Hotels Financing: A Comprehensive Guide
Updated April 18, 2023
Hotel and motel owners understand that there is a cyclical nature to their business. The economy and the health of the tourism industry often play a huge role in whether a year is wildly successful or extremely challenging.
The nature of the hotel motel business can make finding the right loan difficult. Bank lenders are cautious when it comes to loans or credit extended for hotels. They consider them higher risk because their success is based on many outside factors, even the weather. But small business funding is often needed for repairs, improvements and upgrades, as well as covering daily operation costs during a slump in revenue. It is vital for hotel owners to obtain the right financing that fits the business’ needs and helps secure their future rather than risk it.
What Is a Business Loan for Hotels?
Catering to hotel motel guests is essential to success in this business. In fact, information at entrepreneur.com, says the most basic reason to make improvements to your business are your guests. Basically, success in the future depends on the level of service and comfort you supply your guests today. Improvements often focus on making your establishment better fit your current and potential customers’ desires.
Top reasons that require cash:
- Your hotel or motel needs renovations: If your rooms are dated and dingy, a good way boost guest satisfaction is with beautiful, modern updates. Stylish design can impress your guests and make them feel welcomed.
- You need to expand what you offer: Maybe your public bathrooms are old and dingy, or the lobby seems like it is from the 1980s. The first impression you make with your guests often is what they remember most.
- Hiring more employees: It takes a lot to keep up with all the needs of your guests and to properly maintain your property. Customer convenience and the quality and speed of service matter as well. Your customer’s experience, and how they speak about it, is a great method to generate new customers.
- Meeting the costs of daily operations: Small cyclical businesses face big obstacles when there is a slump in revenue, according to about.com. Sometimes hotel owners need loans to meet the demands of their daily operations and stay afloat. Financially challenging periods can result in the need for temporary funding to cover operating costs, suppliers and payroll until you get back on track.
- Purchasing a new or existing hotel: Whether you are starting out, changing locations or adding another property to your hotel family, purchasing real estate is another reason a hotel loan is sought.
Hotel Financing Options
There are a few financing options to consider, include conventional and non-traditional funding options. Since there is a noticeable void in traditional loan products for small businesses, alternative lending sources are a popular choice for many hotel and motel owners.
According to Forbes.com, banks do not favor small businesses or anything they consider risky. Most privately owned hotels and motels don’t meet the tough lending criteria that has been in place since the economic downturn of 2008. If you have a low credit score, you may be forced to seek funding outside of the bank.
Other downsides to bank funding include:
- Banks have a rigorous loan application and typically require you to offer up substantial collateral, which you will lose should you be unable to make your payments.
- Often a balloon payment is part of your lending terms, and if you don’t have the funds to pay it, you must refinance and pay additional closing costs.
- The lending process takes at least 30 days to get money in hand.
- Excellent credit and a lengthy business history are often part of the criteria.
- A detailed business plan and all your financial documentation, both personally and for the business are part of the approval process.
SBA Loans for Hotel and Motel Businesses
SBA loans provide a much-needed funding option for hotel and motel business owners seeking to grow their operations. Designed to support small businesses, SBA loans offer several advantages, such as low-interest rates, flexible repayment terms, and long-term financing. However, securing an SBA loan for your hotel or motel business requires careful planning, research, and extensive paperwork.
In this comprehensive guide on SBA loans for hotel and motel businesses, we provide essential insights and tips to help you make informed financing decisions. Explore the loan application process, including eligibility requirements, types of loans available, and documentation you need to prepare. Make your hotel or motel business dreams a reality with the help of SBA loans. Consult our guide and contact us to explore your financing options today.
Alternative Lenders for Hotel Business
Alternative types of funding can provide several lending options for hotel owners, which meet the needs of today’s hospitality entrepreneur. The application process focuses mostly on the overall health of your business and what you have created. So, your credit score is not the primary focus when it comes to a gaining approval for your funding.
- Alternative lenders also can offer flexibility in payment schedules based upon your sales volume and can tailor the loans to meet the needs unique to your type of business.
- Applications are typically fast, easy and provide you the money you need quickly.
Lines of Credit for Hotels
A Business Line of Credit is typically unsecured by any collateral and does not offer long repayment time-frames. Essentially, the lender allows you the opportunity to borrow money up to a specified amount, similar to the way a credit card works, but with better interest rates. Because you only use the funding you need, your interest is based upon that amount, not the full line of credit available. This is a good options for short-term funding needs.
Loans that fund upgrades and improvements can help your business attract new guests or survive a seasonal slump with ease. The right funding is key for many small businesses to survive and thrive. To learn more about all of your options for working capital needs, contact Credibly today!