How to Get an SBA Loan to Finance Your Airbnb Business

Starting and running an Airbnb business can be an exciting and lucrative venture. However, it does require some upfront investment to get your rental property ready for guests. For many entrepreneurs securing financing to launch their Airbnb is one of the biggest challenges.

If you’re having trouble getting approved for a traditional bank loan an SBA loan may be a great funding option to consider. The Small Business Administration (SBA) offers several loan programs aimed at helping small business owners who may not qualify through typical lending channels.

In this comprehensive guide, we’ll explain everything you need to know about getting an SBA loan to finance an Airbnb property, including:

What is an SBA loan and what types are available
SBA loan requirements and qualifications
The step-by-step process of applying and getting approved
Tips for finding the right SBA lender
Pros and cons of SBA loans for Airbnbs

Let’s dive in!

What is an SBA Loan?

The U.S. Small Business Administration is a government agency dedicated to helping small businesses thrive. One of the main ways they provide support is by guaranteeing loans made by approved lenders to qualified small business borrowers.

There are several types of SBA loan programs available, each with its own terms and qualifications. The most popular options for Airbnb entrepreneurs include:

SBA 7(a) Loans – The SBA’s primary and most flexible loan program Loan amounts up to $5 million with varying rates and terms based on use of funds.
SBA 504 Loans – Provide fixed-rate, long-term financing up to $5 million for major assets like real estate or equipment. Requires 10% borrower down payment.
SBA Microloans – Loans up to $50,000 from non-profit lenders, ideal for startups needing small amounts of capital.

The key benefit of SBA loans is that the government guarantees a portion of the amount (up to 85%) which makes lenders more willing to approve financing for riskier or less-proven businesses.

SBA Loan Requirements for Airbnb Businesses

To qualify for an SBA-backed loan, there are certain requirements Airbnb entrepreneurs must meet:

Your business must operate for profit and fall within the SBA’s size standards for your industry. For most accommodation businesses, this means having under $30 million in annual revenue.
You must have reasonable owner equity to invest – usually 20-25% or more of the loan amount.
Your personal credit score should be at least 650+ to qualify.
You should have relevant industry experience and a feasible business plan for how you’ll run the Airbnb profitably.
You must be unable to get approved for conventional financing under reasonable terms.
Collateral, like your real estate asset or other personal assets, is usually required.
You can use an SBA loan to purchase or renovate a property, buy furniture/amenities, market your rental, or cover other eligible business expenses. Refinancing existing debt is limited.

As you can see, SBA loans have more flexible qualifications than conventional bank loans. They look at the overall viability of your business rather than just credit scores and equity.

Step-By-Step Process to Get an SBA Loan

If you determine an SBA loan is a good fit for your Airbnb financing needs, here are the key steps involved:

1. Choose an SBA Lender

You can find SBA-approved lenders by searching the SBA lender match tool or asking for recommendations from your local SBA district office. Compare options to pick the best lender for you.

2. Submit Your Application

This includes forms and documentation about your business plan, financial projections, personal/business finances, collateral, and equity injection.

3. Lender Review

The lender will analyze your credit, underwrite the loan, and may request additional information from you at this stage.

4. SBA Review

Your lender submits your application to the SBA to get a final eligibility decision and loan guarantee. This may take 2-3 weeks.

5. Get Funded!

If approved, you’ll close on the loan, the SBA will issue the guarantee, and the lender will fund the loan. You receive the working capital to launch your Airbnb!

6. Manage the Loan

Be sure to make repayments on time and comply with all requirements to keep your SBA loan in good standing.

The entire process usually takes 1-3 months from application to funding. The more organized you are upfront, the quicker the process can be completed.

Tips for Finding the Right SBA Lender

Not all SBA lenders are the same when it comes to loan packages and customer service. Here are some tips for picking the best one for your Airbnb business:

Look for SBA Preferred Lenders who have delegated authority to make faster loan decisions without waiting on the SBA approval.
Seek out Community Advantage Lenders who operate locally and specialize in helping underserved markets get SBA financing.
Ask about turnaround times – you want a lender with efficient processes.
Inquire about loan packages – some lenders offer more competitive rates and terms than what the SBA requires at a minimum.
Choose a lender willing to walk you through every step to make the complex process more manageable.
Read reviews and compare options to determine the lender best suited for your needs.

Pros and Cons of Using SBA Loans for Airbnbs

Pros

Increased chances of approval for those unable to get conventional financing.
Competitive interest rates and long repayment terms to keep payments affordable.
No balloon payments required.
Need less equity/down payment than traditional mortgages or commercial loans.
Support other business needs besides just property purchase.
One-on-one support from lenders throughout the loan process.

Cons

Require a lot of paperwork, documentation, and strict adherence to SBA requirements.
Take more time to process and underwrite than conventional loans.
Strict use of funds – limits ability to use money however you want.
Ongoing fees paid to SBA in addition to lender.
Any changes to your business must be reported to lender per SBA guidelines.
Miss a payment and the SBA guarantee can be revoked.

Final Thoughts

The bottom line is that SBA loans provide a powerful resource for Airbnb entrepreneurs struggling with financing. Though the process involves more work, these government-backed loans can get you the capital you need when other options fall short.

Just make sure to find an SBA lender willing to guide you through every step. Their expertise will prove invaluable as you work to build and grow your short-term rental business. With an SBA loan, you can turn your Airbnb dreams into reality!

Which loans can be used for an Airbnb operation

Now that we have thought through and categorized typical expenses for an Airbnb operation, let’s look at Airbnb financing options to assist with running your operation.

For acquiring the actual property, the primary loan options are:

Conventional mortgages, FHA loans, VA loans. Down payments are typically 25% and interest rates can be higher than a primary residence because short-term rental properties carry more risk.
Home Equity Line of Credit is a home equity loan that allows you to pull equity out of your existing property. Usually, you can tap around 75% – 90% of your home’s equity and have a specific draw period and payback period. These Airbnb loan options typically have higher interest rates than a mortgage on your primary residence.

These four loan types listed above are not the only options (cash-out refinance is another option not explored in this article) but are the most straightforward when it comes to acquiring a rental property. As a borrower on each of the options above, be prepared to have your credit score pulled.

Without the equity in your home to tap into, or without enough cash on hand for the down payment, you can investigate Term loans via biz2credit and other online lends. When starting the application process via Biz2credit, make sure you select “real estate” when asked what you need the funds for.

Alternatively, you can seek a personal loan from traditional financial institutions like banks and credit unions. However, these typically carry very high-interest rates and are limited in what you can use the funds for.

Many might wonder if you can use proceeds from an SBA loan to help fund your Airbnb rental purchase or downpayment. The answer is no across the board: proceeds from an SBA microloan cannot be used to pay existing debts or to purchase real estate, and proceeds from an SBA 504 loan cannot be used for investment in rental real estate (SBA 504 loans are usually for commercial real estate purchases, not single-family homes converted to a vacation rental), proceeds from an SBA 7(a) loan can be used to purchase real estate but when the property will be held for investment purposes you become ineligible for the loan as it is intended for small business that plans on occupying the real estate being acquired.

For more information on SBA loans, review our quick checklist to understand SBA loans in 2022.

For home furnishing and value-adds, the loan options are:

Working capital loan via biz2credit or other online lenders
Term loans via biz2credit or other online lenders
SBA Microloans can be used for a variety of purposes when you need less than $50,000 to rebuild, re-open, repair, enhance, or improve your small business. Examples include: working capital, supplies, and furniture
SBA 7(a) loans have extensive eligibility requirements, but it is possible to use this type of loan for things like furniture

For maintenance expenses for your Airbnb operation:

Working capital loan via biz2credit or other online lenders
Term loans via biz2credit or other online lenders
SBA Microloans can be used for a variety of purposes when you need less than $50,000 to rebuild, re-open, repair, enhance, or improve your small business. Examples include: working capital, supplies, and furniture
SBA 7(a) loans have extensive eligibility requirements, but this type of loan can be used for working capital
A 504 loan cannot be used for working capital

For maintenance expenses for your Airbnb operation:

Working capital loan via biz2credit or other online lenders
Term loans via biz2credit or other online lenders
SBA Microloans cannot be used to pay existing debts such as mortgage payments but can be used for a variety of purposes when you need less than $50,000 to rebuild, re-open, repair, enhance, or improve your small business. Examples include: working capital, supplies, and furniture
SBA 7(a) loans have extensive eligibility requirements, but this type of loan can be used for working capital
A 504 loan cannot be used for working capital

The different types of expenses for an Airbnb investment property

Before we jump into what loans can and can’t be used to run your Airbnb operation, we need to first understand the costs that are involved and categorize those costs. There are three categories of costs associated with operating an Airbnb: capital expenditures, maintenance, and monthly operations. It’s important to understand these three categories because they will directly impact the types of loans you can and can’t use, and ultimately lead to you being a better Airbnb host and operator.

Capital expenditures are money spent on acquiring or maintaining fixed assets, such as land, real estate, and equipment. For our purpose, this is the land, house, furnishings, or value-adds for your Airbnb rental. For most Airbnb operators, capital expenditure represents the biggest barrier to entry to becoming an Airbnb host.

If you already own the property that you plan on using for your Airbnb operation, and it is fully furnished, in other words, the property is “turn-key”, it is fully functioning and ready for you to rent out immediately, then you most likely will not have any capital expenditures.

However, if you are an aspiring Airbnb operator and looking to purchase a new property, have a property but it’s not ready to host renters, or looking to add another property to your portfolio of rentals, then you will need to understand the loan options below for this category.

The above reference to value-adds means any non-critical home furnishing that can add additional value to your renter’s experience such as bicycles, children’s toys, kayaks, etc.

Maintenance expenses can vary depending on the type and location of your Airbnb property. Let’s review a general list of maintenance expenses now; but realize that if you have a unique property (say a cabin in Alaska back-country, or a remodeled shipping container in the Texas desert), it is up to you to do additional due diligence on the special types of maintenance work that might pop up and which we might not cover or be aware of in this article.

Generally speaking, you will have the following maintenance expenses for your Airbnb operation, including but not limited to:

Anticipated yard care: mowing the lawn, watering the plants, weeding the garden, spraying for insects, lawn irrigation, seeding, mulch, landscaping, etc
Unanticipated yard care: storm cleanup, damage from animals (i.e., a deer eats all your shrubs and now you need to replant and protect the garden), etc
Home maintenance: replace the water filters, pipes getting clogged, general wear and tear repair, HVAC units, refrigerators, washer/dryer, broken chairs, broken dishes, old stuff that needs to be updated, etc. Any homeowner will tell you that there is always something that needs to be repaired or replaced.
Cleaning costs: Your Airbnb will need to be cleaned after every renter
Supplies: Think toilet paper, paper towels, trash bags, soap, coffee pods, etc

There are a lot of maintenance expenses to consider when operating an Airbnb. But it is good to go into it with eyes wide open.

Operational costs are unavoidable expenses. Some of which will have slight increases in cost over time. Here’s a look at operational expenses that you can anticipate paying with your Airbnb operation:

Monthly mortgage payment: Typically the largest expense for Airbnb operators is the monthly mortgage payment
Property insurance: Property insurance for vacation rentals, and long-term rental properties for that matter, is more expensive than property insurance for your primary residence due to occupancy laws. Consider contacting a local independent insurance agent where your Airbnb property is located to talk through your options. More than likely that a local independent insurance agent already has customers who are operating an Airbnb in your market and they will have expert local knowledge that can be helpful.
Property taxes: Likely already built into your monthly mortgage payment (along with your property insurance), but keep in mind that property taxes go up. Also, make sure you do your due diligence on property taxes for the state that your Airbnb is in. For example, South Carolina taxes second homes at a higher rate than primary residence homes.
Taxes: Your rental income will be taxed
Utilities: Gas, electric, water, internet, trash, etc.
HOA fees: Your Airbnb property might be in an HOA, which might also have restrictions on short-term rentals. Proceed with caution when purchasing an Airbnb property within the jurisdiction of an HOA.
Airbnb fees: Airbnb takes a percentage of every booking
Local taxes and registration fees: Some jurisdictions require additional taxes, fees, and registrations. For example, Washington, D.C. requires all Airbnb operators to register and maintain a Short-Term Rental License.
Property management fees: If you don’t live close to your vacation rental, you will likely need the assistance of a property manager who can come to the property if needed to oversee maintenance, cleaning, check-in, check out, etc.

How To Finance Your First AirBNB Property

FAQ

Can you use an SBA loan to buy an Airbnb?

An Airbnb host can use a business loan to buy a short-term rental or to renovate it or furnish it. It can even be used for Airbnb arbitrage. A particularly good Airbnb loan type is the Small Business Administration (SBA) 504 loan, also referred to as a commercial real estate loan.

What is the easiest SBA loan to get approved for?

SBA Express loans, part of the SBA’s 7(a) loan program, offer the easiest application process and the fastest approval times among all SBA loans. These loans, with payoff periods as long as 25 years, are designed for purposes such as refinancing debt, buying equipment, or improving real estate.

What can’t an SBA loan be used for?

SBA loan funds must be used for legitimate business purposes. You cannot purchase personal assets or pay off personal debts with the loan proceeds. The SBA guidelines specifically state: “An SBA-guaranteed loan cannot be made solely to an individual.”

Can a DSCR loan be used for Airbnb?

In a word, YES. DSCR loans are typically used for income-producing properties such as apartment buildings, hotels, and shopping centers. However, they can also be used for other types of commercial properties that generate consistent rental income. These properties include short term rental properties such as Airbnb.

Can you buy an Airbnb with a small business loan?

Small business loans used to be reserved for local restaurants and town shops, but now Airbnb owners can use this option. Airbnb has paired with some of the major names in the loan business, like Fannie Mae and Better Mortgage, to make this option a little easier for those looking to buy an Airbnb.

What financing options do Airbnb investors have?

Airbnb investors can choose from conventional mortgages, refinancing options, or a unique debt-service coverage ratio (DSCR) loan. DSCR financing takes into consideration the investment property’s income to determine eligibility, making it an ideal choice for investors who face income-based qualification challenges.

What is an airbnb business loan?

An Airbnb business loan can go towards purchasing a vacation rental property, renovating an existing property, or paying for ongoing property-related expenses. While loans specifically for Airbnb’s do not exist, there are plenty of other small business loans that can be used to meet your needs.

What is Airbnb financing?

Airbnb financing is any type of loan that an investor avails to buy a residential property that they will use as a short-term rental. While there is no type of loan specifically for Airbnb properties, investors would want to know what options are available for them to finance their short-term rental investment.