have seen borrowers use very little of their own cash when using a gift as long as the gift was coming from a very close family member.  (Lenders aren’t as worried about a borrower losing interest in a business if a family members money is at risk).

Finance An RV Park with No Money Down?

100% and “100%”

In summary, it is difficult, but not impossible to legitimately qualify to finance an RV park with no money down – especially if it is your first park, but given the above somewhat creative sources of down payment and the new SBA rules re: seller held notes on standby, many first-time borrowers can find a way to come up with the cash needed to close.

Just keep in mind, it isn’t always as simple as it seems and there are lots of other factors for lenders to consider when underwriting a loan, including the historical cash flow of property you are buying or the strength of your business plan and projections if starting one.

SBA loans are a very attractive and secure type of loan for lenders due to the guarantee they get from the federal government and the possibility that they can be quite profitable, but each transaction has to have enough merit to where it makes good sense for a lender to approve it.

Bottom line:  if you have the right resume/experience, good enough credit, no “character” issues, some post-closing liquidity/reserves (lenders won’t let you put your last dollar into the deal), and solid income from another source (or possibly just a lot of liquid assets) then you have a shot at being approved.

So back to the original question…is it possible to finance an rv park (or campground) with no money down?

And the answers are still “yes” and “kinda/sorta.”  “Yes” if you are the right kind of seasoned operator and “kinda/sorta” if you are a first-timer with access to potential sources of the possibly small down payment required.

Feel free to e-mail me if you have questions about how to finance an rv park with no money down:  jking (at) green commercial capital (dot) com or for more info visit our SBA RV Park Loans page.  If you want to learn more about the 7a loan program and what it takes to qualify then visit this page:  SBA 7a Loan Requirements.