Can I Leverage My Business Value? 

Securing a caravan park commercial loan involves strategic presentation, considering the specialized nature of caravan parks. Achieving the highest Loan to Value Ratio (LVR) and a competitive interest rate depends on how you present your case to the banks. 

Decoding the Caravan Park Commercial Loan Process 

When applying for a caravan park commercial loan, your property’s security (the holiday park) and your financial situation, including your experience, are pivotal factors in the bank’s evaluation. 

How Much Can I Secure? 

Understanding your borrowing capacity is essential. Here’s a breakdown: 

• Freehold (Land and Property): Borrow up to 50% of the property value, with the potential for 100% financing with a guarantor. 
• Leasehold (Business): Secure up to 35% of the business value (going concern). 
• Interest Only Period: Available for 3 years. 
• Business Plan Requirement: A comprehensive business plan with cash flow forecasting, prepared with the assistance of an accountant, is crucial. 
• Specialized Security: Caravan and holiday parks, considered specialized security, attract a specific buyer, impacting risk evaluation. 

Navigating Risk Factors 

Banks perceive caravan park commercial loans as high risk, especially concerning property sale scenarios in the event of default. Considerations for buyers are more stringent: 

• Buying Business: If purchasing the business alone, lower Loan to Value Ratios (LVRs) are common. Adequate equity in residential property or cash is essential for the purchase. 

How Will Banks Evaluate Your Situation? 

Banks assess your situation comprehensively, requiring evidence of managerial experience and plans for the new business. Key aspects include: 

• Managerial Experience: Provide evidence of at least 3 years in a managerial position at a similar-sized holiday park or hospitality business. 
• Business Plan: For the new venture, a detailed business plan, developed with your accountant, showcasing revenue, cash flow forecast, and capital requirements. 
• Property Maintenance Planning: Include repairs needed for the next 5 years and a market analysis with a competitor report for the holiday park’s location. 
• Cash Flow Budget: Clearly estimate occupancy rates, revenue expectations, and budget for peak and off-peak periods throughout the year. 

Valuing the Caravan Park 

While valuation specifics vary, banks generally look for: 

• Recurring Revenue: A business demonstrating consistent earnings. 
• Financial Health: Increasing or stable returns. 
• Coverage Ratios: Interest cover at 2.0x and debt service cover at 1.0x. 
• Occupancy Rate: Ideally above 60%, contingent on the holiday park’s location. 
• Lease Details: For leasehold, banks prefer a minimum of 5 years left with options to renew. For freehold, a financially stable, long-term tenant is preferred. 
• Revenue Growth: Banks focus on year-on-year revenue growth, essential for seasonal businesses like holiday parks. 

Key Considerations for Buyers 

As the caravan park landscape evolves, considerations for buyers expand: 

• Changing Sector: Beyond traditional offerings, modern caravan parks cater to families with improved accommodations and facilities. 
• Freehold vs. Leasehold: Long-term returns from owning freehold tend to be greater. When purchasing freehold, scrutinize the vendor’s motivation for selling and ensure a strong lease with at least 5 years left. 
• Undeveloped Areas: Explore the potential for redevelopment or expansion, keeping an eye on environmental obligations and zoning requirements. 
• Professional Guidance: Engage a business broker specializing in holiday accommodation for a smoother buying process. 

Due Diligence: A Detailed Approach 

The buying process demands thorough due diligence, covering various aspects: 

• Location Analysis: Understand local competition and consider targeting an underserved demographic. 
• Facilities Inspection: Evaluate existing facilities’ appeal to the target market, including family-friendly amenities. 
• Engineering and Pest Report: Essential for identifying facility conditions and potential issues. 
• Council Compliance: Ensure environmental health obligations and zoning align with current standards. 
• Lease Terms: Aim for a lease term of 20-30 years for stability. A shorter term may pose risks to both banks and business. 

Contract of Sale: Ensuring Transparency 

Before proceeding with the sale, clarity is essential. Ensure the contract of sale includes: 

• Equipment List: Specify equipment, fixtures, and fittings included. 
• Capacity Limits: Clearly define guest capacity. 
• Supplier List: Include details of all current contracts and suppliers. 
• Repair History: Provide a history of significant repairs and renovations. 
• Parking Compliance: Confirm compliance with zoning requirements. 

Running the Business: Financial Considerations 

Understanding the capital-intensive nature of the holiday park industry is vital: 

• Upfront Capital Investment: Higher than many businesses, considering property repairs and equipment upgrades. 
• Operational Costs: Factor in staff wages and consider relevant courses to enhance management skills. 
• Educational Courses: Undertake relevant hospitality and small business management courses for a comprehensive understanding. 

FAQs on Caravan Park Commercial Loans 

Licenses Requirements: 

Depending on services offered, licenses may include caravan site, accommodation, food and beverage, liquor, and a working with children check for child care services. 

Industry Associations: 

Explore memberships in industry associations such as the Caravan Industry Association of Australia, along with state-specific bodies for guidance and accreditation. 

Successfully navigating the caravan park commercial loan landscape requires meticulous planning, thorough due diligence, and collaboration with industry associations and professionals.