Financing a Bed and Breakfast

Most lenders treat a B&B as a commercial property, even when the owner lives on site. That means the financing falls outside the standard residential mortgage rules — different qualification criteria, higher down payment requirements, and typically a higher interest rate.

Some lenders will consider a B&B under residential terms if the owner-occupancy component is significant and the number of guest rooms is small. Whether this applies to a specific property depends on the lender and the property's configuration. It is worth exploring, but do not assume it.

For a commercial hospitality property, expect to put down between 25 and 35 percent. Some lenders require more, depending on the property's income history and the buyer's financial profile. This is a meaningful difference from the minimum down payment on a residential purchase, and it affects how much capital you need to have ready.

Factor in closing costs, working capital, and any immediate capital improvements when calculating how much you need. Arriving at closing with exactly enough for the down payment and nothing left over is a precarious position for a new business owner.

Not all lenders are equally comfortable with hospitality properties. The major chartered banks will consider B&B financing, but their appetite varies by branch and by the specific property. Credit unions and alternative lenders are often more flexible and more experienced with this type of transaction.

A mortgage broker who specialises in commercial or hospitality properties is worth engaging early. They know which lenders are active in this space, what documentation they require, and how to present your application in the most favourable light.

Lenders will want to see the property's income history — typically three years of financial statements and tax returns. They will assess the debt service coverage ratio: whether the property's net operating income is sufficient to cover the mortgage payments with an adequate margin.

If you are buying a property that has been underperforming or is being repositioned, qualifying on projected income is much harder. Lenders lend on what a property has done, not what you believe it can do. This is another reason why due diligence on the income history matters so much.

How the purchase is structured — whether you are buying the real property, the business assets, or both — has significant tax implications. An asset purchase and a share purchase are treated very differently under the Income Tax Act, and the right structure depends on your personal circumstances and the seller's.

Engage your accountant before you make an offer, not after. The structure of the deal is much easier to negotiate before it is agreed upon than to unwind afterward. A good accountant who understands small business acquisitions will more than pay for themselves in this transaction.

The purchase of a B&B as a going concern may qualify for an HST exemption under the Canada Revenue Agency's rules — meaning HST is not charged on the sale price. This applies when both the buyer and seller are registered for HST and the business is being sold as a going concern with all the assets needed to continue operating.

This is a meaningful saving on a property in the Niagara market, and it is worth confirming with your accountant and lawyer well before closing. The conditions must be met precisely — it is not automatic.