The popularity of RV parks, cabins, and glamping accommodations continues to grow as more travelers seek unique outdoor experiences. With this trend, many owners and entrepreneurs are exploring the development of RV parks or resorts that may include FHU RV sites, permanent cabins, or glamping accommodations. Securing financing, however, can be a significant hurdle, especially for startups or those embarking on their first project. Government-guaranteed loans offer a compelling option for funding these ventures. This blog offers an in-depth look at how these loan options can be leveraged, along with key requirements and considerations.
With the current demand for outdoor recreational facilities growing, government-guaranteed loans can be a significant part of a developer's capital stack, reducing the need to raise private equity or seed investments from friends and family. Additionally, securing such a loan can often help attract other forms of investment. These loans are especially advantageous for new businesses that might struggle to secure traditional commercial financing due to tight banking regulations and a lack of historic cash flow. Government-backed loans provide guarantees to lenders, making it easier for newer businesses to access the capital needed to get their projects off the ground.
According to the RV Industry Association, over 11 million U.S. households currently own an RV, with an additional 16 million households planning to purchase one in the future. This expanding consumer base presents substantial opportunities for RV parks and glamping developments as more people are drawn to the flexibility and freedom offered by RV travel and regional nature accommodations. RV travelers are increasingly looking for more than just a place to park—they seek resort-style experiences that blend outdoor adventure with comfort.
One effective strategy for maximizing revenue is combining RV spaces with cabins or glamping units. This diversification allows developers to attract a broader audience - families in RVs, couples seeking a unique getaway, and travelers interested in luxury camping who may not own an RV. Lenders are likely to look favorably on this kind of project, as it shows strong and diversified potential for steady cash flow and market adaptability.
Including cabins or luxury tents may also qualify the project for additional local incentives, particularly if the development is aimed at enhancing tourism or creating local jobs. When applying for a government-guaranteed loan, it is important to emphasize how the development will contribute to the local economy by creating employment opportunities and supporting local businesses.
Government-Guaranteed Loan Types Suitable for RV Park and Resort Development
Government-guaranteed loans, such as SBA 7(a) loans or USDA Business & Industry (B&I) loans, can be highly advantageous for financing RV parks and mixed-use developments that may include cabins, glamping accommodations, and recreational amenities. These loans provide developers with access to capital at flexible terms, including longer repayment schedules. Since these loans are guaranteed by the government, commercial banks are more willing to consider projects that might otherwise be deemed riskier, such as new developments with no proven cash flow.
SBA 7(a) Loans:Â These are among the most popular government-guaranteed loans for small to medium-sized projects. The SBA 7(a) loan is versatile and can cover everything from land acquisition to construction, as well as working capital. Developers appreciate the relatively low down payment requirements (typically as low as 10%) and longer repayment terms of up to 25 years for real estate. However, it is important to note that SBA 7(a) loans have a maximum loan amount of $5 million. The SBA guarantees up to 85% of loans up to $150,000 and up to 75% of loans greater than $150,000. This guarantee significantly reduces the risk profile of the project for the lender, making it more likely that a bank will approve the financing. For the most current terms, conditions, and eligibility, visit the SBA's official page.
USDA B&I Loans:Â If the RV park project is located in a rural area, the USDA Business & Industry Loan Program may be an excellent fit. These loans help promote economic development in rural communities and come with attractive terms. USDA loans are ideal for projects that blend hospitality and outdoor recreation, such as RV parks with short-term rental (STR) cabins or glamping options, as they aim to boost tourism and create jobs. USDA B&I loans can go up to $25 million, making them suitable for larger projects. Typically, the USDA guarantees up to 80% of the loan amount, substantially reducing the risk for the lender and encouraging banks to approve financing for projects that might otherwise be considered too risky. For the most current information on USDA B&I loan guarantees, visit the USDA's official page.
Interest Rates and Associated Fees
Government-guaranteed loans, such as SBA and USDA loans, come with interest rates that are determined by the lenders and can be negotiated to some extent. However, they are usually based on the WSJ Prime rate plus an additional 1.5% to 2.5%. In addition to the interest rates, there are one-time guarantee fees that are paid to the government. These fees can be up to 3.5% of the guaranteed portion of the loan for SBA loans and up to 3% for USDA loans. These fees are important to consider when evaluating the total cost of financing.
Other Considerations
Not all projects will qualify for government-guaranteed loans. Here are some important factors that determine eligibility:
Location Matters:Â Eligibility for USDA loans requires that the property is in a rural area. Before applying, ensure the proposed location meets the criteria set by the USDA. SBA loans, on the other hand, have no specific location requirements, making them more versatile for suburban RV parks.
Equity Contribution:Â Both SBA and USDA loans require a minimum equity contribution from the developer. SBA 7(a) loans typically range from 10-15%, while USDA loans may require contributions closer to 20% of the total project cost. Land or other hard assets can count towards the borrower's equity contribution, but it is important to note that lenders are typically more interested in what the assets were purchased for rather than what the developer believes they are worth. Before ordering an appraisal, it is important to check that it will be accepted by the lender.
Personal Guarantees:Â Both SBA and USDA loans require personal guarantees from major shareholders/owners, or from a parent or holding company. This means that if the loan defaults, the individuals or entity providing the guarantee are responsible for repayment, adding a layer of security for lenders.
Management Experience:Â Lenders prefer developers with experience in commercial real estate development, hospitality or related industries. If the developer lacks this experience, consider partnering with an experienced operator or hiring consultants to strengthen the application.
Detailed Budget and Financial Planning:Â Lenders expect a detailed budget covering all aspects of development and operations. This includes construction costs, marketing, and operational expenses. A well-prepared financial plan, including financial projections and cash flow analysis, is vital.
Environmental Assessments:Â An environmental assessment may be required to determine the potential impact of the project. In most cases, a Phase 1 Environmental Site Assessment (ESA) will be sufficient to identify any potential environmental liabilities. In some cases, a more extensive National Environmental Policy Act (NEPA) review may be necessary, depending on the scope and location of the project.
Permitting and Regulatory Compliance:Â Developers must demonstrate the ability to obtain all necessary permits and comply with local regulations. This includes building permits, health and safety approvals, and any other requirements specific to the project and its location.
Comprehensive Business and Marketing Plan:Â A strong business plan is essential, outlining the target market, marketing strategy, pricing, and operational approach. Highlighting the uniqueness of the RV park or glamping site is key to convincing lenders of the project's viability. An independent feasibility study may also be required by the lenders and could also help the developers identify potential gaps in the business plan.
Development Progress: The further along the developer is with the items mentioned earlier—such as securing a site, applying for permits or rezoning, developing detailed budgets, obtaining architectural and engineering drawings, and identifying a general contractor—the better the chances of securing financing. While not everything needs to be finalized, demonstrating significant progress will strengthen the loan applicant’s position with lenders.
Utility Connections:Â Lenders will want to see that the project has access to necessary utilities, such as electricity, water, and sewage. If the chosen site does not have all required utilities in place, it is important to demonstrate the plan and ability to connect to these essential services or build a self-sustaining off-grid infrastructure, such as septic tanks, water wells, and solar or geothermal energy generation backed by battery storage.
Green Infrastructure:Â Incorporating green infrastructure can improve the appeal of the project and align it with current government initiatives. Including features such as solar panels, EV charging stations, and effective waste management systems will help to demonstrate a commitment to sustainability.
Suppliers and Cost Estimates:Â If the project includes cabins or other types of glamping accommodations, it is advisable to obtain quotes from suppliers early on. Having cost estimates helps strengthen the accuracy of the budget and shows lenders that the developer has thoroughly researched the project's feasibility.
Amenities: Amenities can significantly enhance the appeal of a development, especially in line with the growing trend toward resort-style experiences. By offering a range of options like camp stores, snack bars, restaurants, outdoor kitchens, swimming pools, pickleball courts, gyms, hiking trails, and more, developers can attract a broader audience and boost revenue. These features not only appeal to a wider demographic but also increase the overall stability and marketability of the project.
Partnership Opportunities:Â Partnerships with established organizations, such as KOA or other franchise opportunities can enhance the credibility of the project. A partnership with a recognized brand can also provide operational support and increase the chances of success.
Choosing the Right Bank:Â It is important to choose a bank that has experience with government-guaranteed lending and, ideally, with projects similar to the one being developed. Prospective lenders should be asked about their experience with SBA or USDA loans and whether they have financed similar developments. A bank familiar with these types of loans can be an invaluable partner in helping navigate the process smoothly.
Good Faith Deposit:Â Most lenders will require a good faith deposit to cover some third-party fees, such as appraisals, environmental reports, feasibility studies, and underwriting costs, which can add up to $20,000 to $30,000. Lenders do not profit from these fees and only make money if the loan application is successful and the project is funded. Therefore, an experienced lender will only proceed if they feel the project is viable and has a high probability of approval.
Final Thoughts
Securing a government-guaranteed loan for an RV park or glamping project can provide the financing needed to turn a vision into reality. The key is careful planning—from selecting the right loan program to presenting a convincing business plan that highlights market demand and potential ability to services the debt.
For developers ready to explore how government-guaranteed loans can help finance their RV park or glamping development, consulting with a professional who understands the process can be invaluable. With the right preparation, creating an outdoor destination can become a successful reality.
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