Caravan Park Finance

Name: Caravan Park Finance
Creator: Savvy
Published: 2022-01-14T13:38:50+10:30

Home > Business Loans > Caravan Park Finance

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Written by , updated on July 26th, 2023

How does caravan park finance work?

When it comes to purchasing a caravan park, it’s firstly important to note that there are three different types of ownership which you’ll need to choose between. These are:

Freehold investor purchase

You purchase the land and property on which the caravan park sits and lease it to a business operator, from whom you collect rent. This ownership model is far less hands-on, as the business operator looks after the running of the caravan park. Borrowing capacity varies between 50% and 70% of the value of your land and property.

Leasehold purchase

You purchase the caravan park business and look after it on a day-to-day ongoing basis. This may also involve existing structures, equipment, plant and other assets required to run the business. You’ll pay rent directly to the owner of the land. You can borrow up to a maximum of 50% of the value of the business.

Freehold going concern purchase

You purchase both the land on which the caravan park sits and the business lease. In doing so, you own all aspects of the park’s business and so can remain an active part of the running of the business while collecting payment directly from your tenants to cover your costs. In most cases, you can borrow up to 70% of the combined value of the business and land.

In terms of the types of finance required to purchase your caravan park, this will also differ based on what you’re buying into. If you’re looking to buy the land and property associated with a park, you’re likely to need a commercial property loan to facilitate that purchase. These work similarly to a standard residential home loan, but the property itself must only be used for commercial purposes. On top of this, you’ll be required to show evidence of any businesses you’ve run in the past and provide a business plan to project your revenue over the next 12 to 24 months.

If you’re wanting to purchase the lease to the business itself, it might be best for you to look to a business loan broker to help you with buying a caravan park leasehold. Loans to buy a business, and the various processes which go into doing so, can be long and complicated, so it’s very useful to have an expert in your corner to guide you through the process.

Your business loan will likely need to be secured by a valuable asset, such as equipment or your current residential property (or indeed the park property itself if you’re buying a freehold going concern). However, unsecured financing is sometimes possible based on the current financial situation of the park you’re buying or the size of the loan you’re looking for. For instance, you likely won’t need to attach any collateral, such as equity in your property, for loans of $250,000 or above.

Types of business loan

Unsecured business loans

The most common type of business finance, unsecured loans enable businesses to access the funds they need without attaching an asset to the loan as security. Some lenders may allow you to borrow up to $500,000 and, because there's no collateral, offer same-day approval.

Secured business loans

If your business already owns valuable assets, such as property or expensive equipment, you may choose a secured business loan instead. These loans may increase your borrowing power beyond what an unsecured loan can offer and, crucially, typically come with lower interest rates.

Small business loans

Business loans don't always have to be worth hundreds of thousands. If you're operating a small business and need a boost to help you keep on top of your expenses or expand your company, you may be able to take out a loan starting from as little as $5,000 and unlock further capital.

Low doc business loans

Just because you don't have all the required documents for a standard business loan doesn't mean you're out of options. Low doc finance enables you to use alternative documentation, such as other business financials, in the application process to access the funds you need.

Lines of credit

A commercial line of credit allows you to draw from your loan account whenever your business needs access to their funds, instead of managing a lump sum and repaying it like a regular loan. This can add flexibility to your finance arrangement, providing money when you need it.

Invoice finance

Invoice finance presents another option to business operators looking to free up cash through outstanding invoices yet to be paid by their customers. Your invoice finance can either be invoice discounting or factoring, which present different options when it comes to your invoices.

Equipment loans

A common reason for seeking out a loan is to purchase commercial equipment. You can do this either with an unsecured arrangement or one with the equipment itself as collateral, with the latter potentially increasing your borrowing power and lowering your interest rate.

Supply chain finance

With this finance, when your business purchases product, your supplier provides an invoice which you send to your financier and pledge to repay by a set date. From there, your supplier sells the invoice to your financier at a discounted rate, while you repay the full amount to your financier.

Inventory finance

Under an inventory finance agreement, your lender pays your supplier directly for inventory, which allows it to be signed off and sent to you. From there, you can pay off your debt within a pre-determined period to your lender, which may be longer than the regular debtor period.

Overdraft facility

An overdraft facility is attached to an existing financial account belonging to your business, such as a transaction or savings account, and enables you to borrow up to a set limit after the account’s balance reaches zero. These overdrafts are repaid with interest, but only on what you use.

Cash flow loans

You may simply be in a position where your business needs a boost to its cash flow. If this is the case, there’s a range of stop-gap solutions which may be suitable for your situation, from standard unsecured loans to specialist cash flow loans, invoice finance or even an overdraft.

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Top tips to keep in mind when buying your caravan park

Compare as many finance offers as possible

Before jumping into your application, you should always give plenty of thought to the type of finance you need to buy your caravan park. Once you’ve chosen the type of loan you need, you can begin comparing offers from a range of lenders, which you can do right here with Savvy. With partners across the country providing accessible online loans for wherever you live, you can choose the offer best suited to your needs and lock in a great deal.

Make sure you’re eligible

You should always make sure you meet the requirements set in place by your lender. In the case of purchasing a caravan park, you should have at least a few years of experience running a similar business previously, as well as having other skills which could potentially be translated to your new business. You’ll need to supply two years’ worth of financials for both your current business and the park you’re looking to buy.

Think about the park’s current occupancy rate

Analyse the occupancy at the park you’re looking to buy. If it’s under 50% capacity, that’s generally an indication that it’s not performing too strongly. You should take some time to consider the reasons why that may be and whether it’s possible for the trend to be turned around under your ownership. You should complete a market report to help you gain a greater understanding of what the true target market of the park is.

Consider the location of the park and its competition

A key factor to think about is whether the location of your park is one which owes itself to the successful running of a business. Is it situated near local attractions or high-traffic locations? What’s the local competition like with other caravan parks and motels? Make sure you’re not buying into a business which is doomed to fail by new developments planned in the area which will further draw tenants away from the park.

Common caravan park finance queries

Why are larger deposits required for caravan park finance?

When purchasing a commercial property, lenders will assess the deal as presenting a greater risk, given that the business operating on its land has a greater chance of not being able to keep up with repayments when compared to residential property. As such, lenders decrease the available loan size to partially offset this risk, as well as often increasing interest rates. This is also due to the fact that they’re harder to sell than residential property in the event your lender has to acquire it as a means of recouping lost funds due to a default.

Can I take out a low doc business loan to buy a caravan park?

Probably not – because low doc business loans are considered a greater risk overall as mentioned previously, lenders will usually require extensive documentation when it comes to both purchasing land and property and buying the associated business. Because of this, there aren’t many low doc finance options when it comes to this type of finance, but it’s not impossible to do so. If you have a large deposit of 50% or more, your lender may accept your low doc application to finance a caravan park.

Am I able to purchase the land after I’ve bought the lease to the business?

Yes – you can purchase the land from your lessor at any time throughout your lease. In some cases, there may be a clause in your lease contract which provides you with the first right of refusal if the land owner looks to sell at some point.

Do I have to provide security as part of the caravan park purchase?

Yes – when it comes to purchasing a business or property, you’re required to put forward asset collateral. As discussed, this could be anything from valuable equipment to residential property for your business, while the land itself will serve as security for your commercial loan. This means that unsecured business loans aren’t really an option for this purpose. The only situation in which you might be able to use unsecured finance is if the business you’re purchasing is incredibly inexpensive, but this would be rare.

How long can I take to repay my commercial property loan?

Commercial property loans come with more flexible repayment terms when compared to residential property. While the latter generally sticks to 25- to 30-year terms, you could take as few as five years to repay your commercial loan, up to a maximum of 20. This allows you to space out the repayments as much or as little as you need to ensure they’re manageable with your park’s cashflow.

Which licences will I need for my caravan park?

There are several licences which are required as part of the running of your caravan park. These include: