The SBA and USDA are offering programs to help you finance buying an RV park using small business loans. The terms are incredibly attractive – so good that it would appear the U.S. government is bent on making you an RV park owner. So let them. Or at least understand the options available.
Episode 19: The Government Really Wants You To Buy An RV Park - So Let Them Transcript
Uncle Sam wants you apparently to buy an RV Park. This is Frank Rolfe of the RV Park Mastery Podcast. We're going to be talking today about something that's so exciting, so unusual, yet so unknown by most Americans. That's the fact that the government has some programs to try and entice you into being an RV Park owner.
Now, why would the government care about you being an RV Park owner? Well, the government has been trying to sponsor for many years now, the creation of new jobs and new businesses through small business loans. It's been something that the government's been working on since roughly about 2008, when it brought out the Jobs Act, which stood for Jumpstart Our Business Startups. A directive under Obama at that time. Basically trying to promote and to help people raise money, get funding, to start businesses.
Thankfully, RV Parks fall under the list of businesses that are allowed to be done under these loans. In fact, RV Parks, because they've performed so well over time, have had some really, really attractive terms in these financing concepts. Let's first start off with what I think to be the big draw under these SBA and USDA small business loans. That is the fact it's a 25 year fully amortizing loan.
Now, why is that exciting? What's so big about 25 years? Well, let me tell you, what's so big about that. If you go out to get a loan on an RV Park through a traditional lender, a bank, normally the longest they'll go on the loan term, not the amortization 25 years in amortization's not unusual, but the loan term typically is only going to be roughly about five years.
Now, if you're able to get a conduit loan, which requires a much, much larger RV Park purchase, those top out at a 10 year term. I'm unaware of any other loan program in the United States where the loan goes longer than 10 years other than the small business administration loans, which go not 10, not 15, but 25 years. That's two and a half times longer.
Now, why is that a good thing to have a 25 year fully amortizing loan? Well, it takes all the banking risk off table. When you use a regular bank loan, you have to go out and find a replacement loan when that balloon comes due, let's say every five years. Then on top of that, you have all the loan costs. You'll have to go out there and get a new appraisal, new items, new legal costs. Maybe the bank gets a point, but in this case that never occurs. You do the loan one time. You never have to do it again. It's kind of like the mortgage on your house. If you have a mortgage on your house, you get what? A payment coupon book that lasts you for 30 years, in most cases, it's very reassuring, very low stress.
The 25 year fully amortizing part of the loan, well that's spectacular, but there's other good things to discuss. Also, it's got a very low prepayment penalty. Now, why is this important? Well, traditionally on a loan of that length, the 25 year loan, you will have fairly considerable penalties. If you want to sell that RV Park off or refinance that RV Park before the loan comes due.
Take for example conduit lending, which is a ten-year note. If you want to prepay a conduit loan, you have to pay a penalty called defeasance. Defeasance is very expensive. If you really want to investigate it, go to a website called defeaswithease.com.
The defeasance on an RV Park loan, on a ten-year maturity loan, if you want to go in and prepay it a couple of years in, the defeasance penalty might be 20% of the loan, maybe even more based on the circumstances. The fact that this is a 25 year loan, that still gives you fairly good freedom to get out of it whenever you like, that's also extremely unique.
Then there's the down payment on the loan. Most bank loans are always going to be roughly 20%, but these loans range from 10 to 30%. That's half in some cases of what the banks are going to charge. That's a big deal because obviously you want to get into that RV Park with as little capital as you possibly can. That gives you the higher rate of return. If I can get into an RV Park with 10% down, that's infinitely better than getting into the park, put 20% down. That's another extremely attractive part.
Finally, the interest rates on these loans are very, very reasonable. Right now they're running about four and three quarters to about 6% based on the underwriting guidelines. Now they are variable, but they're tied to prime rate and as we all know, prime rate really hasn't moved much. Not even sure it's going to move much going forward.
When you add it all together, Uncle Sam is saying, "Please, please buy an RV Park," and the answer of course should be, "Well, why the heck not?" Because you're not going to see programs this attractive on any other small business opportunity.
Now, again, these loans are being done through the SBA, Small Business Administration, and also through the USDA, the US Department of Agriculture. These are small business loan opportunities you can get through those two groups or you can go to a specialty broker, a well-known broker for the RV Park industry who does these loans is Bruce Hurta, H-U-R-T-A, at Ameris bank.
Now there's one other additional attraction, if you do the loan by September, they're going to give you a reduction in the fees on the front end and months of no payment on the front end of your purchase of that RV Park. When you add all that together then why would you not be looking for an RV Park? I can't answer that.
Ever since COVID hit, March of 2020, the RV Park business has been forever benefited by the whole new idea of social distancing. Today Americans, more than ever before are really into the outdoors. You can clearly see that in media, articles, everyone telling you get out of the house. If you're going to do something, do it outdoors. It's safer. People are finding they're really liking the outdoors. That's what's causing what they call the great reshuffling of people moving from urban cores out into more suburban areas. They like those wide open spaces and you'll find no spaces more wide open than an RV Park.
In fact, many people have chosen RV Parks to quarantine in under the concept, they're more disease free because they're all at doors and there's more space between them and their neighbors. On top of that, there's a couple other items going on in America that you just can't dispute.
One, 10,000 people per day retiring in the United States. That's a huge number. That's how many we have turning of retirement age every day, thanks to the baby boom. What is now the second largest segment of the US population, people born between 1946 and 1964.
A huge number of these people are selecting, or electing, to buy an RV and travel the country in retirement. Bear in mind, these are people, many of which already had RVs. Who instead of spending a US average of 20 nights a year in an RV Park are electing to spend almost all of their time in RV Parks. That's really helped RV occupancy to spike.
Additionally, you have the millennials, which is now the largest segment of the US population based on number of people who are really liking the RV Park product. This is a group that really likes nature. They really like living small. They really like kind of the idea of sustainable green. They really like traveling in RVs much more than they do traditional lodging sources. Although they're not in retirement, nevertheless, they spend many, many nights per year on the road. This is again, pushing RV Park occupancy up.
If you hadn't noticed, RV sales in America are at their highest point they've ever been, but with all of these new issues America is facing, whether it's in social distancing from a pandemic, quarantined from a pandemic, urban unrest, the aging of baby boomers, the travel trends of the millennials, all of these mega trends are all pushing RV Parks up higher. Here in the midst of all of this, all of these mega trends, you have these additional programs from the US government. If you add it all together, it's kind of a no brainer. Yes, Uncle Sam wants you to own an RV Park and I have no idea why you wouldn't go along with that concept.
This is Frank Rolfe with the RV Park Mastery Podcast. Hope you had enjoyed this. Talk to you again soon.